Bankruptcy - it's a privilege!

One of the cornerstones of the solicitor / client relationship is the idea that any communication between the solicitor and their client remains confidential. In addition, communication between a solicitor and their client may be protected from disclosure to third parties due to the concept of 'legal privilege'.

When a person is made bankrupt, a trustee in bankruptcy is appointed to step in and realise the assets of the bankrupt on behalf of the creditors. The trustee can 'step into the shoes' of the bankrupt from a legal point of view to enable them to deal with assets, sell them etc.

It has generally been understood that the trustee can take possession of all documents, papers and records of the bankrupt, including documents that are subject to legal privilege.

However, a recent case brings this important understanding into doubt. A solicitor may hold a number of records and documents which might be of significant interest to the trustee; especially if the bankrupt took advice prior to or during the bankruptcy proceedings.

In 2016, The Court of Appeal held that the trustee could take possession of a bankrupt's privileged documents but could not effectively use them.

The High Court has recently held that the court itself had no jurisdiction to waive the bankrupt's legal privilege. The reason supporting this argument was that to do so would be a breach of the bankrupt's human rights.

The result of this decision is that the trustee could not have access to documents from the bankrupt's solicitor, which might have assisted in proving that the bankrupt took steps intended to defraud creditors.

A bankrupt person can of course, consent to privileged documents being used by their trustee in bankruptcy - but it is easy to see why such consent might be refused in many cases.

A person facing bankruptcy should consider taking legal advice to try to ensure that documentation relating to their affairs is only contained on their solicitors' files and are thus privileged and not available to a trustee upon bankruptcy.

Case:  Leeds v Lemos [2017] EWHC 2600 (Ch)

To discuss this or any other insolvency related issue, contact us.

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