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The liquidators want you!

By Tony Johnson - 25 Oct 2018

Many people are surprised as to the extent of liquidators' powers of investigation. Those powers can on occasion come in the form of an application to the High Court under section 266 of the Companies Act.

The recent Court decision of Walker v Angus reaffirmed the extent of their inquisitorial powers. In particular, the decision confirmed:

  1. Any person having knowledge of the affairs of the company can be summoned.  Although those words are in the statute, they had previously been interpreted narrowly to mean those people similar to the likes of shareholders, directors, accountants and lawyers. The Court back tracked on this and indicated that any person having knowledge of the affairs of the company, whether a professional or not, is a potential candidate for summons and examination.
  2. Such a person is required to produce any documents which relate to the business or affairs of the company. This is much wider than simply company financial records.
  3. Although the Court has an overall discretion as to the extent of disclosure, two guiding principles are whether the liquidators' application represents a genuine investigative step towards reaching an informed decision and whether the order is necessary to put the liquidators in the same position as the directors insofar as knowledge of the company's affairs is concerned.
  4. Although the Court has the jurisdiction to award compensation to a person required to comply with a section 266 order, such an award would be the exception rather than the rule. The Court alluded to the costs generally as being part of the ordinary cost of business for those such as financiers and professionals servicing such clients.

If you are served with a notice under section 261 or an application under section 266 you should seek legal advice as to how to respond. If you wish to discuss the matter please call Tony Johnson or Pierce Bedogni in our litigation team.


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