Contents
1. Introduction
1.1 Who should read this practice note?
Solicitors dealing with a request for information from an 'office holder' under the Insolvency Act 1986 or in possession of information in relation to an insolvent company or client.
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1.2 What is the issue?
The Insolvency Act 1986 gives 'office holders' extensive powers and duties to gather in a company or individual's property and to obtain information about its affairs from anyone who may be in possession of such.
This practice note advises on good practice for dealing with requests for information from an 'office holder' where such information may be of a confidential nature.
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2. Company Insolvency
Where insolvency proceedings are begun and an 'office holder' is appointed he or she is empowered to obtain any 'property' which may be held by you as a solicitor in relation to the company.
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2.1 Who is an 'office holder'?
Section 234 of the 1986 Act states that an office holder is a liquidator, a provisional liquidator, an administrator or an administrative receiver. For a number of purposes, an official receiver has similar powers (though an official receiver may be appointed as liquidator, in which case the sections apply directly).
2.1.1 What information is an 'office holder' entitled to?
Under section 235, the office holder is entitled to 'such information concerning the company and its promotion, formation, business dealings, affairs, or property' as he or she 'may reasonably require' from certain categories of people.
Under section 236, with the authority of the court, the office holder may access a wider range of information, books, papers, etc., from a wider range of people.
The underlying principle is that the office holder in company insolvency proceedings speaks for the company and you cannot therefore assert duties of confidentiality to the company.. For information in respect of privilege and confidentiality to third parties see Re Brook Martin & Co (Nominees) Ltd [1993] BCLC 328
In general, the office holder is entitled to any information relating to the company which the company itself would have been entitled to, and from anyone who holds it. This includes information in the possession of a solicitor which would otherwise have been protected by confidentiality or privilege.
You may also be subject to a duty to cooperate with an office holder contained under section 235 (2)(b) of the 1986 Act if you have been in the employment of the company within a year of the effective date i.e. the date of insolvency or administration. This includes any employment under a contract for services.
2.1.2 Using a lien against the request of an 'office holder'
Section 246 of the Act makes any lien which you may have over 'books, papers or other records of the company' unenforceable against an office holder.
There is an exception for documents of title to property which you may hold 'as such' (see Re SElL Trade Finance Ltd [1992] B.C.C. 538 for definitions). However, the court has power under sections 236 and 237 to order disclosure of information in, and/or the production of, documents which would otherwise be protected by the exception in section 246. The court will however endeavour to protect the lien where it has power to do so, if it makes an order of this kind.
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2.2 Legal Professional Privilege
The powers given by the Insolvency Act to the court and office holder do not override privilege or confidentiality where your client or former client was not the company itself but a director or other officer acting personally (i.e. other than on behalf of the company). In this case communications are protected according to the normal rules. See the Australian case, Re Compass Airlines Pry Ltd [1992] 10 A.C.L.C. 1380, on this point.
2.2.1 Clients acting in a joint or unclear capacity
There may have been occasions in which you have given advice to a director who was acting both personally and as an officer of the company, or where it was not clear in what capacity the director was acting at the time. In either of these situations, you may not be entitled to refuse to disclose information about the advice to the office holder. There is, unfortunately, little judicial authority on borderline situations of this kind. If you are facing this situation you may find the following authorities helpful Butts Gas and Oil Co. v. Hammer (No.3) [1981] Q.B. 223 and, on appeal, [1982] A.C. 888; and an Australian case, Farrow Mortgage Services (Pty) Ltd v. Webb [1995] 13 A.C.L.C. 1329.
2.2.2 Joint clients
When a solicitor has acted for, or given advice to, both a company and a director or other officer as joint clients, the rule on privilege as between joint clients is likely to apply - i.e. one client cannot assert privilege against the other, in which case the office holder would be entitled to require disclosure. See Re Konigsberg [1989] 1 W.L.R. 1257 and [1989] 3 All E.R. 289.
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3. Individual Insolvency
The position is more difficult if you are requested to disclose information in relation to a client against whom a bankruptcy order has been made. This situation is governed by Section 312(3) of the Insolvency Act 1986 which places an obligation on any person, including a solicitor, 'who holds any property to the account of, or for, the bankrupt' to 'pay or deliver to the trustee all property in his possession or under his control which forms part of the bankrupt's estate'.
Section 311 of the Act makes it clear that this includes 'all books, papers and other records which relate to the bankrupt's estate or affairs and which belong to him' and that this applies even to privileged communications.
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3.1 The position of the trustee in bankruptcy
Broadly, the trustee is entitled to all those papers and other property which are legitimately needed in order to carry out effectively the trustee's function, which is to gather in and then distribute the bankrupt's estate. The trustee in bankruptcy holds the same position in relation to you, the solicitor, as would the bankrupt client (or former client) had he or she not been made bankrupt. You should therefore comply with a trustee's requests about matters relating to the client's financial affairs regardless of the client's wishes or instructions.
The scope of Section 311 was given particular attention in Haig v Aitken [2000] 3 W.L.R 1117 under which it was held that a bankrupt's particularly personal correspondence was excluded from his estate for the purposes of the 1986 Act. Importantly, it was also confirmed that the reference to bankrupts 'affairs' in section 311 of the Act was confined to the financial or other affairs relevant to the carrying out of the trustee's duties under the Act.
