Insolvency practitioners cautioned by the Court over disclosure

ICC Judge Barber issued a stark reminder to Insolvency Practitioners and their lawyers in her judgment in Stewart & Ors –v- Watkins [2019] EWHC 1311 (Ch) that when bringing an application by application notice and witness statement, the applicant must take proper steps to ensure that all non-privileged documents in their possession which are of obvious relevance to the issues raised by their application are exhibited to their supporting statements and further that if this long-standing practice is not honoured, it may prove necessary for directions for pleadings and formal disclosure to be given in a higher proportion of office holder application that is currently the case. Office holders should take note because directions for disclosure could add substantial additional costs burden to the estate.

Background

Karl Watkin was made bankrupt on 10 December 2012 (the Bankrupt) on the petition of the Bank of Scotland. Nicholas Stewart Wood of Grant Thornton and David John Standish of KPMG (the Trustees) were appointed as trustees in bankruptcy shortly thereafter.

An application was made in early 2018 by the Trustees against the Bankrupt’s daughter, Kate Watkin for declarations and other relief in respect of 3 properties in London and Durham purchased in 2003, 2006 and 2007 purchased and registered in the sole name of Kate Watkin (the Properties) on the premise that at all material times the Bankrupt was the sole beneficial owner of each of the Properties on resulting trust principles. The Trustees raised an alternative case that all sums  paid by or on behalf of the Bankrupt towards the purchase of the Properties were transactions defrauding creditors pursuant to s.423 of the Insolvency Act 1986. As is not unusual with an application within insolvency proceedings, the application proceeded by application notice and supporting statement without directions for points of claim or disclosure. Notwithstanding the custom and practice in issuing insolvency application in light of Hellard & Anor v Graiseley Investments Ltd & Ors [2018] EWHC 2664 (Ch) it is now recommend that in save  but the most straightforward of applications points of claim are filed with application notices.

ICC Judge Barber had before her the following by way of witness evidence:

1. First, second and third witness statements of Nicholas Wood dated 29 January 2roby018, 29 May 2018 and 16 August 2018 respectively;
2. Witness statement of Kate Watkin dated 27 April 2018;
3. Witness statement of Kate’s mother, Mrs Jill Watkin, dated 28 April 2018.

As well as an agreed bundle which contained documents for use at the hearing.

ICC Judge Barber raised her concerns at the outset of the trial that she considered documents of material significance to the issues raised by the application which were in the Trustees possession, had not been exhibited to the statements and were not otherwise produced in evidence. ICC Judge Barber therefore felt it necessary to direct the Trustees to produce such material documents on the first day of trial, including but not limited to; the Official Receiver’s bankruptcy questionnaire completed by the Bankrupt, the transcript of an interview by Grant Thornton in November 2013 which included questions regarding the Properties, further questionnaires prepared by Grant Thornton and completed by the Bankrupt, interview notes of interviews and save for a few selected pages, bank statements. ICC Judge Barber considered that other material documents had not been disclosed at all.

At the end of the trial, the Trustees were wholly unsuccessful in their application. When handing down judgment, ICC Judge Barber was critical of not only the written evidence of Mr Wood which she commented had some reservations as to the accuracy and fairness of” but also the oral evidence given by Mr Wood whereby ICC Judge Barber consider Mr Wood to have ‘material gaps in his knowledge’ although she found Mr Wood a truthful witness.

Further, ICC Judge Barber was critical of the Trustees for the lack of disclosure and production into evidence of what she considered material documents. At paragraph 179 of the Judgement ICC Judge Barber referred to JSC BM Bank v Kekhman and others [2018] EWHC 791 and quoted Bryan J. to say, ‘memories are fallible… and therefore where possible a court should rely on documentary evidence and any other objectively provable facts.’”

Analysis

The outcome of this case is a glaring reminder to Insolvency Practitioners and their advisors to ensure that when presenting a case or making an application it must be done so it a way that is fair and reasonable. Whilst there may be no order for disclosure office holders have a duty to fairly present the facts to the Court.

Those giving evidence should be familiar with the facts of the matter and should avoid cherry picking supportive evidence only and ensure that witness statements contain only fact, not opinion.

It is interesting to note that it appears that the legal advisors to Kate Watkins did not make an application pursuant to the Insolvency Rules 2016, Insolvency Rule 12.27 for disclosure in accordance with Part 31 of the Civil Procedure Rules themselves, but that it was ICC Judge Barber that raised the issue with the lack of production of documents.

Gabriel Moss QC

At the end of her Judgment ICC Judge Barber paid tribute to Gabriel Moss QC, Counsel for Kate Watkin, who sadly passed away whilst the Judgement was being prepared.

ICC Judge Barber commented that Gabriel Moss QC had “scrupulously presented the case for Kate Watkin” ICC Judge Barber wanted to pay tribute to the “intellectual rigour brought by him to all of his cases, be they large or small, and to acknowledge his peerless contribution to the development and application of the laws of insolvency.”

We echo ICC Judge Barber’s sentiments. Gabriel Moss QC was a significant contributor to the jurisprudence that has arisen from the Insolvency Act 1986 his practice, which was a leading light for those of us involved in contentious insolvency, will continue to shine through the judgments of the cases he acted in.