23 Jun 2020

Re Akkurate Ltd (in Liquidation) [2020] EWHC 1433 (Ch)

Back in November we reported on the case of Wallace v Wallace [2019] EWHC 2503 (Ch), where the Court grappled with the diverging authorities on the issue of whether section 236 of the Insolvency Act 1986 has extra-territorial effect.

The issue recently came back before the Court in Re Akkurate Ltd (in Liquidation) [2020] EWHC 1433 (Ch).

What did the Court decide?

In short, no, section 236 does not (in and of itself) have extraterritorial effect; however, that is not the end of the story, as the Court may otherwise be entitled to make an Order under section 236 against a respondent abroad.

Previous decisions

A link to our article on the Wallace case is here.

In summary:

  • That case concerned the relatively typical scenario of UK liquidators seeking to obtain accounting records for the company in liquidation
  • The UK company's bookkeeper was based in the Republic of Ireland (part of the EU)
  • Reviewing the authorities, the Court considered that section 236 of the Insolvency Act 1986 marked something of a departure from its predecessor and that the Court's power to order a respondent to provide documents (under section 236(3)) was separate from (rather than ancillary to) the power to summon a respondent to attend for examination
  • Whilst it was understandable that a Court should not be able to a summon a foreign respondent before it for examination under section 236, it construed the power to order a person to produce documents as extending to any of the persons against whom such an order could be made, regardless of whether they were within or outside the jurisdiction. As such, that part of section 236 (at least) had extra-territorial effect.

The present case

Liquidators of a UK company sought various documents from Italian-registered companies, who had traded with the UK company. In particular, the UK company owned a number of fashion trademarks, which it had licenced to the Italian companies. The liquidators sought the documents in order to fully investigate certain issues, including sums potentially owed to the UK company.

Having reviewed the competing authorities on the issue of extra-territorial effect, the Court came to the conclusion that it had to follow the previous decision of the Court in Re Tucker (a bankrupt) [1990] Ch 148, a bankruptcy case, where the Court construed section 236's predecessor (section 25 of the Bankruptcy Act 1914) as meaning that “if the person is not in England he is not liable to be brought before the English court under [section 25]”.

The Court then went on to disagree with the recent cases (including Wallace), where section 236 of the Insolvency Act 1986 had been considered to be materially different in structure to section 25 of the Bankruptcy Act 1914, with the different powers within the section have different territorial limits. The Court in Akkurate felt that both Acts gave the Court a power to summon someone before it and to require them to produce documents and the fact the language in the 1986 Act had been modernised and divided up into different sub-sections did not mean that Parliament's intentions must be taken to have changed. The territorial limit imposed by Tucker applied to the whole of section 236.

Did the Court therefore decline to make an Order under section 236 against the Italian companies?

No. The Court went on to ultimately grant an Order under section 236(3) (provision of documents) and on the basis the EU Regulation on Insolvency Proceedings gave section 236 extra-territorial effect. The Court held that the Regulation can and does extend the territory of purely domestic insolvency provisions (such as section 236) and proceedings under section 236(3) were proceedings that derive directly from the underlying insolvency proceedings (ie the liquidation). A section 236 Order could therefore be made against Italian companies.

The Court confirmed the balancing exercise to be undertaken when considering whether to exercise its discretion under section 236, that is the reasonable requirements of the office-holder on the one hand and the protection of the respondent on the other.

The Court went on to make an Order in respect of the documents in relation to which it considered the liquidators had made out a proper case.

Commentary

The issue will no doubt come back before the Court again, particularly given that the Judge in Akkurate expressed the view that, whilst bound by Tucker, they didn't necessarily agree with that decision. 

In the meantime, office-holders will have to proceed on the basis that the EU (at least) is not off limits but await the outcome of Brexit negotiations. If the 'Implementation Period' ends on 31 December 2020 with a 'hard/crash out' Brexit, whilst the provisions of the Insolvency Regulation will be adopted into UK law, there will be no multilateral agreement providing for the automatic recognition of UK insolvency proceedings across the EU.