Is Murdoch free to destroy tabloid’s records?

By Alison Frankel
July 7, 2011

Editor’s note:

After this post was published, News Corp indicated that it did not plan any liquidation of assets in connection with the shutdown of the News of the World newspaper.  In the absence of a liquidation, the scenario laid out by Mark Stephens does not apply.

By Alison Frankel
The views expressed are her own.

Here’s some News of the World news to spin the heads of American lawyers. According to British media law star Mark Stephens of Finers Stephens Innocent (whom The Times of London has dubbed “Mr Media”), Rupert Murdoch’s soon-to-be shuttered tabloid may not be obliged to retain documents that could be relevant to civil and criminal claims against the newspaper—even in cases that are already underway. That could mean that dozens of sports, media, and political celebrities who claim News of the World hacked into their telephone accounts won’t be able to find out exactly what the tabloid knew and how it got the information.

If News of the World is to be liquidated, Stephens told Reuters, it “is a stroke of genius—perhaps evil genius.”

Under British law, Stephens explained, all of the assets of the shuttered newspaper, including its records, will be transferred to a professional liquidator (such as a global accounting firm). The liquidator’s obligation is to maximize the estate’s assets and minimize its liabilities. So the liquidator could be well within its discretion to decide News of the World would be best served by defaulting on pending claims rather than defending them. That way, the paper could simply destroy its documents to avoid the cost of warehousing them—and to preclude any other time bombs contained in News of the World’s records from exploding.

“Why would the liquidator want to keep [the records]?” Stephens said. “Minimizing liability is the liquidator’s job.”

That’s a very different scenario, Stephens said, from what would happen if a newspaper in the U.S. went into bankruptcy. In the U.S., a plaintiff (or, for that matter, a criminal investigator) could obtain a court order barring that kind of document destruction. In the U.K., there’s no requirement that the estate retain its records, nor any law granting plaintiffs a right to stop the liquidator from getting rid of them.

 

19 comments

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[...] Can the NOTW records now be [...]

[...] And in the continuing saga…. Mark Stephens has something very interesting to say according to…Reuters [...]

What utter rot is this?

The News of the World is not a corporation and, so, cannot go into liquidation/administration/receivership.   The News of the World is a title/brand name owned by News Group Newspapers Ltd (“NGN”). NGN has the liabilities, the papers and the obligations. It also owns The Sun, which is not being closed down. NGN is not entering any sort of insolvency/liquidation.

Posted by efctony | Report as abusive

Whilst in theory this is correct, but that isn’t how the Murdoch empire is structured. The News Of The World Ltd is a non-trading company with the trading activity all going through News International Ltd so a liquidation and the hiding/disposal of documents wouldn’t apply as it would affect The Sun, Times & Sunday Times who all trade through the same company.

Posted by ralvin | Report as abusive

Hardly surprising that this is the way the wind is blowing. I suspect that this is just the tip of the sordid iceberg in terms of how far NI will twist and turn to avoid the full tawdry picture to become clear.

Posted by Erewhon | Report as abusive

As @sbisson has just pointed out to me (@robshepherd) on Twitter, Stephens could be wrong. News of the World appears not to be a separate company (News of the World Ltd is a dormant company) but is part of News Group Ltd, which also publishes the Sun and is not being liquidated.

Posted by RobShepherd | Report as abusive

Then the police should get a warrant and seize the records. I am sure their is a judge who is a victim of the hacking that would agree to issue a warrant.

Posted by tonyryan58 | Report as abusive

Surely the police and other current litigants with cases pending against the NOTW can obtain a Mareva order to seize documents now, prior to its imminent liquidation on Sunday? No?

Posted by AnthonyHall | Report as abusive

Surely contempt of court trumps a liquidator’s obligations?

Posted by SimonT53 | Report as abusive

I have heard Mark Stephens say things in the media before that did not make sense. The first two comments are surely correct.

Posted by elainedecoulos | Report as abusive

The government should enact emergency legislation to ensure that in this special case documents could not be destroyed in this way.

Posted by Tomlines | Report as abusive

Rebekah Brooks keeps her job while 200 journalists and god knows how many other staff lose theirs. This is a desperate ploy by desperate people. Rebekah holds all the cards. If she goes down, others go down too. James knows this. Rupert knows this. She has them both by the shorts.

Posted by reveldor | Report as abusive

If you’re trying to restrict disclosure of documents, the last thing you’d do is put the Co. in liquidation and transfer control of the disclosure process from the execs to a third party that you don’t completely control, the liquidator. Yes… there is a hypothetical possibility that a liquidator may decide to save the costs of storage, but that would be a pretty perverse decision in a situation like this. No reputable liquidator would do that – and why would NI nominate a bent liquidator while trying to improve their fit and proper person status? Would be a hopeless strategy IMO.

