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Failure to Cooperate With Liquidators Can Ultimately Lead to Jail

Directors of insolvent companies have a legal duty to cooperate with liquidators who have all the authority of officers of the court. In one case, two directors who failed to comply with High Court disclosure orders narrowly escaped hearing the clang of prison gates.

In proceedings under the Insolvency Act 1986, liquidators accused the directors of transferring or disposing of their company’s assets to third parties at an undervalue or for illusory consideration. In support of those claims, the liquidators had obtained asset freezing orders to a total value of £4.58 million.

The liquidators were also granted orders requiring the directors to disclose books, records and documents relating to the company. They had conducted much of the company’s business by mobile phone and via their private email accounts and were also required to disclose their user names and passwords so that such emails and text messages could be recovered from remote storage media.

After the liquidators took action to enforce those orders, the directors admitted that they had failed to comply with them and that they were thus in contempt of court. The Court imposed prison sentences of four and six months, but agreed to suspend those terms in the light of the directors’ admissions and expressions of regret. Two other directors, who were less culpable, received modest fines.