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Information obtained under compulsion by liquidators - When is it appropriate to share?

In Willmont and Finch (As Joint Liquidators of Webinvest Ltd) v Schlosberg [2017] EWHC 2446 (Ch) Arnold J sitting in the High Court in England has considered the proper use of information obtained under compulsion by liquidators and trustees in bankruptcy; and the circumstances under which such information may be shared by common office holders of connected insolvency estates.

Conflicts of interest potentially arise because of duties owed by an office-holder to the separate creditors of each estate. The principal purpose of the powers to compel third parties to provide material to office-holders under ss 235, 236 and 366 Insolvency Act 1986 is to assist with the beneficial winding up of the company or the bankruptcy. For material obtained under compulsion it is open to the liquidators of a parent company to make material available to directors or liquidators of the parent’s subsidiaries, and that could apply where both parent and subsidiary are insolvent. Where there is at least some prospect of a surplus arising in the liquidation, it would always be in the interests of the shareholder’s estate to share information relevant to the liquidation with the liquidator. The court’s provisional view in Webinvest was that the trustees did not need the permission of the court to share material obtained by compulsion with the liquidators and that such material raising issues of dishonesty or malpractice might also be used by the office-holders themselves to bring proceedings for the benefit of their own estate. However, it did not follow that office-holders could share such material with third parties without the leave of the court simply because it raised issues of dishonesty or malpractice. If it was not lawful for the trustees to disclose any material obtained by compulsion to the liquidators, it would not be lawful for the liquidators to use that material for the purposes of the liquidation.

Liquidators in the Cayman Islands have similar powers to compel the provision of information and documents from third parties under sections 103 and 138 of the Companies Law. Issues around information sharing frequently arise in the context of insolvent off-shore group fund structures, where separate liquidators have been appointed at the master and feeder fund levels to deal with potential conflict issues. With the potential for distributions to flow upwards from the master fund for the benefit of the creditors/investors in the feeder fund, information sharing between liquidators may benefit stakeholders across the master/feeder structure. Webinvest provides welcome clarity on the circumstances in which information sharing between Cayman Islands liquidators is likely to be considered appropriate by the Grand Court. 

 

 

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