Auditor's May Be Ordered To Disclose Company Documents

In the Matter of TPD Investments Ltd sub nom Destiny Investments (1993) Ltd v TH Holdings Ltd [2016] EWHC 507 (Ch)

The court has recently given judgment in a case where it granted a non-party disclosure order against company auditors. It was held that the auditors should disclose company documents that were the subject of dispute between shareholders.

An application for non-party disclosure can be made pursuant to CPR 31.18, but is subject to strict parameters to avoid an applicant carrying out a fishing expedition. The court would usually wish to see evidence that:

1. The disclosure sought is relevant to an issue arising out of the claim, and
2. It is likely to support the case of the applicant or adversely affect the case of another party to the proceedings, and
3. Is necessary to dispose fairly of the claim or to save costs.

In this matter, the application to court was made in connection with a petition under section 994 Companies Act 2006, which allows a company member to request the court to make such order as it thinks fit for giving relief where that member considers the company’s conduct to have been unfairly prejudicial.

In this case, the company had acquired a number of subsidiaries. The applicants alleged that their shareholding had been diluted unfairly and that valuations used in the transactions were unexplained. The applicants wanted a valuation of the company so that the majority shareholder could be obliged to acquire the applicants’ shares at an appropriate price. The applicants therefore sought disclosure of any trial balances or ledgers relating to relevant transactions and the preparation of company accounts linked to the transactions. The company denied that these documents even existed.

The applicant petitioners therefore applied for non-party disclosure against the respondent auditing firm (KPMG). The company and its directors opposed the disclosure order on the basis that the documents sought would not be relevant.

As above, the court set out the test that had to be satisfied for the disclosure order to be granted: the documents were likely to support an applicant's case or adversely affect the case of another party; the documents sought were clearly and sufficiently identified; and disclosure was necessary for the fair disposal of the claim.

The court granted the third party disclosure order as it found that the documents requested were relevant to the transactions in question. The court was also satisfied that disclosure was both relevant and necessary for the purpose of properly valuing the company and that the documents sought were clearly and sufficiently identified rather than vaguely categorised. One of the key points was that, given that the respondents to the petition denied the documents' even existed it was clearly necessary and fair that they were disclosed to the petitioners.

The court did not have to deal with the issue of confidentiality as the disputing parties were the only shareholders of the company, to which all the documents in question belonged.