When a company enters liquidation or administration, the office holder acquires a powerful investigatory weapon: the power under section 236 of the Insolvency Act 1986 to require any officer, creditor, debtor, auditor, bank or other person to attend a private examination before the court, submit a witness statement or produce books, papers and records. For directors of insolvent companies – particularly those who also face HMRC investigations – a section 236 application is one of the most serious steps that can be taken against them. This guide analyses the scope of the power, the court’s discretion, the available defences and the critical interaction with parallel tax investigations.
On this page
- Why section 236 matters to tax advisers
- When the power arises and who can apply
- Who can be examined
- Scope of a section 236 order
- The court’s discretion: oppression vs legitimate purpose
- Legal professional privilege
- Privilege against self-incrimination and s433 IA 1986
- Extra-territorial effect: the conflicting case law
- The HMRC parallel investigation: a particular hazard
- Procedure and the “no say” injunction
- Non-compliance: contempt and costs
- FAQs
Why Section 236 Matters to Tax Advisers
Section 236 is a provision that sits at the intersection of insolvency law and tax investigation. It is deployed by liquidators and administrators to investigate the affairs of insolvent companies, identify assets and gather evidence for claims against directors, shareholders and third parties. For the tax adviser, it is relevant in three principal ways:
- HMRC investigations and insolvency parallel proceedings: Directors who are already under investigation by HMRC (whether under COP9, a criminal investigation or a PAYE enquiry) may also face a section 236 application from the office holder. The two investigations can overlap and information obtained in one can inform or be used in the other.
- Company accounts and tax records: A section 236 order is frequently used to obtain the company’s accounting records, bank statements and correspondence with HMRC – all of which are directly relevant to any outstanding tax liability and to the liquidator’s ability to quantify HMRC’s proof of debt.
- Director disqualification and PLNs: Evidence gathered under section 236 is regularly used in director disqualification proceedings under the Company Directors Disqualification Act 1986 (CDDA) and in support of personal liability notice (PLN) applications where the company’s penalties are sought to be attributed to individual directors.
When the Power Arises and Who Can Apply
Section 236(1) IA 1986 provides that the section applies where a company is in compulsory liquidation, creditors’ voluntary liquidation, provisional liquidation or administration. Administrative receivers also have access to the power under section 236(1).
The parties who may apply for a section 236 order are:
- A liquidator (in both compulsory and voluntary liquidation);
- An administrator;
- An administrative receiver;
- A provisional liquidator;
- The Official Receiver, where the company is in compulsory liquidation (even if the OR is not the liquidator).
Who Can Be Examined
Section 236(2) IA 1986 permits the court to summon any of the following to appear for examination or to produce documents:
- Any officer of the company (including a director, shadow director, manager, secretary or auditor – see Sasea Finance Ltd v KPMG [1998] BCC 216);
- Any person known or suspected to have company property in their possession;
- Any person supposed to be indebted to the company;
- Any person the court thinks capable of giving information concerning the promotion, formation, business, dealings, affairs or property of the company.
The breadth of the fourth category is striking. It has been held to extend to the company’s bankers (Re Highgrade Traders Ltd [1984] BCLC 151), government departments including HMRC (Soden v Burns [1996] 1 WLR 1512), shareholders, former employees and professional advisers. The term “person” includes corporations (rule confirmed in Re Highgrade Traders Ltd). This means a bank can be ordered to produce statements and records without being a formal party to litigation against the company.
Shadow Directors
A person who has been acting as a shadow director – that is, a person in accordance with whose directions or instructions the directors of the company were accustomed to act (s251 IA 1986) – is an “officer” for the purposes of section 236. Shadow directors can accordingly be summoned to examination in exactly the same way as formally appointed directors. The practical consequence is that controlling shareholders, parent company representatives and informal advisers who have taken an active role in company management may find themselves subject to section 236 orders.
Scope of a Section 236 Order
On an application under section 236(2) IA 1986, the court may order the respondent to:
- Appear before the court for examination – this is a private examination conducted in camera, not a public hearing;
- Submit a witness statement (verified by a statement of truth) giving an account of their dealings with the company;
- Produce books, papers and other records in their possession or under their control that relate to the company or its affairs.
The scope of the order extends to all matters relating to the company’s promotion, formation, business, dealings, affairs or property (section 236(2)(c) and (3)). In British & Commonwealth Holdings plc (No 2) [1992] Ch 342, the House of Lords held that the power extends to all documents that the office holder reasonably requires to carry out their functions, subject to the limits imposed by privilege and the court’s discretion.
The Court’s Discretion: Oppression vs Legitimate Purpose
Although the language of section 236 is mandatory in form – the court “may” make an order – in practice the court exercises a genuine discretion. The starting point is that the office holder is entitled to the information they need to perform their statutory functions; but this must be balanced against the potential for oppression, particularly where the respondent is a former director already facing significant personal exposure.
