Re British & Commonwealth Holdings Plc (No 2)

JurisdictionEngland & Wales
CourtHouse of Lords
JudgeLord Keith of Kinkel,Lord Ackner,Lord Jauncey of Tullichettle,Lord Lowry,Lord Slynn of Hadley
Judgment Date29 October 1992
Judgment citation (vLex)[1992] UKHL J1029-1
Date29 October 1992

[1992] UKHL J1029-1

House of Lords

Lord Keith of Kinkel

Lord Ackner

Lord Jauncey of Tullichettle

Lord Lowry

Lord Slynn of Hadley

Joint Administrators of British and Commonwealth Holdings Plc
(Respondents)
and
Spicer and Oppenheim
(Appellants)
Lord Keith of Kinkel

My Lords,

1

For the reasons given in the speech to be delivered by my noble and learned friend, Lord Slynn of Hadley, which I have had the opportunity of reading in draft and with which I agree, I would dismiss this appeal.

Lord Ackner

My Lords,

2

I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Slynn of Hadley.

3

I agree with it and, for the reasons which he has given I too would dismiss the appeal.

Lord Jauncey of Tullichettle

My Lords,

4

I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Slynn of Hadley. I agree with it and, for the reasons which he has given I too would dismiss the appeal.

Lord Lowry

My Lords,

5

I have had the advantage of reading in draft the speech of my noble and learned friend, Lord Slynn of Hadley.

6

I agree with it and, for the reasons which he has given I too would dismiss the appeal.

Lord Slynn of Hadley

My Lords,

7

On 1 September 1988 British & Commonwealth Holdings plc ("B. & C") acquired all the issued share capital in Atlantic Computers PLC ("Atlantic"), the holding company of a group of companies engaged worldwide in the financing of computer leasing, for a consideration of approximately ?420 million. In the ensuing months B. & C. provided further sums amounting to approximately ?117 million for Atlantic.

8

In April 1990 B. & C. was told that Atlantic could not continue to trade without massive further support. B. & C. was unable or unwilling to provide the necessary funds and on 16 April 1990 administrators of Atlantic were appointed by the court. The statement of affairs annexed to the statement of proposals of the administrators of Atlantic under section 23 of the Insolvency Act 1986 showed a deficiency in Atlantic's assets of some ?279 million.

9

B. & C. itself was also now in difficulties and on 3 June 1990 administrators were appointed for B. & C. Those administrators are the respondents to this appeal.

10

The appellants to this appeal were the auditors of Atlantic from 1983 until 2 June 1989. They gave an unqualified audit report on the financial statements of Atlantic for the year ended 31 December 1987 (before the acquisition) and for the year ended 31 December 1988 (i.e. in part after the acquisition). In the course of the acquisition the appellants produced a working capital report for Atlantic as required by Stock Exchange rules.

11

The respondents, not surprisingly, took the view, as did B. & C. itself, that serious questions have to be investigated concerning the conduct of Atlantic's business before and after the acquisition and as to the representations made to B. & C. prior to the acquisition.

12

To that end the respondents sought ex parte, and obtained, from Mr. Registrar Scott on 29 April 1991, pursuant to section 236(2) of the Insolvency Act 1986, an order that the appellants produce all books, papers or other records:

"(a) relating to or having any connection with the 1987 year end audit of Atlantic …, and the production of the audited accounts for Atlantic … including any material relating to its subsidiaries;

(b) which relate to or have any connection with the acquisition by [B. & C] of Atlantic … including but not limited to the working capital review conducted by [the appellants] and the production of a working capital letter;

(c) which relate to or have any connection with the 1988 year end audit of Atlantic … and the production of the audited accounts for Atlantic … including any material relating to its subsidiaries."

13

Section 236 appears in Part VI of the Insolvency Act 1986 which is headed " Miscellaneous Provisions applying to companies which are insolvent or are in liquidation" and under the sub-heading "Management by administrators, liquidators, etc.". The section applies, inter alia, where an administration order is made in relation to the company; the administrator so appointed is an "office holder" within the meaning of section 236. (Section 236 read with section 234(1)).

