Trustees in bankruptcy request for documents in line with expectations

Paul Baxendale-Walker was made bankrupt and his trustees in bankruptcy requested information from his various solicitors about what they were engaged to do for Baxendale-Walker and other details about their work for him.

Baxendale-Walker challenged the requests, saying they were made in bad faith and were 'perverse'. The High Court rejected his challenge.

The requests were made to Baxendale-Walker's solicitors Irwin Mitchell, Johnson's Solicitors, Griffin Law and Mischon de Reya. Irwin Mitchell and Johnson's Solicitors complied with the requests made by the trustees while Griffin Law and Mischon de Reya said that they would comply with the requests following the outcome of the application.

In order to be successful in his application, Baxendale-Walker had to prove that the requests made by the trustees were 'perverse', meaning that "no trustee properly advised, or properly instructing himself, could have made the requests".

Baxendale-Walker argued that the trustees were not entitled to documents over which privilege was asserted by the bankrupt and which were in the hands of third parties and which were not owned by the bankrupt or not in his possession or control.

The High Court judge rejected this argument, ruling that Baxendale-Walker had failed to provide any authority that the requests made were "wrong in law, or even partially wrong in law at the time they were made", and that the actions did not meet the 'perverse' test.

Baxendale-Walker also argued that the trustees were not entitled to personal papers of the bankrupt as they are not part of the bankruptcy estate. He said that the trustees were not entitled to see papers relating to matters which are personal to him their requests were perverse because they requested personal documentation.

The judge also rejected this argument and said that because the request was for "documents and information relating to the Bankrupt's dealings, affairs and property", the trustees did not request documents out of their statutory function and they did not act perversely in requesting them. 

Although this case clarifies the position relating to testing 'perverse' actions of trustees in bankruptcy, uncertainty still remains in relation to the Court of Appeal case of Shlosberg v Avonwick Holdings Ltd [2016] EWCA Civ 1138, [2017] Ch 25. In this case the Court of Appeal said that a bankrupt has no entitlement to assert privilege over documents or records belonging to him or under his possession or control which relate to his estate or affairs against his trustee in bankruptcy.

The trustees had confirmed when making their requests that they would not seek to waive privilege in relation to any documents over which Mr Baxendale-Walker could legally assert privilege.

By comparison, the judge gave the example of a trustee demanding documents and positively asserting he would waive privilege in documents delivered to him. The Shlosberg case is clear and explicit - a trustee is not entitled to waive privilege. A trustee who sets out in his written requests his intention to waive privilege would clearly be a breach of the 1986 Insolvency Act.

It remains to be seen whether the underlying issue in the Shlosberg case, that a trustee can be provided with privileged documents but cannot waive that privilege to the benefit of the bankrupt's creditors, will be dealt with by the court.

Gemma Kaplan is a restructuring expert at Pinsent Masons, the law firm behind Out-Law.com