Office holders Powers part 6

One important remedy open to officeholders is a private examination under section 236 of the Insolvency Act 1986. This applies in the same way as section 235. This is a hugely important remedy which is frequently used by officeholders. Barristers doing insolvency law will, certainly as juniors, find that these applications form an important part of their practice. One of the problems that a liquidator has is that often it is difficult to ascertain exactly what happened with the company. This is one of the key powers which the liquidator will usually use in order to try to get to the bottom of what has happened.

Section 235 as we have seen involves obtaining information on essentially an informal basis. Section 236 involves a person being summoned before the court. The section provides that the court may, on the application of the officeholder, summoned to appear before it persons falling within a variety of categories. One category is any officer of the company. As this applies equally to section 235, the position regarding how officer is defined is the same as in the previous articles in this series. The second category of person who can be examined under section 236 is any person known or suspected to have in his possession any property of the company or who is supposed to be indebted to the company. Thus if a person seems to owe money to the company they are caught by this. If there are grounds to show that the person has property of the company they are caught by this.

The final category is any person whom the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company. As can be imagined, this is pretty wide, but these are the categories of people that the liquidator may need to question in order to find out what has happened in the demise of the company. Unless the liquidator has the power to find out exactly what has happened with the company, and why it has failed, then the liquidator is unlikely to be able to exercise the powers available under the liquidation to try and make sure that anyone who has undertaken any wrongdoing contributes to the assets of the company so as to minimise the loss to creditors. In some liquidation is no wrongdoing has occurred, but in others substantial wrongdoing has. If it has occurred, there is an important public policy in liquidators being able to find out what has happened so that the innocent parties, the creditors, have a better chance of reducing their loss. Anyone for example who has placed orders and paid money to a company that then goes into liquidation, will know the enormous frustration of creditors in relation to having paid money and not got what they have paid for. (Imagine for example having saved up to pay for something, then paying for it, and then finding you have effectively thrown the money away because the company has gone bump and you are not going to get your money back). If the liquidator can find out what has happen with the company, then if there are grounds for complaint against any person the liquidator will be well placed to try and ensure that that brings money into the liquidation and so reduces the loss to creditors. That is important because money received by the liquidator will ultimately reduce the losses to the creditors. Whilst creditors will for example not be happy with having paid over £800 and only getting £300 back, that is not as bad as getting only 50p back, which sometimes happens in a liquidation.