Sections 234–236 of the Insolvency Act 1986 provide office holders with important tools for establishing whether there are grounds for an insolvency claim. In practice, an IP will often take an appointment with an incomplete picture of the company’s affairs, with key documents missing, records held by third parties or important decisions lacking sufficient explanation. The investigatory powers enable the IP to piece together that missing information and understand the circumstances leading up to insolvency before deciding whether litigation is justified.
The powers have broader uses beyond simply obtaining documents. Section 234 can be used to recover company books, papers, and records from third parties such as former professional advisers, lenders, IT providers, cloud storage providers, and directors. Section 235 allows IPs to obtain explanations from relevant individuals, helping to establish the rationale behind transactions, understand decision-making and identify where further evidence or witnesses may be located. Section 236 provides a mechanism, allowing the court to require individuals to attend a private examination and answer questions under oath. Used together, these powers can help an IP move from identifying suspicious transactions to understanding the underlying facts and assessing whether a viable claim exists.
However, the powers are not without some limitations. Requests must be reasonable, proportionate and sufficiently specific; an IP cannot use them simply as a fishing expedition in the hope that something useful will emerge. Section 234 does not override privilege or resolve complex disputes over ownership of documents, while the effectiveness of Section 235 may depend on the quality and willingness of individuals to provide explanations. Section 236 is generally a last resort and requires the court to balance the need for information against the respondent’s rights and the potential costs.
This Insight sets out when and how the powers in s234-236 can be used and might be useful, as well as setting out key considerations ahead of exercising the powers and what hurdles an officeholder can face.
