Fishing in discovery?

The recent case of Highberry v Colt Telecom reaffirmed the principle that an application for an administration order is not a "trial", and should usually be capable of being decided on the basis of written evidence (ie without the need to look at extensive documents, and hear oral evidence from witnesses). The Judge rejected what he perceived to be a wide ranging "US style" disclosure application, and reinforced the principle that it was up to the petitioner to satisfy the court that the company was, or was likely to become, insolvent, which shouldn't require cross-examination of witnesses or the review of numerous documents, except in the most unusual circumstances.

The Facts
COLT Telecom Group plc's ("COLT") balance sheet at the end of September 2002 showed net assets of £977 million. Its liabilities consisted principally of its indebtedness on certain Notes issued by it between 1996 and 1999, some of which the Petitioners had acquired in the market at various times. The Notes were not due to be repaid until at least 2006 and COLT had paid all its interest obligations to date on the Notes. In an unusual petition for an administration order, Highberry Limited, an English company, and Highberry LLC, a Delaware corporation, claimed that although currently cash-flow solvent, COLT would have insufficient cash to repay the debt falling due under the Notes in 2006 and was therefore likely to become insolvent. The Petitioners also claimed that COLT was currently balance sheet insolvent. COLT disputed both of these allegations.

The Issues
The Petitioners sought an order for disclosure of documents and information, and cross-examination of witnesses, on the basis that the hearing of the petition would be a "trial", and the order was necessary to resolve the dispute as to COLT's solvency.

The Decision
Lawrence Collins J held that the Court did have the power to make the order sought but would only do so in very exceptional circumstances, partly because of the usual urgency of an application for an administration order. The hearing of an administration petition was not a "trial" for the purposes of the Civil Procedure Rules. The order sought was inappropriate in this case, taking into account the confidential and commercially sensitive nature of the information requested, and the extent of the disclosure sought. The Court described the request for documents as having "many of the hallmarks of an extensive US-style discovery request", and took the view that the Petitioners were simply trying to bolster their own position and "fish" for information. This was not a legitimate use of the power to make orders for disclosure. The case reaffirmed the principle that on the hearing of an administration petition it was for the Petitioner to satisfy the Court that the company is, or is likely to become, insolvent, at the time of the hearing.

For further information please contact Sophie Elboz at [email protected] or on +44 (0) 20 7367 2958