In a recent case, the High Court addressed key issues in insolvency law, focusing on the disclosure and use of documents obtained under section 236 of the Insolvency Act 1986.

This case is significant for insolvency practitioners as it clarifies the conditions under which documents obtained under statutory powers can be disclosed in litigation.

Litigation finance, funding arrangements and insurance allow insolvency practitioners to pursue claims on behalf of their clients whilst reducing financial risks. At Annecto Legal, we can assist clients by helping them secure funding and insurance for insolvency cases.

Asertis LTD & Anor v Melhuish & Ors 2024

Solstice Limited conducted insurance surveying and repairs. At various times, Mr. and Mrs. Melhuish, along with their daughter, Mrs. Bowman, served as directors. On March 19, 2021, the company’s liquidator obtained an order under s. 236 of the Insolvency Act requiring the Secretary of State/Insolvency Service and Aviva Insurance Limited to produce documents, including bank statements.

The Secretary of State held documents obtained under a court production order during a criminal investigation, while Aviva was believed to have information about payments to the company.

In January 2023, Asertis, as assignee of a claim, initiated proceedings against the three former directors. Mr. and Mrs. Melhuish were later barred from defending due to non-compliance with court orders. On September 2, 2024, a question arose before ICC Judge Burton about Asertis’s use of personal bank statements obtained under the 2021 order. The judge required Asertis to seek court permission to use the documents, resulting in a hearing before Chief ICC Judge Briggs.

Objection to use of documents:
Mrs. Melhuish objected to the use of her bank statements. She argued that she had refused the liquidator’s request for them and had never consented to their use in proceedings. She sought clarity from the liquidator, Aviva, and the Insolvency Service. The liquidator testified that the assigned claim in November 2024 involved funds processed through non-company accounts and relied on the bank statements for its success.

Legal principles:
Judge Briggs reviewed the relevant case law:

• Confidentiality: Documents obtained under compulsion are subject to an implied duty of confidentiality (e.g., Re Arrows Ltd (No. 4), Marcel v Commissioner of Police of the Metropolis). Confidentiality arises from the compelled nature of disclosure and protects against self-incrimination (R v Brady).
• Qualified duty: A liquidator’s duty of confidence is qualified, permitting disclosure where necessary to fulfil statutory duties (Soden v Burns; Re Arrows).
• Permitted use: Documents obtained under s. 236 should generally only be used to assist the beneficial winding-up of the company (Re Esal (Commodities) Ltd (No. 2)).

Decision and policy considerations:
Judge Briggs examined the policy behind s. 246ZD, which allows officeholders to assign causes of action. He acknowledged the practical need for assignees to access documents supporting a claim but emphasised the importance of confidentiality, which remains unless waived by the beneficiary.

The judge permitted Asertis to use the documents obtained under s. 236, finding it consistent with Parliament’s intent to enable the sale of claims for the estate’s benefit. However, he imposed safeguards, requiring redaction of personal information in the bank statements, disclosing only relevant deposits.

Permission to use documents:
Judge Briggs clarified that:

• Officeholders must decide whether to seek court permission to share confidential information with an assignee.
• Assignees should assess whether court approval is required to use such information.
• Generally, permission will be necessary but depends on the case’s facts.

In this case, the liquidator acted correctly in seeking court approval.

Why is this case important for insolvency practitioners?

The Asertis Ltd & Anor v Melhuish & Ors [2024] EWHC 2819 (Ch) case is significant for insolvency practitioners. This is because it clarifies critical issues regarding the assignment of claims and the handling of confidential information obtained during the insolvency process.

Insolvency practitioners must ensure that any assignee of a claim can only use such documents with appropriate safeguards. This includes seeking court permission when necessary. This protects the privacy of those whose information is disclosed under compulsion.

Insolvency practitioners must carefully balance the duty of confidentiality against the need to realise the value of claims for the benefit of the estate. This may involve negotiating terms with assignees and seeking court approval for the use of sensitive documents.

Insolvency litigation funding options

Litigation funding, the assignment of claims and/or ATE insurance can play a pivotal role in assisting insolvency practitioners (IPs) in meeting their obligations. Insolvency practitioners involved in insolvency litigation can make use of the following funding methods:

• After-the-event (ATE) legal insurance – ATE insurance is generally used to protect from adverse costs risks & Security for Costs requirements. After-the-event (ATE) legal expenses insurance is perhaps best thought as a similar to a ‘swap’. For either no upfront fee or a small upfront fee, the insurer takes on all of the risk of the potential adverse costs award.

The claimant has swapped their obligation to pay the defendants in the event of a loss, with the obligation to pay the insurer in the event of a win. This ‘swap’ is generally an attractive swap as the client is likely to be in a better financial position following a win than following a loss. Also, the payment to the insurer will only be a percentage of the adverse costs rather than the whole amount.

• Third party litigation funding – In some cases, third party litigation funders may be willing to provide funding for a claim in exchange for a share of any financial settlement or damages awarded. This option can be attractive when there are no funds to pursue a strong case. ATE insurance is often used in conjunction with this type of funding.
• Assignment of litigation – Some types of disputes can be assigned to a third party, usually for an upfront payment and a share of recoveries (after costs). This model can be useful on smaller cases when the ATE and CFA model would not deliver value. But giving up control can sometimes be costly, especially on larger claim disputes.

How can Annecto Legal assist?

When handling insolvency matters, insolvency practitioners are obligated to explore all options available in such cases. At Annecto Legal, we assist a wide range of clients in finding the appropriate insolvency litigation funding, assignment options and after-the-event (ATE) insurance.

Annecto Legal regularly assists licensed insolvency practitioners who are involved in dealing with insolvency and assignment of claim matters. If you are in the process of bringing or defending an insolvency dispute and want to find out whether we can assist in helping you fulfil your obligations and secure the right deal, then contact Annecto Legal now.