After MF Global: Is S 236 Insolvency Act 1986 Extra-territorial?

KEY POINTS The court in MF Global did not expressly refer to the earlier decision of Re Casterbridge Properties Limited (in Liquidation) [2002] BCC 453 in which the High Court considered that there was "no doubt" about the partial extra-territoriality of s 236, and that the question of the full extra-territoriality of s 236 remained open. The subsequent decision in Omni disagreed with the conclusion reached in MF Global. The Sahaviriya Steel decision highlighted these inconsistent first instance judgments. Whether or not s 236 can be said to be fully extra-territorial needs to be looked at in detail by the Court of Appeal. After MF Global: is S 236 Insolvency Act 1986 extra-territorial?

In this article, Kit Jarvis and Freya Law extract the principles of s 133 (public examination of officers on a winding up) and s 236 Insolvency Act 1986 (private examination of persons when a company enters administration and liquidation or production of documents) in light of recent case law.

The English High Court has recently denied the application under s 236 Insolvency Act 1986 (IA) of the administrators of MF Global against LCH Clearnet SA (LCH France) seeking production of documents and a witness statement describing the sales of auction processes by which the respondents closed out MF Global's positions with LCH very shortly after the appointment of administrators (Re MF Global UK Ltd (In Special Administration), aka: Fleming v LCH Clearnet Ltd [2015] EWHC 2319 (Ch); 31 July 2015, David Richards J). In doing so, the High Court held that s 236 was not extra-territorial and therefore no order could be made against LCH France.

The court in MF Global did not expressly refer to the earlier decision of Re Casterbridge Properties Limited (in Liquidation) [2002] BCC 453 in which the High Court considered that there was "no doubt" about the partial extraterritoriality of s 236, and that the question of the full extra-territoriality of s 236 remained open. Moreover, the MF Global judgment did not expressly refer to the Court of Appeal case of Re Mid East Trading Ltd [1998] 1 BCLC 240, CA, which, like MF Global, concerned the production of documents situated in a foreign jurisdiction and so was pertinent to the question of extra-territoriality. Indeed, David Richards J himself considered that there was a "good deal to be said for concluding that s 236 was intended to have extra-territorial effect", although he considered himself bound by the Court of Appeal in Re Tucker [1990] Ch 148. Since MF Global, a first instance court has expressly disagreed with the MF Global decision (see Omni below). It would be understandable if insolvency practitioners found themselves a little confused right now.

The reason why this is a fundamental issue is, of course, because s 236 entitles an insolvency practitioner to apply for an order that "any person whom the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property" of the insolvent company appear before the Court, or requiring such a person to give an account of his dealings with the company, or to produce documents in his possession or under his control relating to the company. There is, therefore, a very wide list of potential respondents to a s 236 application. Further, whilst the Court can and does balance the oppression involved in a s 236 application, ultimately it is one of the very few provisions under English law in respect of which a respondent cannot refuse to answer questions on the ground of privilege against self-incrimination.

MF GLOBAL

MF Global had large open positions with LCH France involving European sovereign debt. LCH France closed out those positions on MF Global's entry into administration in 2011. The losses arising were quantified at approximately422m. The administrators accepted that LCH France were contractually entitled to close...