UK: Section 236 Of The UK Insolvency Act 1986 – Extra-Territorial Effect?

The English High Court rejects an application by the Joint Special Administrators of MF Global UK Limited ("MF Global") for an order seeking the production of documents pursuant to section 236 of the Insolvency Act 1986 (the "Act"). In doing so, Mr Justice David Richards rules that section 236 of the Act does not have extra-territorial effect.


MF Global was a broker-dealer which went into Special Administration on 31 October 2011. The Respondents, LCH.Clearnet Limited ("LCH UK") and LCH.Clearnet SA ("LCH France") operate a clearing house in securities and other financial instruments. Clearing houses act as intermediaries between a buyer and seller of securities, and reduce the transactional risks involved for a party should a counterparty default on its obligations. Clearing houses have rules to deal with defaults by its members and are entitled to close out the open positions of such members.

When MF Global went into administration it had a number of very large open positions with the Respondents, particularly in European sovereign debt. The appointment of administrators constituted an event of default and the Respondents, in accordance their rules, closed-out MF Global's open positions. Losses on the close-outs totalled approximately €422 million.

While accepting the inevitability of significant losses, the applicants were concerned that, when compared with contemporary prices quoted on Bloomberg screens, the losses appeared to be exceptionally large. Had the open positions been closed at or around the prices quoted on Bloomberg the losses would have been much less at approximately €241 million.

The Application

MF Global's application was for an order pursuant to section 236 that the Respondents disclose documents and information relating to the above close-outs. Section 236 allows an office-holder to make an application to the court to summon either an officer of the company or those capable of giving information, and require them to produce papers or other records in their control. These powers are conferred by section 237 which permits the court to order any person "within the jurisdiction of the court" to appear under section 236. The administrators sought the order to help them determine whether any claim could be brought against the Respondents. The Respondents opposed the application, LCH France submitted that section 236 did not have extra-territorial effect.

In the alternative, the application also sought an order against LCH France under section 237(3) that the court should issue a request to the French court under Council Regulation (EC) No. 1206/2001 (the "Evidence Regulation") to examine an officer of the company and request that that officer search for and produce certain documents. LCH France resisted on the basis that a request cannot be made under the Evidence Regulation.


The Respondents relied on the decision in Re Tucker1 in submitting that section 236 did not have extra-territorial effect. The decision in Re Tucker concerned the extra-territorial effect of section 25 of the Bankruptcy Act 1914 which was in substantially the same terms as sections 236 and 237 of the Act. In his judgment in Re Tucker, Dillon LJ considered that the rule of construction is that unless the contrary is expressly enacted or plainly implied, UK legislation is applicable only to British subjects or to those who have brought themselves within British jurisdiction. Richards J extended the decision in Re Tucker to sections 236 and 237 of the Act when he noted that where a statutory provision is re-enacted in substantially the same terms, then, unless there is a contrary indication, it is intended to carry the same meaning as its predecessor.

Counsel for the applicants relied on authorities on other sections of the Act which have been found to have extra-territorial effect. Counsel referred in particular to the recent Supreme Court decision in Jetivia SA v Bilta2 (a link to our analysis of this decision can be found here) in which section 213 of the Act was ruled to have extra-territorial effect. The same decision also affirmed that sections 214, 238 and 239 likewise had extra-territorial effect. However, Richards J distinguished section 236 from these decisions as they related more to the court's powers to provide a remedy for antecedent transactions. Richards J could also not overlook the Court of Appeal's decision in Re Tucker and the re-enactment of the earlier provision.

In considering whether a request to examine an officer of LCH France could be made under the Evidence Regulation, Richards J was directed by Counsel for the Respondents to Article 1.2 of the regulation and concluded that it was a "pre-requisite of a request under the Evidence Regulation that the evidence is intended for use in judicial proceedings, commenced or contemplated, which will result in a decision". Richards J did not think that this requirement was satisfied in the application, the purpose of which, in his determination, was to enable the administrators "to consider whether it would be appropriate to bring proceedings", and declined to make the requested order.

LCH UK did not dispute the court's jurisdiction under section 236 but submitted that, in its discretion, the court should not grant the order requested on the basis that the circumstances of the case did not justify such an order. In reaching his decision on this point, Richards J applied a commercial viewpoint. He considered that as the apparently better prices quoted on Bloomberg were for small parcels of government bonds of €25 million, those prices gave no indication of the ability of the market to absorb the Respondents sale of €2.2 billion of bonds. The resulting difference in price, in his opinion was not of itself sufficient to justify making a "far-reaching order" under section 236.

A copy of the judgment can be found here.

1 [1990] Ch 148

2 [2015] UKSC 23

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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