This Statement provides a guide to a trustee in bankruptcy's power to obtain information.
The bankrupt's own information
On appointment, the bankrupt's estate vests in the trustee. As a general rule, this means that any right the bankrupt has to information or copy documents (eg bank statements) now vests in the trustee, as well as a right to any documents that belong to the bankrupt. As such a bankrupt's trustee is also entitled to see any legal advice the bankrupt may have obtained prior to his bankruptcy. This right extends to documents held under joint legal privilege, for example where husband and wife jointly instructed the solicitor.
Third party information
A statutory power given to trustees in bankruptcy enables them to obtain information from third parties that would not normally be available. Section 366(1) of the Insolvency Act 1986 (" IA86 ") reads as follows:
"At any time after a bankruptcy order has been made the court may, on the application of the official receiver or the trustee of the bankrupt's estate, summon to appear before it –
(a) the bankrupt or the bankrupt's spouse or former spouse or civil partner or former civil partner;
b) any person known or believed to have any property comprised in the bankrupt's estate in his possession to be indebted to the bankrupt;
(c) any person appearing to the court to be able to give information concerning the bankrupt or the bankrupt's dealings, affairs or property.
The court may require any such person as is mentioned in paragraph (b) or (c) to submit a witness statement verified by a statement of truth to the courts containing an account of his dealings with the bankrupt, or to produce any documents in his possession or under his control relating to the bankrupt or the bankrupt's dealings, affairs or property."
This section is far reaching and enables the court to 'force' the production of information even if that information may be incriminating. The court continues to have the power to direct the examination of any person even after the bankrupt has been discharged.
In most cases, a trustee will hope that the threat of a 366 application will suffice, however, orders may be necessary where the third party is adverse to the trustee's interests or where the party owes a duty of confidence itself (for instance a third party's banker).
Section 366 applications
The Court when considering an application for a s366 order will consider firstly whether or not the third party will have information relating to the bankruptcy, and secondly whether in its discretion it should order that third party to produce it. In exercising its discretion the Court will consider a number of factors including:
i) the requirements of the trustee in order that he can carry out his tasks;
ii) whether the information sought is fundamental to any assessment of a potential asset or a cause of action;
iii) the need to avoid making an order which is wholly unreasonable, unnecessary or oppressive to the person concerned;
iv) the volume and cost of providing the information (see Corporate Account Statement CA003 in that regard);
v) that an order for oral examination is more likely to be oppressive than an order for the production of documents; and
vi) whether proceedings have already been commenced, or whether the trustee has formed a view that he will bring proceedings at the time of the section 366 application by the trustee, and the effect of oppressiveness of an order as a result.
It is always useful to have a paper trail (ideally setting out the trustee's arguments explaining why the information is needed using the factors above as a guide) showing that a number of attempts to obtain this information have been made before the application was made. The trustee should therefore be aware that his letters are likely to be exhibited to a witness statement in support of the application and should draft them accordingly.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
