Office holders Powers part 10

The purpose of the private examination is to help the liquidator to find out what happened with the company and to obtain any information necessary for him to understand the company's trade and its dealings. Liquidators come to a company with no knowledge of the background, how the company traded, why it failed, who performed their duties properly, who did not. As speedily and economically and efficiently as possible the liquidator needs to enforce any rights of the company. These rights may be to obtain its assets from other parties, or actions against third parties who may owe money to the company (whether in debt or because there is a potential action against them). It may also be information the office holder needs to know how to deal with potential claims of others against the company. The questioning may allow the office holder to find out that a claim can be brought or alternatively may indicate whether a claim can be defended. Looked at from another angle, the liquidator may discover that a potential claim is not worth pursuing, or a claim against the company not worth defending.

Amongst things which it is permissible for the liquidator to investigate are conduct of directors or others involved in the company to ascertain whether there are any potential claims against them. It is also permissible to use an examination under section 236 for the purpose of obtaining evidence which may be employed in any possible disqualification proceedings against directors. (Where the conduct of directors is unacceptable as defined by statute then it is possible for disqualification proceedings to be brought against them. If those proceedings are successful then the director will not be allowed to be a director of any company during the period of disqualification unless given special leave of the court to do so.

The court has to balance the interests of the liquidator and the interests of the person who is to be examined in deciding how and whether to exercise the discretion to make the order sought (or alternatively some more limited order if that is regarded as the fair way to deal with things). The court has to consider the need of the liquidator, and how important it is for the liquidator to have the opportunity to obtain this information, and balance that against the effect on the person who is to be examined. The court is more likely to make an order against directors or officers of the company than it is against third parties but it all depends on the importance of information and the effect on the person to be examined. In some circumstances the serious nature of the potential allegations can make it oppressive to expect the person to be questioned to answer those questions and effectively convict themselves. Orders for oral questioning are likely to be regarded as more oppressive than answering written questions or producing documents, but orders for oral questioning are frequently made and it depends upon all the circumstances. Similarly if asking certain questions would require great deal of work and expense which is disproportionate to the importance of the end result, that could be a reason to decide there was oppression in ordering examination. Ultimately an important factor is whether the office holder's requirement for the information is reasonable.

One area which has caused a lot of litigation relates to situations where the office holder wants to examine someone who is likely to be either a defendant alternately a witness in legal proceedings which the office holder is either thinking about bringing or has already brought. Just because the office holder has decided to proceed or has already started proceedings does not mean that an examination cannot take place. However if the purpose of the examination is just to improve the position of the office holder as a litigant rather than stemming from a reasonable requirement to information, this will count against an order.

Ultimately this is all a balancing exercise.