Office holders Powers part 20

Certain people have what is called a lien. This is an entitlement to hold on to documents and papers until you are paid. Classic instances of professionals who will hold liens are solicitors and accountants. This means that if you sack your solicitor for example, you normally have to pay the money that is owed to them before you can get your documents. If you are conducting litigation, or in various other circumstances, (you owe your accountant money and urgently need the documents left with your accountant to put your tax affairs in order) you may desperately need all those documents from your professional adviser. This therefore is a powerful lever for the professional to obtain payment. There are circumstances in which the court can override this but even if it is prepared to do so that would normally involve all of the money which was subject of a lien being brought into court (i.e. paid into a court account) until the dispute is resolved. (This is something which the court can do if it thinks it appropriate in various instances, and one reason why it would do it where a lien was effectively being overridden is that if it is going to effectively set aside security otherwise various then there is a risk that the person exercising the lien may find that they receive no money at the end of the day: thus to set aside the security, if the court is prepared to do that, it is thought right that the person has the security of knowing that the money to pay the alleged fees is in court if it should be decided that that money is due.). Thus a professional may well be able to agree a slightly lower sum which the client may agree to pay because it is easier and cheaper to do so than take proceedings and have to put the entire sum in court anyway. It inevitably follows that this puts such a professional in a very strong position.

It would plainly cause a number of difficulties for liquidators if they were subject to liens over papers in this way. Section 246 of the Insolvency Act 1986 seeks to deal with this potential problem. The section applies where a company enters administration, goes into liquidation or has a provisional liquidator appointed. For this clause therefore officeholder means administrator, liquidator, or provisional liquidator, depending upon which is in control of the company. The section provides that the lien or other right to retain possession of any of the books papers or other records of the company is unenforceable to the extent that its enforcement would deny possession of any books papers or other records to the officeholder. Seeking to keep the papers until payment is enforcement, and so this means that once a liquidator exercises the right, a professional such as a solicitor will no longer be able to retain the papers but will have to hand them over to the liquidator. Thus those who think that they are covered as regards their fees because they will have to be paid because of the lien will find that on liquidation administration etc matters are not as simple as they thought.

There is an effectively identical provision in respect of bankrupts under section 349. That means that the trustee in bankruptcy is in the same position where an individual has been made bankrupt as the liquidator etc would be if a company went into liquidation etc.

There is an exception. That exception is that it does not apply to a lien on documents which give the title to property and are held as such. Property has a rather wider meaning than in common usage, where it is often taken to mean land (which is property but is "real property". Property also covers "personal property" (i.e. property which is not land, such as motor vehicles except). Property is defined in section 436 of the Insolvency Act as including money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property. Money goods and land are obvious things which need no further explanation. Things in action are intangible things involving rights enforceable against others, such as a cause of action i.e. a right to sue someone. The point about present or future or vested or contingent is to cover the fact that whether the right or property is immediately effective, or will be if some condition is fulfilled etc, it is still covered by the definition of property. Thus for example someone holding share certificates or other documents such as debentures (which evidence debt on behalf of the company) would be able to retain them.

Nonetheless this is an important and valuable entitlement for any liquidator or trustee in bankruptcy.