Disclosure of confidential Information to insolvency practitioners

This helpsheet has been issued by ICAEW’s Ethics Advisory Service to help ICAEW members consider confidentiality requirements in the context of disclosure of confidential information to insolvency practitioners or the Insolvency Service. This helpsheet has been issued for information only. Where there is any doubt on legal obligations, members should seek appropriate legal advice.

Members may also wish to refer to the following related helpsheets:

• Disclosure of confidential information (for members in business)
• Disclosure of confidential information (for members in practice)
• Disclosure of confidential information to the police and other enforcement agencies
• UK GDPR – Lawful basis for processing
• UK GDPR – Client files
• Production and Disclosure Orders

Members may receive requests from insolvency practitioners for information relating to a client, former client or employer. This helpsheet sets out the rights of insolvency practitioners to information from different parties across the range of insolvency processes (for more details on insolvency generally, please see Insolvency at a glance).

As chartered accountants, members have a duty to uphold the fundamental principle of confidentiality which is discussed in section 114 of the ICAEW Code of Ethics. Paragraph R114.1 states:

The requirement to comply with the principle of confidentiality applies equally to prospective, current and former clients or employers.

Members must not only keep information confidential, but also to take all reasonable steps to preserve confidentiality.

Whether information is confidential or not will depend on its nature. A safe and proper approach to adopt is to assume that all unpublished information about a client or employer’s affairs, however gained, is confidential.

Paragraph R114.1(d) of the ICAEW Code of Ethics confirms that a professional accountant must:

Such circumstances would normally include:

• Where disclosure is required by law;
• Where disclosure is permitted by law and authorised by the client or employing organisation; and
• Where there is a professional duty or right to disclose and it is not prohibited by law.

Members may however receive requests from insolvency practitioners for information relating to a client, former client or employer. This helpsheet sets out the rights of insolvency practitioners to information from different parties across the range of insolvency processes (for more details on insolvency generally, please see Insolvency at a glance).

Please note that this is not an exhaustive guide and is not a substitute to seeking appropriate legal advice should a member be uncertain whether to comply with any information request or request a court order. This helpsheet should be read in conjunction with the helpsheet Disclosure of confidential information to the police and other enforcement agencies.

Documentation

In all cases where disclosure of confidential information is considered, members are advised to carefully document their considerations in case the appropriateness of the decision is challenged at a later date. Notes should include a record of any consent received from the client, employer or other appropriate authority, details of legal or other advice obtained, a schedule showing what has been disclosed and to whom, and copies of the information disclosed

Members should be mindful that any information requests from insolvency practitioners or the Insolvency Service should be clear and reasonable. Blanket requests for all working papers, correspondence and audit files would not generally be considered reasonable and are unlikely to be supported by the court. It may be appropriate to seek clarification regarding the scope and rationale of an information request in the first instance if a member feels it is unreasonable.

The following sections address different types of appointment and the rights an insolvency practitioner would usually have to access information in each circumstance.

Please note that this is not an exhaustive guide and is not a substitute to seeking appropriate legal advice should a member be uncertain whether to comply with any information request or request a court order. This helpsheet should be read in conjunction with the helpsheet Disclosure of confidential information to the police and other enforcement agencies.

When an insolvency practitioner is appointed in a formal capacity they have a right to relevant information as explained below.

Administration or liquidation

When Administrators or Liquidators are appointed, they effectively take-over the directors’ powers and duties and accordingly have the same right to information that the directors had prior to insolvency.

Furthermore, sections 234 to 236 of the Insolvency Act 1986 (IA86) apply where:

• a company enters administration;
• an Administrative Receiver is appointed
• a company goes into liquidation; or
• a Provisional Liquidator is appointed;

and allow the insolvency practitioner to apply to the court to obtain, from any person, property, books, papers or records to which the company appears to be entitled or information concerning the promotion, formation, business dealings, affairs or property of the company. Similar provisions also apply when LLPs (or in certain situations, partnerships) enter administration or liquidation.

In the context of a company, any documents and records belonging to the company should be provided to the insolvency practitioner on request. Any documents and records belonging to the firm may be volunteered without a breach of confidentiality (as the insolvency practitioner has effectively taken over the directors’ powers and duties), however a firm may not wish to volunteer access in the first instance. Nevertheless the firm would still have to provide access if a court order was granted and members should therefore cooperate with any reasonable requests.

