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01 November 2012
In a recent landmark insolvency decision, the Supreme Court applied the modern approach to the determination of an application by joint liquidators for the production of documents and the oral examination of the named partners of former auditors of a company in voluntary liquidation.
The liquidators applied ex parte for an order for the production of documents and for oral examination. No justification for proceeding ex parte was given by the liquidators, other than that it was the usual practice per Re Gold Company (1879). The court held that, as reflected by the judgments in Re Maxwell Communications Corp plc (1) and Re Murjani (1996), (2) the modern practice is that such applications should be made on notice unless there was good reason justifying an application ex parte. There being no good reason, it accordingly directed that the matter proceed inter partes.
At no time before the hearing had the liquidators disclosed to the auditors the particular areas or topics that the liquidators wanted to discuss with them; nor did they at any time ask the auditors for any specific information or answers to any questions with respect to the company. The first time that the auditors became aware of the topics or subject areas in respect of which the liquidators sought information was during the course of the hearing itself.
Endorsing the summary of the law given by Lord Millet sitting as a judge of the Court of Final Appeal of Hong Kong in Joint & Several Liquidators of Kong Wah Holdings Ltd v Grande Holdings Ltd (2007), (3) (4) the Supreme Court held that the same approach should be adopted by the courts of the Bahamas to applications by liquidators under the relevant sections of the Companies Act and the International Business Companies Act.
The auditors submitted that in light of their extensive production of documents, which had included all of their audit files and working papers, and the liquidators' failure to request any information or to give any indication as to the matters in relation to which they required further information, the liquidators' application was wholly unreasonable, unnecessary and oppressive.
The court considered the approaches adopted by Justice Vinnelot in Re Norton Warburg Investment Holdings Ltd (1983) (5) and Re Maxwell Communications Corporations plc (1995). (6) Having regard to the circumstances, it held that the liquidators had been unreasonable and that their application that the auditors be orally examined was oppressive.
The court ordered that:
Such costs, together with those of the liquidators, were ordered to be paid by the company. The court also granted other ancillary orders sought by the auditors restricting the use to which their answers might be put by the liquidators and imposing limitations on disclosure.
(4) With reference to British & Commonwealth Holdings plc v Spicer & Oppenheim (1992) (Ch 342); British & Commonwealth Holdings plc v Spicer & Oppenheim (1993) (AC 426); Re Bank of Credit and Commerce International SA (1997) (No 12) 1 BCLC 5266; and Cloverbay Ltd (Joint Administrators) v Bank of Credit and Commerce International SA (1991)(Ch 90).
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