The Court of Appeal has overturned a decision of the High Court on whether immunity from suit, generally afforded to participants in court proceedings, extends to an examinee during an examination conducted under section 236 of the Insolvency Act 1986 ("Section 236").

Section 236 is a powerful tool available to insolvency practitioners and is regularly used to require individuals to deliver up documents regarding the insolvent company. However, an individual can also be compelled to attend before a judge and asked questions by the office holder in connection with the company's trading.

The question that came before the courts was whether an examinee under Section 236 has the same level of protection in relation to answers given during an examination as a witness of fact has in an ordinary civil trial. In Al Jaber & Ors v Mitchell & Ors, handed down on 30 July, the Court of Appeal recognised that while there were obvious differences between an examinee under Section 236 and an ordinary witness of fact, considering the broader purpose of Section 236 within the liquidation itself, immunity from suit should apply.

In this blog, I will look at the reasoning of the Court of Appeal and whether the same protection would be afforded to an examinee in Scotland.

What is immunity from suit?

The principle of immunity from suit for witnesses in judicial proceedings has been recognised for centuries. It extends to all who directly take part in a trial and is there to protect a witness who has given evidence in good faith from being made subject to an action for defamation in respect of the words spoken in the witness box. If this protection were not available, witnesses might be deterred from giving evidence. The fact that the shield of immunity covers the malicious and dishonest witness as well as the honest one, is a price thought worth paying for the efficient working of the administration of justice.

To those familiar with a Section 236 examination, they might be surprised that immunity would also apply to the examinee. The process of "taking evidence" from an examinee is very different to that of taking evidence in a fully contested trial. The process is primarily investigatory. There are no pleadings. The judge does not decide any point of law or fact. However, that is to take what the Court of Appeal called an overly narrow view of the Section 236 examination.

What did the Court of Appeal decide?

It is important to be clear as to the issue the Court of Appeal was addressing. It is uncontroversial that a liquidator can use what is said in a Section 236 examination as evidence in a subsequent action by the liquidator against the examinee. This is clear from Section 433 of the 1986 Act. What the Court was dealing with here is the ability of the liquidator, or any other person, to use what is said by the examinee as the basis for an action against the examinee. Put simply, can an examinee be sued simply for saying something in an examination?

In the Al Jaber case itself, the liquidator was seeking to amend its case in proceedings against the examinee when during the trial of those proceedings, the examinee produced a "list of corrections" in which he claimed that certain statements made during the Section 236 examinations were incorrect. The liquidators wanted to introduce into the proceedings allegations that the examinee had, during Section 236 examinations, breached his fiduciary duties to the insolvent company by giving false information as to the ownership and movement of shares. The trial judge was prepared to allow the liquidators to introduce those claims. However, the Court of Appeal reversed that decision. The leading judgment was given by Lady Justice Asplin:-

"…in my view, a section 236 examination must not be viewed in isolation, but in the context of the broader court-supervised compulsory winding-up proceedings of which it forms part…The section 236 examination is a tool which can be used by…the liquidator in the course of the winding-up proceedings…When posing questions under the supervision of a judge, the liquidator is seeking to further the purposes of the court-supervised compulsory winding-up…That casts the section 236 examination in a different light. It seems to me that once it is viewed in that way, it is clear that it is part of a wider "judicial proceeding". It is part of the compulsory winding-up which commences with an order of the court and is supervised by the court thereafter."

The Court of Appeal was also heavily influenced by the fact that both the judge overseeing the examination and the office-holder who had sought the examination would enjoy immunity from suit. When posing questions under the supervision of a judge, the liquidator is seeking to further purposes of a court-supervised compulsory winding up. Lady Justice Asplin also noted the following points in support of her position:-

  • It is possible that an examinee will be "put on the spot" as the liquidator's train of enquiry develops. If an examinee faced the prospect of civil claims in respect of mis-statements made during the examination, that might encourage risk averse responses which undermine the information gathering purpose of the Section 236 examination.
  • The affording of immunity would not remove a remedy from the person who might have been "wronged". The fact that a person enjoys immunity in relation to answers given at a Section 236 examination does not change the statutory or fiduciary duty on that person under section 235 to produce information.
  • The Judge considered the suggestion that immunity under Section 236 would incentivise examinees to stall providing information pursuant to section 235 and seek to push most liquidator enquires into the formal Section 236 process. However, even if such a risk existed, the Judge found that it was outweighed by the countervailing policy considerations in favour of immunity.

Will this decision change how liquidators approach Section 236 applications?

While interesting, this decision is unlikely to fundamentally change the use of Section 236 by office-holders. In particular, it is unlikely that we will see examinees being more reluctant to volunteer information under section 235. I tend to agree with the Court of Appeal that the risk of examinees "stonewalling" is probably low. Insolvency Practitioners are already very familiar with a lack of engagement following a request for information. The reasons for this are generally nothing to do with a potential lack of immunity from suit.

Where this decision will be helpful is where an examinee subsequently changes his or her position from what was stated in a Section 236 examination. While a claim on the basis of what is said will not be competent, it may still be possible to base a breach of duty claim on the failure to provide that information at the section 235 stage.

What is the position in Scotland?

I would suggest that the courts in Scotland are likely to follow the Court of Appeal with regard to immunity applying to an examinee in Section 236 proceedings. I would expect them to agree with the broader perspective adopted by the Court of Appeal regarding the purpose behind section 236 examinations and therefore be reluctant to remove immunity in case that would result in examinees being less than full and frank in what they say during the examination.


Andrew Scott

Senior Associate