Discretion to order costs of compliance with orders made under sections 234 and 236 in favour of the person ordered to assist – effect of rule 9.6(4) Insolvency Rules 1986
Harvest’s liquidators obtained orders under sections 234 and 236 of the Insolvency Act 1986 against the respondents, who were solicitors and successors to an LLP which had acted on Harvest’s behalf in numerous conveyancing and other transactions, on the grounds that they held documents belonging to Harvest or could provide other information relevant to its liquidation.
The respondents sought their costs of having complied with the orders. Neither sections 234, 236 nor the Insolvency Rules 1986 contained an express power to make an order for the costs of compliance
The starting point was that supplying documents and information to liquidators is a public duty: see Re Appleton, [1905] 1 Ch 749; Ex parte Waddell 6 Ch D 328; Re John T Rhodes Ltd (1986) BCC 99; Re Aveling Barford Ltd [1989] 1 WLR 360; Re Cloverbay Ltd [1989] BCLC 724.
The court addressed a conflict in the authorities about whether or not the court has jurisdiction to order the costs sought. On the one hand, in Re Cloverbay, Vinelott J held that the court’s only jurisdiction is its general jurisdiction to order costs in proceedings, e.g., if it turns out that the court should never have made the order then the complying party may in “very exceptional circumstances” be awarded his costs.
On the other hand, in Re Aveling Barford, Hoffmann J held that the effect of rule 9.6(4) of the Insolvency Rules 1986 is that the court may award the costs of compliance to a person ordered to supply information under section 236 of the Insolvency Act 1986 in the same way as it applies (which it does expressly) to a person summoned for examination.
The judge preferred the analysis of Hoffmann J, which he said he was entitled to do under the rules of precedent (it was the earlier decision, but had not been cited to Vinelott J). He held he had jurisdiction to order the costs but only in very exceptional circumstances.
On the facts of this case he exercised his discretion against awarding the costs sought. His reasons included that if the respondent solicitors were to be paid this would have amounted to converting their compliance (for which they wished to charge time) from a public duty into a private duty.
The decision emphasises that compliance with office holder’s inquiries into an insolvent company’s affairs is a public duty and that only an obviously innocent party may ever obtain an order for the costs of compliance and then only in very exceptional circumstances.
