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A recent judgment of the High Court1 has confirmed that a grantor of security (or its director/s) must provide to receivers appointed over the grantor a copy of all company documents.
The Court has a discretion in making orders to that effect, but that discretion is narrow, and a grantor seeking to limit its disclosure obligation will need to provide compelling evidence of why full disclosure is unnecessary or impractical.
The right to documents is not constrained by considerations of privilege, but receivers must take care in dealing with privileged documents to avoid breaching their duties.
Context
Receivers require access to company information and documents in order to take control of the company’s affairs, realise assets and perform their duties. Section 12 of the Receiverships Act requires a grantor (or its director/s) to make those documents available to the receivers, and permits the Court to make orders to that effect.
The receivers in this case were appointed under a General Security Deed (GSA) covering all of the company’s personal property. The GSA holder was also involved in separate litigation and settlement discussions with the company about payment claims, including the debt which the GSA secured.
All documents to be disclosed to receivers
The Court confirmed that:
- receivers have a statutory entitlement to documents relating to the secured property. That right extends to all of the company’s documents where the receivers have been appointed under a GSA
- its discretion to decline to order compliance with the mandatory first half of section 12 is a narrow one. Disclosure being difficult or onerous (including, as was argued in this case, spanning many years of company records) is not a sufficient reason, and
- section 12 is broad enough to empower an order to deliver documents as opposed to merely making them available for inspection.
Receivers require a complete understanding of the company’s affairs in order to conduct the receivership. They are not required to particularise document requests, in recognition that they face an information imbalance that will in many cases prevent them from identifying the documents they need to carry out their duties.
Legal privilege does not prevent disclosure to receivers
The Court confirmed that receivers have the right to documents subject to legal professional privilege of the company, and they control the decision of whether to waive that privilege.
Legal advice obtained by the company is an asset of the company, and so receivers are entitled to it. Further, under the Act (and, in this case, under the GSA) the receivers are agents of the company and so are entitled to deal on behalf of the company in legal proceedings.
This includes control over and decisions about privileged information.
Receivers’ ability to disclose the privileged information or documents to third parties, including their appointor, is restricted by their duty to act for a proper purpose. The statutory entitlement of receivers under section 12 to privileged documents does not require or allow the receiver to waive privilege in favour of their appointor.
There may be circumstances where a receiver can disclose privileged material to the appointor for the sole purpose of fulfilling their function, even where the appointor is the litigation adversary. But disclosure by the receiver to the appointor for the mere purpose of assisting them in the litigation would be a breach of their duties.
In this case, the receivers were entitled to all company documents, including privileged documents relating to claims by the appointor. But the receivers were not entitled to disclose those privileged documents to the appointor without leave of the Court.
Our comment
The Court’s decision provides welcome clarity about the scope of receivers’ entitlement to company documents and information under section 12 of the Act.
The decision prioritises efficient administration of receiverships, preventing directors from obstructing receivers’ efforts to deal with the company and assets in receivership. It also provides a helpful reminder for receivers to take care in disclosing any company documents to third parties, including their appointor.
1 Jackson v Kerr [2021] NZHC 1413.