Proper Purposes
The courts have identified the following as proper purposes for a section 236 order (Re Rolls Razor Ltd [1968] 3 All ER 698; Re RBG Resources plc [2002] EWCA Civ 1624):
- Allowing the office holder to understand the exact state of the company’s affairs;
- Reconstituting the company’s accounting and business records;
- Identifying and recovering assets;
- Discovering facts surrounding potential claims against the respondent;
- Investigating the causes of the company’s failure;
- Obtaining evidence for director disqualification proceedings (Re Pantmaenog Timber Co Ltd [2003] UKHL 49).
Oppression Considerations
The courts consider the following factors in assessing whether an order would be oppressive:
- Whether the respondent is already a defendant or defendant-equivalent in litigation brought by the office holder (a s236 application used to obtain evidence for existing litigation against the respondent may be declined);
- Whether the questions or documents sought are directed at matters where the respondent claims privilege;
- Whether the order is being used as a substitute for proper disclosure in ongoing proceedings;
- The volume and complexity of the documents sought and whether the request is proportionate.
Legal Professional Privilege
Legal professional privilege (LPP) is a fundamental right and is not displaced by a section 236 order. The House of Lords confirmed in Re Barlow Clowes Gilt Managers Ltd [1992] Ch 208 that LPP is not abrogated by the insolvency legislation and the same principle applies to section 236.
Categories of Privilege
Two categories of LPP are relevant:
- Legal advice privilege: Protects confidential communications between a lawyer and client made for the dominant purpose of giving or obtaining legal advice. This covers advice from solicitors or barristers about the client’s legal rights and obligations, including tax advice if given by a qualified lawyer in a legal capacity.
- Litigation privilege: Protects documents and communications created for the dominant purpose of anticipated or existing litigation. It applies to communications with third parties (e.g., experts, witnesses) as well as to lawyer-client communications.
Tax Advice and Privilege
Tax advice given by an accountant or tax adviser who is not a qualified lawyer does not attract legal advice privilege. This is a significant point in cases where the office holder is seeking correspondence between the company and its accountants about tax planning or tax compliance. Such documents may be highly relevant to the liquidator’s investigation into the company’s tax affairs and are not protected by LPP unless they contain or reflect communications with a solicitor or barrister.
Privilege Against Self-Incrimination and s433 IA 1986
The privilege against self-incrimination – the common law right not to be compelled to answer questions or produce documents that would tend to incriminate the witness in criminal proceedings – has been significantly curtailed in the insolvency context by section 433 IA 1986.
Section 433 IA 1986: Use of Compelled Answers
Section 433 IA 1986 provides that a statement or document produced in compliance with an order under section 236 may be used in evidence against the person who produced it in proceedings relating to the insolvency. This provision applies notwithstanding any privilege against self-incrimination. The combined effect is:
- A director cannot refuse to comply with a section 236 order on the ground that their answers would be self-incriminating;
- Any answers or documents produced can then be used in insolvency-related proceedings against that director, including disqualification proceedings, misfeasance claims under s212 IA 1986 and the pursuit of overdrawn loan account claims.
Criminal Proceedings: The Limitation on s433
The position is more protective in relation to criminal proceedings. The Court of Appeal in Re Arrows Ltd (No 4) [1995] 2 AC 75 (HL) held that the right to a fair trial under Article 6 ECHR does not prevent the use of s236 evidence in criminal proceedings, following the decision of the European Court of Human Rights in Saunders v United Kingdom (1996) 23 EHRR 313. However, the Regulation of Investigatory Powers Act 2000 and the Criminal Justice Act 1987 contain provisions that limit the use of compelled statements in criminal prosecutions.
Extra-Territorial Effect: The Conflicting Case Law
The question of whether section 236 extends to persons and documents outside England and Wales is the subject of conflicting High Court authority.
In Re MF Global UK Ltd [2015] EWHC 2319 (Ch), the court held that section 236 had no extra-territorial effect: it could not compel a French company to produce documents or an individual abroad to attend examination in England. However, in Official Receiver v Norriss [2015] EWHC 2697 (Ch), the court reached the opposite conclusion in relation to the document production power under section 236(3), holding that it did extend to persons resident abroad. In Wallace v Wallace [2019] EWHC 2503 (Ch), the court preferred the Norriss approach and ordered document production by a former book-keeper resident in Ireland.
In Re Akkurate Ltd [2020] EWHC 1433 (Ch), the court declined to follow Wallace and reverted to the MF Global approach. Following the end of the UK-EU transition period, the Insolvency Regulation route to extra-territorial effect is no longer available to English courts in relation to EU-based respondents.
The practical position is one of considerable uncertainty. Practitioners advising respondents based outside England and Wales should consider carefully whether a section 236 order can be effectively enforced against their client and whether the applicable principles in the relevant jurisdiction would give effect to an English insolvency court order.
