Insolvency

Liquidators bringing proceedings against directors - liquidators seeking order for directors' compulsory examination in connection with company's assets and affairs - oppression and existence of proceedings factors to be taken into account and balanced against liquidators' legitimate requirements

Shierson and another v Rastogi and another: CA (Lords Justice Peter Gibson, Mance and Hale): 8 November 2002

The liquidators of a company in compulsory liquidation commenced proceedings against two directors alleging fraud and claiming damages.

They applied for an order under section 236 of the Insolvency Act 1986 that the directors attend, before the Companies Court registrar, to be examined in connection with the assets and affairs of the company.

The judge made the order sought.

The directors appealed.

Philip Heslop QC and Paul Greenwood (instructed by Orchard) for the directors; Stephen Smith QC and Clive Jones (instructed by Lovells) for the liquidators.

Held, dismissing the appeal, that, in exercising the court's discretion under section 236 of the Insolvency Act 1986 whether to order the examination of directors of a company in compulsory liquidation against whom proceedings had been commenced by the liquidators, the fact that they were directors made a stronger case for examination than if they were outsiders, but the oppression of ordering examination of persons against whom proceedings had been brought weighed in the scales the other way; that the rule that oppression was a major factor in the scale against making an order did not have to be put to one side in the case of a director required by section 235 of the 1986 Act to co-operate with the liquidators; that the existence or fear of civil proceedings could be a major factor in the exercise of discretion in many cases; that, while it was oppressive to require a defendant accused of serious wrongdoing to provide what amounted to pre-trial depositions and to prove the case against himself, that oppression might be outweighed by the legitimate requirements of the liquidator; and that, having decided that the judge had incorrectly exercised his discretion the court would exercise the discretion anew and find that the need for making the order was overwhelming.