You should note that the powers given to trustees in bankruptcy are not extended to any supervisor of a voluntary arrangement.
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3.2 Statutory obligation to provide information
It is a contempt of court for the bankrupt or any other person to decline to hand over papers or other property to the trustee without reasonable excuse - see section 312(4). You should also draw the client's attention to the series of sections starting with section 351, which create bankruptcy offences. You should take care to avoid becoming a party to the commission of any of these offences by a client.
For example, under section 353, a bankrupt is guilty of an offence if he or she does not; to the best of his or her knowledge and belief, disclose all the property comprised in his or her estate to the trustee. This includes property acquired by, or which has devolved on, the bankrupt since the bankruptcy - section 307.
Sections 366 and 367 give trustees, through the courts, wide powers to obtain information about the bankrupt's affairs, and further means of getting possession of property 'comprised in' the bankrupt's estate.
3.2.1 Requests for papers
Since a trustee's powers to obtain property apply to property belonging to the bankrupt, you should only give the trustee those papers on the solicitor's file which belong to the bankrupt. However, there are differences of views about which papers belong to the client and which to the solicitor and it may be unwise to rely heavily on ownership claims as grounds for refusing to hand documents over to a trustee. In any case, you could be compelled, under section 366, to produce the documents. Your right of lien over documents belonging to a bankrupt is very much restricted by section 349 and applies only to documents of title which the solicitor holds 'as such'. For definitions, see the decision in Re SElL Trade Finance Ltd [1992] B.C.C. 538.
The Insolvency Act gives official receivers similar, but not identical, powers to those of trustees.
3.2.2 Requests for information about financial affairs
It is unclear how the rules on privilege and confidentiality apply where the information sought falls within any of the following cases:
- it concerns personal affairs of the bankrupt, which have no ostensible relevance to the trustee's functions;
- its disclosure could be incriminatory of the bankrupt and expose him or her to the risk of criminal prosecution;
- it relates to legal advice taken by the bankrupt for the purpose of resisting the bankruptcy petition or appealing against the order;
- 'it relates to legal advice taken by the bankrupt after the commencement of the bankruptcy.
In these cases you should explain to the trustee that you are unable to comply with their request without either
- the client's authority, or
- an order of the court under section 366
You should give the reasons why you have taken this view.
3.2.3 Requests for other information
Trustees may ask for information about bankrupt clients which is not, or not obviously, related to those clients' financial affairs. There is little statutory guidance about how far the removal of privilege by the Insolvency Act is intended to extend, and judicial guidance is scarce and inconclusive. The Law Society suggests, however, that where the information sought relates to a bankrupt's financial affairs, you should comply with the trustee's request regardless of the client's wishes.
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3.3 Costs
If the trustee decides to make a section 366 application against you, the question of costs may arise; you may therefore expose yourself to the risk of an adverse costs order by resisting a trustee's application. You should therefore inform your client of the application or possible application, explaining the powers given to the court by section 366 (in particular, the power to require disclosure) and that, unless you are instructed to the contrary and put in funds, you will not resist the application.
It is not your duty to bear the cost of opposing the trustee, or the risk of a costs order, without your client's instructions and funding. This should be explained to your client, giving them the opportunity to take action, either through you or in person.
The Society's view is that if you have acted in this way you should not be at risk of an adverse costs order, provided the reasons for so acting are explained to the court, and that you would be safe from any complaint which your client might make for breach of confidence or privilege.
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4. More information
4.1 Professional conduct
The following sections of the Solicitors' Code of Conduct 2007 are relevant to this issue:
Rule 4: Confidentiality and Disclosure
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4.2 Legal and other requirements
Insolvency Act 1986
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4.3 Further products and support
4.3.1 Practice Advice Line
The Law Society provides support for solicitors on a wide range of areas of practice. Practice Advice can be contacted on 0870 606 2522 from 09:00 to 17:00 on weekdays.
4.3.2 Department for Business, Innovation and Skills (BIS)
BIS has published a number of documents on:
4.3.3 The Insolvency Service
Further information can be found on The Insolvency Service website.
4.3.4 Law Society publications
4.3.5 Other publications
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4.4 Status of this practice note
Practice notes are issued by the Law Society for the use and benefit of its members. They represent the Law Society's view of good practice in a particular area. They are not intended to be the only standard of good practice that solicitors can follow. You are not required to follow them, but doing so will make it easier to account to oversight bodies for your actions.
Practice notes are not legal advice, nor do they necessarily provide a defence to complaints of misconduct or of inadequate professional service. While care has been taken to ensure that they are accurate, up to date and useful, the Law Society will not accept any legal liability in relation to them.
For queries or comments on this practice note contact the Law Society's Practice Advice Service.
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4.5 Terminology in this practice note
Must - a specific requirement in the Solicitor's Code of Conduct or legislation. You must comply, unless there specific exemptions or defences provided for in the code of conduct or relevant legislation.
Should - good practice for most situations in the Law Society's view. If you do not follow this, you must be able to justify to oversight bodies why this is appropriate, either for your practice, or in the particular retainer.
May - a non-exhaustive list of options for meeting your obligations. Which option you choose is determined by the risk profile of the individual practice, client or retainer. You must be able to justify why this was an appropriate option to oversight bodies.
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4.6 Acknowledgements
The Society acknowledges the contributions of its Company Law Committee in developing this practice note.
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