The situation will become more complicated if a member in practice acted for both the company and for the directors personally. In these circumstances a member still owes a duty of confidentiality to the directors and could only provide information with their consent or if there is a legal right or obligation to do so.

Trustee in bankruptcy (Trustee)

A sole trader, partners of a partnership or any individual may be made bankrupt and an insolvency practitioner appointed as Trustee.

The Trustee has wide statutory powers to investigate assets it is believed the bankrupt owns, including requesting information relevant to the estate from both the bankrupt and third parties. Specifically, section 366 of the Insolvency Act 1986 allows the Trustee to apply to court to require any person to appear before it whom may be able to give information concerning the bankrupt or the bankrupt’s dealings. Members should also be aware that the court can issue a warrant to seize records and to enter property to effect such a seizure under section 365 of the Act although this power is not widely used.

Although a Trustee does not stand in the shoes of the client, they have rights under section 311 of the Insolvency Act 1986 to take possession of books, papers and other records which relate to the bankrupt’s estate or affairs and which belong to him or are in his possession or under his control. Members must therefore comply with requests for such information. However, if a member believes that information they are being asked to provide falls outside the criteria of section 311 of the Act, they should either seek consent to provide the information (in order to preserve their duty of confidentiality) or seek legal advice to establish whether or not they may withhold it. Guidance on ownership of documents is provided in the ICAEW guidance statement Documents and records, ownership, lien and rights of access.

Official receiver

The Official Receiver will act as Trustee or Liquidator (in a compulsory liquidation) initially, unless the court has already appointed an alternative insolvency practitioner to act. The Official Receiver or creditors may subsequently seek the appointment of an insolvency practitioner but the Official Receiver remains responsible for investigating the affairs of the bankrupt or company and the same rights to information and considerations apply as they would for a liquidator.

Voluntary arrangements

When a company, an LLP, partners in a partnership or individuals enter into a voluntary arrangement with their creditors (i.e. a company or individual voluntary arrangement) an insolvency practitioner will be appointed Supervisor of the arrangement. The supervisor only has the powers set out in the proposal document. Members would therefore need the consent of the client (whether a company or individual) before providing any information requested by the supervisor.

Insolvency Service

Under section 7(4) of the Company Directors Disqualification Act 1986 (CDDA), the Insolvency Service is able to request information directly from any person in relation to an investigation into the conduct of the directors of companies which have gone into administration, liquidation or administrative receivership.

These investigations often overlap with the insolvency practitioner’s duties under SIP2 (see below) and are likely to result in information requests to members in respect of the company’s affairs prior to insolvency. Members should consider such requests in line with the ‘General considerations’, above.

Statement of Insolvency Practice 2 (SIP2)

This requires office holders in administrations and insolvent liquidations to investigate the way the business was operated and managed prior to their appointment. Accordingly, in addition to the powers set out above the insolvency practitioner also has a duty to collect information relevant to the company’s affairs. These investigations are likely to result in information requests to members to enable the insolvency practitioner to understand the company’s financial position. Members should consider such requests in line with the ‘General considerations’, above.

It is not possible to exercise a lien over company records as the Administrator or Liquidator is an officer of the company. Similarly there can be no lien over records belonging to a bankrupt. There is a possible exception in respect of title documents, but members are advised to take legal advice in these circumstances.

The appointment of an Administrative Receiver or Receiver would not affect a valid lien.

Further information regarding document ownership is available in the ICAEW’s guidance Documents and records, ownership, lien and rights of access and the helpsheet Exercising liens.

It is always best practice to consider how long records relating to a client should be retained and ICAEW provides some guidance in the helpsheet Document retention. Remember that if records are retained records for a longer period than is required by law or recommended, disclose of such information would still be required in response to a request in line with the guidance contained within this helpsheet.

In addition to the fundamental principle of confidentiality set out in the ICAEW Code of Ethics, members should also consider requirements of relevant data protection legislation including the General Data Protection Regulation (GDPR) and the Data Protection Act 2018.

The GDPR stipulates that data must only be held for the purpose for which it was collected and only for as long as necessary. For members in practice, an overview of how GDPR affects client files is available in the helpsheet UK GDPR – Client files.

ICAEW members, affiliates, ICAEW students and staff in eligible firms with member firm access can discuss their specific situation with the Ethics Advisory Service on +44 (0)1908 248 250 or via webchat.