Posted by LuminEther | Report as abusive

And anyway…surely they aren’t going bankrupt/into receivership/administration…they are just shutting down. Wouldn’t they have to demonstrate they were in financial trouble…which they weren’t in any way!!! Even if they were worried about loss of advertising etc. – that hasn’t kicked in yet and I’m pretty sure you can’t go bankrupt “in advance” – just in case! Otherwise other businesses would have done so much earlier!!!

Posted by MrTinkles | Report as abusive

News Corp is comprised of hundreds of offshore entities, all offering secrecy or delay while the company flees and the government waits for cooperation. The documents at NOTW are the tip of the iceberg, which by the way, happens to be out of reach for British inquiries.

Posted by Abe.Froman | Report as abusive

Having traded with NI’s titles over the last decade, I can confirm efctony comment. NGN is the Ltd company that NI trades the titles/brands The Sun and News of the World through, and given The Sun is not closing down, there should be no administrator appointed.
On a side note in the UK any company can shut a brand at any time and even the legal entity enter voluntary administration/receivership, even when profitable and cash rich. Owners do exactly this to release cash in a limited company.
This opinion from “Mr Media” is the normal sort of knee jerk sensationalist rubbish that gets quoted when “experts” are rung up/emailed/messaged by journo’s for opinion on fast moving stories, and should be taken for what it is, 5 min phone call to raise an “experts” profile.
The bigger story here is the fact that all of this really seems to have been very carefully managed to impact the consultation Jeremy Hunt (Culture Secretary) was closing today. This level of day on day story release control is similar to how the Telegraph managed the expenses scandal so don’t be surprised if there are further file(s) sat with other media channels to keep the story going.

Posted by GRaHan | Report as abusive

[...] – The genial strategic move could mean that, under British laws, Murdoch may not be obliged to retain documents that could be crucial to civil and criminal claims against the newspaper—even in cases that are already underway. [...]

[...] records i.e – tangible evidence that could be used against him in any following investigation. Link – Reuters Except for the latest controversial revelations, this whole scandal is incredibly old news. Anyone [...]

GRaHan is absolutely right. This really has to be one of the most thoughtless and uninformed articles I’ve yet read about the News of the World scandal. If that’s representative of the level of journalism at Reuters then I think I’d prefer Rebekah Brooks

Posted by MarkSG | Report as abusive

I would just like to say that police are investigating the alleged deletion of emails by a News International executive. This story is not as far fetched as you might think.

http://www.guardian.co.uk/media/2011/jul  /08/phone-hacking-emails-news-internati onal

Posted by cylon1 | Report as abusive

[...] Reuters' Alison Frankel, after speaking with British media lawyer Mark Stephens, suggested that one possible reason to shut down News of the World was to make it legal to destroy the [...]

The mind purely boggles to consider that the ‘obligations’ of a liquidator would come before the law.

Posted by nrand | Report as abusive

[...] Reuters plantea otra hipĂłtesis: de acuerdo con la legislaciĂłn britĂĄnica, el diario de Murdoch podrĂ­a no estar obligado a [...]

I think Alison is confusing closing a company with going bankrupt. News International (the parent company) doesn’t have to liquidate anything. News of the World is being closed down by choice (or should I say scandal), not debt. News International has more than enough money (and insurance) to cover paying any outstanding debts, and what I’m sure will be a fairly massive severance tab. As to whether or not they have the right to destroy records…not sure. Certainly they would have to keep tax records, but beyond that I don’t know what corporate requirements are. I would think willfully destroying records that were pertinent to an on-going investigation would be considered obstruction, which is a crime.

Posted by MegmacPR | Report as abusive

It would seem odd if there could be a liability against the person buying the company for legal breaches done by the previous owner. I would assume they were insulated from that and if not the law seems unjust.

It would be the ultimate in irony if the liquidator thought potentially incriminating records had tabloid value and sold them to another tabloid in order to maximize the value of its assets.

Posted by netsettler | Report as abusive

[...] As the conspiracy theories flew around last Friday, one in particular caught fire: the idea that the News Of The World might have been closed down because it would then allow for its assets – i.e. incriminating ev…. [...]

[...] Is Murdoch free to destroy tabloid’s records? | MediaFile I wonder… Reply With Quote   [...]

[...] as Alison Frankel blogs at Reuters, there is a solid legal reason why News would have wanted to close NOTW: Under British law, Stephens explained, all of the assets [...]

[...] reporting on it. Also, possible the best piece of analysis I've read on the whole sordid affair is this post from reuters which essentially points out that by shutting down News of the World, Newscorp may shrewdly ensure [...]