The Official Receiver v Deuss & Ors

An order for public examination under section 133 of the Insolvency Act 1986 requires a demonstrated need connected with the office-holder’s statutory functions. The court must balance that need against the risk of oppression to the proposed examinee. The examination jurisdiction must not give an office-holder an unfair advantage in contemplated or issued litigation. Particular care is required where the proposed examinee is an outsider, the questions are oral and compulsory, documents have not first been sought, or the proposed questioning is vague and potentially litigation-focused. The application should be refused where the examination would have no useful purpose, would be premature, disproportionate or oppressive, or would risk improving the office-holder’s position in the litigation.

The Official Receiver applied, at the request of Stephen John Hunt as liquidator of Owl Limited, for the public examination of Johannes Deuss concerning the affairs of Transworld Payment Solutions UK Limited. Mr Deuss was alleged to be a de facto or shadow director, although he maintained that he was not an officer, employee or director.

The company had been restored to the register and wound up after its dissolution. Mr Hunt had issued, but not served, substantial claims against Mr Deuss concerning alleged dishonest assistance, fraudulent trading and breach of fiduciary duty connected with MTIC fraud. The proposed examination concerned accounting records, banking arrangements, dissolution, a service agreement, premises, pension rights, and the company’s formation and management.

The central issues were whether the examination had sufficient utility for the liquidation and whether, in the circumstances, it would be oppressive.

1. Burden and statutory purpose. The applicant office-holder bears the burden of showing why an examination is required for the performance of his functions. If that requirement is established, the proposed examinee must show why an order would nevertheless be oppressive in all the circumstances. The requirement of useful purpose reflects the need for utility in the liquidation.
2. Balancing exercise. The court must balance the office-holder’s reasonable requirements for information against possible oppression. The court should give appropriate weight to the office-holder’s request, but must examine the particular evidence and circumstances.
3. Litigation and oppression. An examination may be ordered after proceedings have been issued, but the jurisdiction must not be used to obtain a special advantage in ordinary litigation. The court must distinguish information needed for the liquidator’s statutory functions from questioning directed, consciously or otherwise, to improving the claim. The possibility that the court could control questioning does not itself answer the objection, since a broad examination may impose an excessive supervisory burden and still create an unfair advantage.
4. Documents and oral examination. Oral examination is more likely to be oppressive than production of documents. Where relevant documents have not been specifically requested or obtained, and the proposed questions are consequential, uncertain or premature, an oral examination is unlikely to have sufficient utility. The court should ordinarily require a careful and specific foundation before compelling attendance.
5. Application of the principles. The proposed questions were insufficiently particularised, several matters had not first been put to Mr Deuss or supported by a request for documents, and the issued litigation created a real risk that the examination would assist the claim. Mr Deuss was, on the evidence, an outsider unless and until his alleged status as a de facto or shadow director was established. Compelling him to attend from Bermuda for questioning under oath and threat of imprisonment or arrest would therefore be oppressive. Alternatively, the evidence did not establish any useful purpose.
6. Disposition. The application for a public examination was refused. The parties were invited to agree the form of order.