14

By sub-section (2) of section 236:

"The court may, on the application of the office-holder, summon to appear before it — ( a) any officer of the company, ( b) any person known or suspected to have in his possession any property of the company or supposed to be indebted to the company, or ( c) any person whom the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company."

15

and by sub-section (3) the court may require any such person as is mentioned in sub-section (2)( a) to ( c) to produce any of the documents in his possession or under his control relating to the company or the matters mentioned in sub-section (2)( c).

16

The appellants applied to discharge the registrar's order on the ground, firstly, that it was in all the circumstances oppressive and secondly, that it amounted to the use of section 236(2) for a purpose not intended by Parliament. Hoffmann J., [1991] B.C.C. 658 in his judgment on the hearing of the motion, referred to what had been said by Sir Nicholas Browne-Wilkinson V.-C. sitting in the Court of Appeal in Cloverbay Ltd. (Joint Administrators) v. Bank of Credit and Commerce International S.A. [1991] Ch. 90, 102, as to the task of the court on such an application. It was for the court to:

"balance the requirements of the liquidator against any possible oppression to the person to be examined. Such balancing depends upon the relationship between the importance to the liquidator of obtaining the information, on the one hand, and the degree of oppression to the person sought to be examined on the other."

17

In carrying out the balancing exercise Hoffmann J. set out on the one hand the enormous losses caused to a listed public company, the interests of the creditors of B. & C., the public interest in having the whole matter investigated and the need of the administrators to find out the true financial position of the company and the truth of the representations made concerning it. On the other hand he referred to the claim of the appellants that the volume of documentation was very large and that if in all such cases a similar order was made there would be "intolerable disruption" to an auditors' business, the risk to the appellants that in producing the documents they might provide material to ground claims against themselves, and the suggestion that the order was not sufficiently specific in that it did not indicate to the appellants the areas in which the respondents considered that the appellants or others might be liable.

18

Having weighed these factors the judge had no doubt that "[the appellants'] ordered documents may show not only what inquiries the appellants made or did not make in the performance of their duties as auditors, but what they were told and by whom", and that if only the balancing act was involved the registrar's order should stand.

19

He considered [1991] B.C.C. 658, 662, however, that in Cloverbay the Vice Chancellor (with whom Nourse L.J. in the result agreed) had restricted the availability of an order under section 236 to enable a liquidator or an administrator "to get sufficient information to reconstitute the state of knowledge that the company should possess". In the judgment of the Vice Chancellor, "its purpose is not to put the company in a better position than it would have enjoyed if liquidation or administration had not supervened." ( [1991] Ch. 90, 102D-E) Hoffmann J. read this limitation as referring to information "to which the company was entitled from its officers and servants, past or present, as a matter of contract or fiduciary duty".

20

In the light of what he read to be the limitation laid down by the Court of Appeal, the judge concluded that "little, if any, of the information sought by the administrators can be described as 'reconstituting the company's knowledge'". He accordingly discharged the registrar's order although it seems plain that, but for the decision in Cloverbay [1991] Ch. 90, and on the basis of earlier authorities he would have upheld it.

21

The case proceeded before Hoffmann J. on the basis that, in accordance with the existing practice, the appellants were not entitled to see the administrators' confidential statement which was before the judge. On an appeal to the Court of Appeal it was held that this statement should be produced subject to certain names and passages being omitted.

22

The Court of Appeal (Ralph Gibson and Woolf L.JJ.) (Nourse L.J. dissenting), [1991] 2 W.L.R. 931 allowed the appeal and restored the order of the registrar.

23

Nourse L.J. did not accept that the Vice Chancellor had intended to lay down a rigid limitation on the exercise of the court's discretion. In his view (pp. 944-945), however, the decision in Cloverbay obliged the Court of Appeal to adopt the following approach as being correct for the court on an application under section 236:

"The discretion must be exercised with a recognition that the primary purpose of section 236 is to enable office-holders to obtain the information which would have been obtainable by the company as a going concern. The convenient course is to inquire, first, whether on that approach, the registrar's order is oppressive to [the appellants]; secondly, whether the documents required by the administrators are reasonably required for the discharge of their duties and, if so, whether their requirements outweigh any oppression to [the appellants]."

24

On that approach Nourse L.J. considered that the claim was oppressive. The number of documents was vast. A claim was made against a firm of accountants...

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