Further Investigation Interviews

December 2005

PART 6

11.60 Use of compulsive powers in further investigation cases - criminal matters

In cases where there is possible criminal misconduct apparent from the preliminary investigation, the official receiver may wish to conduct a further interview in order to satisfy his/her duty to investigate and establish in a winding up the reasons for the insolvency note 1, the general promotion, formation, business, dealings and affairs of the company note 2 and in a bankruptcy the conduct and affairs of the bankrupt note 3. The official receiver may also wish to re-interview in order to obtain more information regarding the disposal or whereabouts of assets, which may be connected to the potential criminal misconduct.

Statements obtained under the official receiver's compulsive powers cannot be used as evidence in criminal proceedings unless evidence relating to it is adduced, or a question relating to it is asked, in the proceedings by or on behalf of the person charged with the offence note 4. (Saunders v United Kingdom 1997 EHRR 313).

The official receiver should not interview solely in order to gain information on possible criminal conduct in order to report it in a statement of facts note 5 to the Authorisations Team. The necessary information to complete the statement of facts should be available from the interviews carried out in order to fulfill the official receiver's statutory duty. Where a statement of facts is submitted and the Authorisations Team considers that there are grounds for investigation, an investigation officer will be appointed to carry out the criminal investigation, and this is not the work of the official receiver. The Police and Criminal Evidence Act 1984 and the Code of Practice apply to the conduct of the criminal investigation by the investigation officer.

11.61 Further interviews - disqualification matters generally

In disqualification cases it is expected that all targeted directors will have been both;

interviewed;
and in most cases interviewed specifically about all relevant events that form the basis of the complaints of unfit conduct in the draft report.

The official receiver needs to have all relevant information and detail about the circumstances in which the apparent unfit conduct took place. In many cases this will mean that further interviews will be needed with some or all of the company officers after the CAR has been completed.

The Court of Appeal case of Secretary of State v Hickling 1996 BCC 678 states - "(the Secretary of State's evidence) should not omit significant available evidence in favour of any respondent. It should attempt to deal with any explanation already proffered by any of the respondents. It should endeavour to apportion responsibility between the respondents and it should avoid sweeping statements for which there is no evidence."

This case, in effect, means the official receiver in particular (who has powers carry out a full investigation) needs to take reasonable steps to be aware of any matters that favour the defendant. It is foremost an issue of fairness but it also makes sense to be able to assess and deal with possible defences at the investigation stage.

The official receiver may use his/her compulsive power to obtain information from a company officer for disqualification matters, but caution should be exercised when doing so.

11.62 The use of private examinations in disqualification investigations

The House of Lords in the case of Pantmaenog Timber Company Limited (Pantmaenog) reported at Official Receiver (Apellant) v Wadge Rapps & Hunt (a firm) and another and two other actions 2003 UKHL 49, held that the official receiver could use the compulsive powers under section 236 for the purposes of considering and conducting disqualification investigations and proceedings, but that those powers were subject to the discretion of the court as to whether to allow their use in such circumstances.

The Insolvency Act 1986 and the Company Directors Disqualification Act 1986 form part of the same statutory regime and should be read together. The procedures exist for the protection of the general public, and not just to protect the interest of the creditors and shareholders of the company in liquidation. Consequently the powers conferred on liquidators and the official receiver are not limited to use only in connection with the collection and distribution of assets but may also be used to gather information so that liquidators can report to the Secretary of State as they are required to do note 6, and the official receiver can carry out his/her investigative and reporting functions which include making a report to the Secretary of State note 6.

See Chapter 13 Part 5 - Co-operation, non co-operation and enforcement of duty to co-operate and Chapter 23: Private examinations for further details regarding the conduct of a private examination.

11.63 The use of compulsive powers under section 235 in disqualification investigations

The ruling in the case of Pantmaenog did not deal directly with the use of section 235 to obtain information solely for the purposes of disqualification proceedings, but the same considerations apply. However, an application to court is not required for the use of this power, and so there is not the safeguard of the exercise of the court's discretion in this instance. Consequently the official receiver must be able to demonstrate that the powers conferred by section 235 are not being abused or used oppressively.

In the following situations where the official receiver uses or threatens section 235 (whether it is mentioned specifically to the director or not) the director concerned must be informed at the time why the information or interview is being sought;

at any time in the investigation or proceedings where the request for information or attendance is solely for the purpose of a disqualification matter,
at any time after the case has been targeted on Register B for submission of a draft disqualification report, irrespective of whether the request is only partially for the purposes of disqualification.

The Lords’ commentary in Pantmaenog does refer in passing to public examinations which can also be used to obtain information relating to unfit conduct. The Lords noted that the court could decline to direct a public examination if it considered that it would be oppressive. It follows that if the official receiver proposes to apply for a public examination solely to obtain disqualification related information that fact must be disclosed in the application to the court and be supported with reasons so that the court can have the opportunity to consider whether a public examination is appropriate in the circumstances.

Statements taken by the official receiver under his/her compulsive powers may be used in disqualification proceedings note 7 (Re: Westminster Property Management Ltd, Official Receiver v Stern 2000 1 WLR 2230). Where the question is raised whether the use of such statements is unfair the judge will determine on admissibility.

