Recall Support Services Ltd & Ors v Secretary of State for Business Innovation And Skills & Anor

A person who has been adjudicated bankrupt generally cannot exercise personal rights formerly belonging to the bankrupt estate where those rights have vested in the trustees in bankruptcy. A past member’s interest as a contributory is represented by the trustees under the Insolvency Act 1986. A liquidator in a creditors’ voluntary winding up is not generally subject to the court’s supervisory jurisdiction, although the court may deal with questions relating to the exercise of the liquidator’s powers. The court may nevertheless determine an application on its merits where the parties have engaged fully with the evidence and a procedural disposal would cause further costs. Disclosure will be limited to documents properly connected with the issue and will not become a roving inquiry.

Tom McCabe, a former director, shareholder and creditor of VIP Communications Ltd, applied in connection with the company’s liquidation. He sought payment out of £90,000 paid into court as security for costs, directions and disclosure against the liquidator, Jeremy Frost, and the disqualification of the liquidator’s solicitor, Edward Mercer.

The applications raised issues concerning Mr McCabe’s standing after bankruptcy, the effect of an extended civil restraint order, the court’s jurisdiction over a voluntary liquidator, the evidential threshold for protective preservation orders, the scope of disclosure, and alleged conflicts of interest and misuse of confidential information.

1. First application. The application for payment of the £90,000 to Mr McCabe was dismissed. The security had been paid into court by the company in liquidation, principally using funds supplied by Agape Ventures Ltd. Mr McCabe was not the proper applicant, and the court made no determination of the beneficial ownership of the money. The liquidator gave an undertaking to provide notice of any later application for payment out.
2. Jurisdiction and standing. Following bankruptcy, Mr McCabe’s debt and beneficial interest in his shares vested in his trustees. Under section 82(2) of the Insolvency Act 1986, the trustees represented his interest as a contributory. His standing to seek directions under section 112 was therefore very doubtful. A liquidator in a creditors’ voluntary winding up is not generally an officer of the court or subject to its supervisory jurisdiction: Re T.H. Knitwear (Wholesale) Limited [1988] Ch 275. However, because the respondent had addressed the merits and supplied evidence, it was appropriate to determine the substance of the application.
3. Merits and disclosure. Serious allegations of fraud or forgery require cogent evidence, namely a strong prima facie case, before an order preserving liquidation documents will be made. The evidence did not reach that threshold. The court refused a general inquiry into creditors’ proofs and other material unrelated to the applicant’s issues. It ordered limited disclosure of identified underlying time sheets and a written explanation of further payments made between August 2010 and March 2011.
4. Third application. The application to disqualify Mr Mercer was dismissed. The relevant question was whether there was a reasonable fear that confidential information received from a former client might be disclosed: Prince Jefri Bolkiah v KPMG [1998] 2 A.C. 222. Mr McCabe was a litigation funder, not Mr Mercer’s client in the relevant matters, and there was no evidence of confidential information imparted in a solicitor-client relationship or of any present risk of misuse.