Court clarifies liquidators’ rights to audit files in Dale v BDO LLP

In the recent case of Dale & Ors v BDO LLP (Re NMCN PLC and NMCN Sustainable Solutions Ltd) [2025] EWHC 446 (Ch), the High Court considered the scope of a liquidator’s powers under sections 235 and 236 of the Insolvency Act 1986 when seeking the production of audit files from a company’s former auditors.  

The decision provides valuable insight into the balancing exercise undertaken by the court when assessing the reasonableness of such requests.  As liquidators continue to scrutinise the role of auditors in high-profile insolvencies, this area of law is likely to remain a focal point for future litigation. 

Background – Dale v BDO LLP

The joint liquidators sought an order requiring BDO LLP, the company’s former auditors, to deliver up audit files relating to the company’s 2018 and 2019 accounts (the Audit Files). The request was made to facilitate the liquidators’ investigation into whether BDO had breached its duties to the company and to understand “the reasons behind the Company’s spectacular collapse into insolvency.”

The company’s financial history was marked by significant discrepancies. It had initially reported a pre-tax profit of £7.441 million and total equity of £20.946 million for the financial year ending 31 December 2019. However, after BDO was replaced by Ernst & Young LLP as auditors in September 2020, a drastic reassessment followed. The company later announced it was anticipating a significant loss before tax. Further investigations revealed that prior year profits had been overstated, contributing to overall financial instability.

Ultimately, the company entered administration on 6 October 2021 and compulsory liquidation on 16 September 2024. Following this, the liquidators sought orders under sections 235 and 236 of the Insolvency Act.

What was the court asked to decide?

The court was required to determine:

1. Whether the request for production of the Audit Files constituted a reasonable request under sections 235 and 236 of the Insolvency Act 1986.
2. Whether BDO could be considered an “officer” of the company for the purposes of section 235.
3. How the two-stage test established in British and Commonwealth Holdings plc v Spicer & Oppenheim should be applied.
4. The extent to which the legal principles in this case should be followed.

What is the relevant case law?

The court considered the following key authorities:

• Sections 235 and 236 of the Insolvency Act empowers liquidators to obtain information efficiently and cost-effectively to investigate an insolvent estate (Pikard v Fim Advisers LLP [2010] EWHC 1299 (Ch); Re Rolls Razor Ltd [1968] 3 All ER 698). 

• The scope of such orders is not confined to merely reconstituting the company’s knowledge (British and Commonwealth Holdings plc [1993] AC 426). 

• In Sasea Finance Limited v KPMG [1998] BCC 216, the court observed that auditors are “most probably officers of the company”. The case also established the following two-stage test: 

1. The liquidator must demonstrate a reasonable requirement for the information. 
2. The court must conduct a balancing exercise, weighing the significance of the information to the liquidators against any potential burden or oppression imposed on the respondents. 

The court reaffirmed that it retained discretion to consider the burden placed on the respondent should an order be made with the judge stating that “when considering whether to make an order under section 235 (which expressly refers to the office-holder’s reasonable requirement) and section 236 (where the common law similarly imposes a ‘reasonable requirement’ test), the court’s discretion is at large and it remains open to me to consider the burden and any potential oppression that may fall upon BDO when determining the reasonableness of the Applicants’ asserted requirement.”

The court’s decision

The court ultimately found in favour of the liquidators, holding that their request for the Audit Files was reasonable. The judge observed that the files constituted a record of how BDO performed its function as auditors, including the application of professional scepticism and the interrogation of evidence provided by the company. The court made this decision even though once the information had been provided to the liquidators, it may result in them taking legal action against BDO themselves:

“The potential oppression caused to BDO in providing them, knowing that their disclosure may lead to litigation being commenced against them and that a privilege review must first be conducted in respect of the 2018 Audit File, does not dissuade me from concluding that the Applicants’ requirement to see the files is reasonable, nor, when weighed in the balance, to decline to make an order in the terms sought.”

Key takeaways

This judgment underscores the broad powers available to liquidators under sections 235 and 236 of the Insolvency Act. While auditors and other third parties may raise concerns about the burden of compliance, the courts will weigh these against the public interest in facilitating such investigations. The case reaffirms that audit files can be a crucial source of information for insolvency practitioners and that auditors may, in certain circumstances, be deemed officers of the company.

For professionals advising liquidators or auditors, this case highlights the importance of understanding the scope of potential obligations and the potential risks of non-compliance under the Insolvency Act.