In a landmark judgment dated 17 November 2014 the Upper Tribunal has found that former shareholders cannot assert privilege over a company's documents after that company has been dissolved.
The Company (Desmond & Sons) was a major clothing manufacturer in Northern Ireland. In February 2004 its only customer announced that it would no longer trade with the company from 2006 onwards after a two year transition period. This led the shareholders to put the company into members’ voluntary liquidation (MVL) in June 2004 just a few months after the customer’s notification.
The Trustee of the Company pension scheme, Garvin Trustees Limited, alleges that the timing of the MVL was motivated by a desire to avoid a £14 million pension scheme debt that would otherwise have arisen had the Company been wound up in 2006.
Since 2010, Garvin Trustees Ltd and its legal team, Burges Salmon and a team of barristers from Outer Temple Chambers, led by Richard Hitchcock QC, have been pursuing the former shareholders of the company in proceedings in the Upper Tribunal.
In a recent decision[1] the Upper Tribunal has held that, where a company had been dissolved, documents which the liquidators had permitted a former shareholder to retain were not protected by legal professional privilege.
Specifically it was held that:
- The company had ceased to exist and unless it was restored it could not assert any of its previous rights. In this case the company could not be restored to the register due to the expiry of the time limit provided in Section 1030(4) of the Companies Act 2006.
- Just as any proceedings brought against a dissolved company would be a nullity, so would any attempt to assert privilege on behalf of the company be a nullity.
- On the dissolution of a company, the right to assert privilege vests in the Crown as bona vacantia.
- Since privilege is a right to resist disclosure it must be claimed or asserted for disclosure to be resisted. Since the Crown had no interest in asserting disclosure none would attach to the documents in question.
Burges Salmon’s Justin Briggs said: “This is without doubt a landmark decision as we believe it is the first time a Court or Tribunal has focused on the implications of the dissolution of a company on the privilege in legal advice it operated. Whilst the legal principles in play are familiar ones, for example the passing of the privilege to the Crown under bona vacantia principles, the consequences for both shareholders and officers of the company and for those who advised it where such privilege falls away are extremely significant.'
[1]Reference numbers: FS/2010/0010 & 11, 17 November 2014