The HMRC Parallel Investigation: A Particular Hazard
A section 236 application is most dangerous for a director who is simultaneously the subject of an HMRC investigation. This scenario is common in cases where:
- HMRC has presented or threatened a winding-up petition and the company has entered liquidation, allowing HMRC to influence – informally – the liquidator’s investigation priorities;
- The company’s tax records, which are central to the HMRC investigation, are the same documents sought by the liquidator under section 236;
- HMRC has commenced a COP9 or criminal investigation running in parallel with the liquidation, and the director is expected to respond to both.
Overlap in Evidence
Information and documents produced in compliance with a section 236 order can be shared with HMRC in appropriate circumstances. The courts have held that the use of information obtained under section 236 is not restricted solely to insolvency proceedings: it may be passed to HMRC where the liquidator concludes that a statutory obligation or legitimate public interest requires it (Re Arrows Ltd (No 4) [1995] 2 AC 75). HMRC officers and the Official Receiver regularly work together in the investigation of insolvent companies, and the director’s s236 answers may find their way into the HMRC investigation file.
Strategy Under Parallel Proceedings
A director facing both section 236 and an HMRC investigation should take coordinated specialist advice on the following:
- Whether there is any basis to oppose the section 236 application itself (for example on grounds of oppression or that the office holder’s purpose is not a proper insolvency purpose);
- What LPP claims can legitimately be asserted over documents sought by the liquidator;
- The scope of section 433 IA 1986 and the extent to which compelled answers will be usable in civil insolvency proceedings;
- The interaction with any pending HMRC criminal interview and the right to silence under the Police and Criminal Evidence Act 1984;
- Whether HMRC’s parallel investigation is a reason to seek a stay or adjournment of the section 236 examination pending resolution of the criminal matter.
Procedure and the “No Say” Injunction
The section 236 application is made by application notice under Part 23 CPR and the Insolvency (England and Wales) Rules 2016. Key procedural points:
- Without-notice applications: Where there is a risk that assets will be dissipated or the respondent may leave the jurisdiction, the office holder may apply without notice. The application is made ex parte to the court; directions are given for service on the respondent.
- “No say” injunction: The office holder will often seek an ancillary order prohibiting the respondent from disclosing the existence of the application – known as a “no say” injunction. This is particularly common in fraud cases where advance knowledge of the investigation might trigger asset dissipation or the destruction of evidence.
- The examination itself: Private examinations under section 236 are conducted before a judge in chambers. They are not public proceedings. A transcript is taken. The examined person may be legally represented but their counsel cannot conduct the examination or object to questions on grounds of relevance: the section 236 examination is not adversarial litigation.
- Challenging the order: A respondent who objects to a section 236 order may apply to discharge or vary it within a short period after service. Grounds for discharge include oppression (e.g., the order is disproportionate or is being used to assist litigation rather than for proper insolvency purposes) and privilege.
Non-Compliance: Contempt and Costs
Non-compliance with a section 236 order is treated as contempt of court. Rule 12.21 IR 2016 provides that the court may punish non-compliance with a fine or committal to prison. In practice, contempt applications in section 236 proceedings are rare but not unknown, particularly in fraud cases where directors have absconded or are deliberately obstructing the liquidation.
Costs: a respondent who objects to a section 236 order and fails in that objection will typically be ordered to pay the costs of the application. Conversely, an office holder who overclaims or uses section 236 for an improper purpose may be ordered to pay the respondent’s costs of resisting.
FAQs
Can a director refuse to answer questions in a section 236 private examination?
A director cannot simply refuse to comply with a section 236 order: non-compliance is contempt of court and may result in committal (rule 12.21 IR 2016). However, legitimate grounds exist to limit the scope of what must be disclosed. Legal professional privilege protects documents and communications created for the dominant purpose of obtaining legal advice or use in litigation. A limited privilege against self-incrimination is also available but is considerably narrowed by section 433 IA 1986, which provides that answers given in compliance with a s236 order may be used in evidence in certain insolvency-related proceedings.
Can HMRC obtain information through a section 236 examination?
Section 236 is a power available to the office holder, not to HMRC directly. However, the liquidator or administrator may use section 236 to investigate matters that are also relevant to HMRC’s tax investigation. Information obtained under section 236 can be shared with HMRC in appropriate circumstances. Directors facing both a section 236 application and an HMRC COP9 or criminal investigation are in a particularly exposed position and should take specialist co-ordinated advice before responding to either investigation.
Does section 236 apply to persons outside England and Wales?
The extra-territorial effect of section 236 is unsettled following conflicting High Court decisions. Re MF Global [2015] held there was no extra-territorial effect; Norriss [2015] and Wallace [2019] held the document production power under s236(3) did extend abroad; while Re Akkurate [2020] preferred the MF Global approach. In practice, orders against respondents based outside England and Wales carry enforcement risk and should be considered carefully.