Helen Dale & Ors v BDO LLP

The joint liquidators obtained an order under sections 235 and 236 of the Insolvency Act 1986 requiring the former auditor, BDO LLP, to deliver up its audit files for the 2018 and 2019 audits. The court applied the established test that the office-holder must show a reasonable requirement for the documents and that the court must balance that requirement against any oppression to the respondent. The judge held that the audit files, prepared in accordance with ISA 230, are likely to contain a self-contained and unique record of the auditors' procedures, professional judgements and communications with management relevant to revenue recognition under IFRS 15. Given the size and dispersal of the Companies' own records, the Applicants could not cost-effectively or reliably reconstitute the material that would be present on the audit files. The court rejected the argument that the Professional Negligence Pre-Action Protocol restricts the court's discretion to order production and concluded that the potential burden and risk to BDO, including the need for a privilege review, did not outweigh the Applicants' reasonable requirement.

This is a first instance application by the joint liquidators of NMCN plc and NMCN Sustainable Solutions Limited for an order under sections 235 and 236 of the Insolvency Act 1986 compelling the former auditor, BDO LLP, to produce its audit files for the 2018 and 2019 audits. The Companies carried on substantial long-term contract business and adopted IFRS 15 for the first time in 2018. After significant adverse adjustments were identified in 2020 and an inability by a successor auditor to conclude the 2020 audit, the Companies entered administration in October 2021 and compulsory liquidation in September 2024. The Financial Reporting Council had already obtained the 2019 audit file from BDO.

• Nature of the application: an order for delivery up of the audit files so that the liquidators can investigate whether claims exist against BDO and/or the Companies' management, and to assess prospects of any litigation.
• Issues framed: (i) whether the Applicants reasonably require BDO's audit files; (ii) whether the court should adopt a two-stage approach (establishing reasonable requirement then balancing oppression) or treat the assessment as a single discretion; (iii) the effect, if any, of the Professional Negligence Pre-Action Protocol on such applications; and (iv) the burden and potential prejudice to BDO, including privilege considerations.
• Court's reasoning: the judge examined ISA 230 and the role of audit documentation in recording the auditor's basis for conclusions, evidence of procedures, and matters discussed with management. The audit files were held to be likely to contain a unique, self-contained record of evidence, testing, professional scepticism and communications that the Applicants could not practically or economically reassemble from the Companies' voluminous electronic records and personnel who had departed. The court applied established authorities on s.235/s.236 powers and the balancing exercise and concluded that the Applicants had demonstrated a reasonable requirement and that the potential oppression to BDO (including the need for a privilege review) did not outweigh that requirement. The court therefore ordered delivery up of the files.

The judgment notes wider context such as the FRC's involvement, the Protocol arguments, and the imminence of limitation for the 2018 audit, but ultimately permits production subject to standard practical arrangements (including privilege review and costs to be addressed at a consequential hearing).

The application is allowed. The court ordered BDO LLP to deliver up the 2018 and 2019 Audit Files because the Applicants have a reasonable requirement for those files under sections 235 and 236 of the Insolvency Act 1986. The files were likely to contain a unique, self-contained record of audit procedures, evidence and professional judgements relevant to revenue recognition under IFRS 15 (and to whether BDO discharged its duties). The court exercised its discretion after balancing the Applicants' need against the burden and potential oppression to BDO, finding the requirement outweighed such concerns and that the Professional Negligence Pre-Action Protocol did not displace the court's power to order production in the circumstances.