11.64 Use of compulsive powers in further investigation cases - bankruptcy restrictions order matters

Statements obtained under compulsion are admissible in bankruptcy restrictions orders proceedings note 8. The bankrupt has a specific duty to co-operate with the official receiver and provide information in connection with a bankruptcy restrictions order note 9.

The official receiver needs to investigate the matters of potential misconduct fully during interviews conducted, including the background to the misconduct, the reasons for the actions taken by the bankrupt, and the effect of the misconduct on creditors. For more information on the level of detail of the information that needs to be obtained from the interviewee see Enforcement Investigation Bulletin Issue 21 and the technical guidance that is issued by the Enforcement Directorate generally.

11.65 All company officers to be interviewed

In a winding-up where there is possible misconduct, it may be desirable to obtain statements from all of the company officers. Each officer against whom an allegation is to be made must be interviewed and given the opportunity to explain his/her actions, or lack thereof. See also paragraph 11.54.

This may mean that more than one interview needs to be conducted with each company officer as in many cases the detail of the unfit conduct will not be sufficiently formulated at the preliminary investigation stage. Further it will mean that any company officer targeted in addition to those who provided the preliminary information need to be interviewed about what they did (or did not) do - this extends to company officers charged with abrogation of their duties, although if the circumstances of the case are fairly straightforward, and the allegations against the main defendants are not at the very serious end of the scale, it would be acceptable to deal with such cases by correspondence only. Information provided by company officers by correspondence alone may in some circumstances be sufficient as long as sufficiently searching questions have been put to them in the official receiver's outgoing letter but unless the issues are simple it may be easier to conduct an interview if the company officer is easily accessible.

11.67 Narrative statement to be taken

Information obtained during a further investigation interview should be recorded as a narrative statement. The interviewee's attention should be drawn to the Perjury Act 1911 section 5 before the narrative statement is taken.The Narrative sheet form note 10 should be used at the start of the narrative statement, and the interviewee should be asked to read through and sign and date each page of the statement taken, and any alteration made.Once signed and dated, no alterations should be made to the statement.

Paragraphs 11.25 to 11.32 in a winding up and 11.48 to 11.55 in a bankruptcy will also apply to a narrative statement taken during a further investigation interview.

11.68 Content of statement

It is important for the official receiver to establish the interviewee's understanding of the circumstances at the time of the apparent misconduct. The use of hindsight should be avoided. The pertinent facts are those which were known by the interviewee at the time. This is particularly important where the misconduct alleged involves knowledge of insolvency. It is not enough that the official receiver is of the opinion that the interviewee should have known that the company or he/she was insolvent at a particular time.The official receiver should determine what information was available to the interviewee during the relevant period and question the interviewee about the decisions and actions taken in light of the information available.

All information and explanations of conduct should be tested by the official receiver. It is possible that an interviewee may admit to one type of misconduct in order to conceal other, possibly more serious, misconduct, e.g. a bankrupt may admit to gambling to conceal asset disposals.

The effect of the misconduct on the creditors must also be examined. Where the interviewee appears to have favoured one particular group of creditors over another (e.g. paying trade creditors rather than crown creditors) the official receiver should ask the interviewee why all creditors were not paid equally.

Where the misconduct concerns concealment or disposal of an asset, the official receiver should also seek the information needed to pursue a recovery of the value lost to the estate, as well as investigating the apparent misconduct.

More detail of the information that the official receiver needs to obtain in further investigation interviews may be found in the Enforcement Technical Guidance.

11.69 Interviewee to be given opportunity to explain apparent misconduct

The interviewee must be given the opportunity during the interviewee to explain apparent misconduct and give details of any mitigation. Explanations and mitigation given must be included in the narrative statement.

Where apparent misconduct relates to trading whilst insolvent, the interviewee must be invited to explain why he/she believed that the company would be able to meet the debts incurred during the final (insolvent) period of trading.

Where the interviewee does not offer any defence or mitigation in respect of matters of misconduct drawn to his/her attention during the interview, the official receiver should caution the interviewee that if he/she fails to mention a matter of defence or mitigation that he/she subsequently relies upon in court, the official receiver may draw the initial non-disclosure of the defence or mitigation to the court's attention.

11.70 Disclosure of statements to liquidator/trustee

Rules 4.107 and 6.125 require the official receiver, on handing over the estate to an insolvency practitioner, to supply to that person such information as is reasonably required by the liquidator or trustee for the effective discharge of his/her duties in that capacity.

Where statements are obtained after a handover has taken place, the same consideration should be given to them and if considered appropriate copies should be supplied to the insolvency practitioner and a corresponding note placed on the file. If a statement contains information relating solely to further investigation matters, it might not contain information of use to an insolvency practitioner in carrying out his duties. However, if the further investigation relates to the whereabouts or non disclosure of an asset, it would be likely to contain such information. In this case, the following paragraph should be added to the end of the narrative statement.

"If an insolvency practitioner is appointed as liquidator/trustee of your estate in place of the official receiver, the liquidator/trustee will have separate powers to require you to provide information. However, a copy of this statement will be given to any such practitioner and this should reduce considerably his or her need to contact you again for information."

[Back to Part 5 - Special cases]

Further Information

Notes to Part 6