The danger of AI and what it tells us about Fixed Charge Receivership

Cork & Anor v Smith [2026] EWHC 1199 (Ch) 
 

Background 

There is a legal procedure that allows an insolvency practitioner to be removed from all of their cases at once with a single court application. This is called a "block transfer application." In this case, an insolvency practitioner was moving to a new firm, so an application was made to transfer all of his cases away from him. 
 

The Problem 

As part of the application, the practitioner's legal team (Pinsent Masons) also asked the court to formally release him from any personal liability arising from his old cases. Historically, when a liquidator is removed by the court, they must apply to the Secretary of State to obtain that release — the court cannot grant it directly. 
 

The AI Hallucination 

Pinsent Masons cited a specific legal rule — Rule 12.37(5) of the Insolvency Rules 2016 — as the basis for the court having the power to grant that release. However, when the judge looked up that rule, it said nothing of the kind. A word search of the entire Insolvency Rules 2016 confirmed that the wording cited by Pinsent Masons did not exist anywhere in the legislation. 
 

The AI Failures 

It transpires that a junior solicitor had almost exclusively relied upon AI to provide the answers, had not checked the references even when told to do so by the AI itself, had not alerted supervisors that AI had been used, and had not told them that the AI had been unable to confirm the text of the rule — warning that, if it could not be verified, it should not be presented as a direct quote. All the junior solicitor had done was remove the quotation marks, without altering any of the other text. Senior supervisors did not know AI had been used and failed to check the purported statutory text. 
 

Conclusion 

The judge concluded that an AI tool had fabricated the text of Rule 12.37(5) — a phenomenon known as an AI "hallucination," where AI generates false information and presents it as fact. In reality, the court has no express power to grant release to an outgoing liquidator. 
 

Outcome and Guidance 

The court in this case was satisfied that the misleading was not deliberate on the part of the supervising solicitors but noted that mere negligence as to the falsity of material is not sufficient to justify contempt proceedings. The court determined that the firm's own referral to the SRA along with the publication of the judgment served as a proportionate response. 
 

The court reiterated that freely available generative AI tools are not capable of conducting reliable legal research and may make confident assertions that are simply untrue, cite sources that do not exist, or purport to quote passages from genuine sources that are inaccurate. Lawyers must check AI-assisted research against authoritative sources before using it in professional work. 
 

Impact for Fixed Charge Receivers 

When compiling this article, we asked AI for a summary of the impact of this case for fixed charge receivers. Its response? 

Firstly, that block transfers ‘were not to be used by fixed charge receivers’; secondly that the case ‘underscores that there is no statutory release mechanism available to fixed charge receivers’; thirdly that ‘the court will still actively scrutinise the legal foundation for all relief sought’; and finally that ‘advisers to fixed charge receivers must ensure that all AI-assisted drafting is rigorously verified against primary sources before filing, and that supervisory responsibility remains personal and cannot be delegated away.’

It’s fair to say that AI is far from the mark when it comes to case interpretation! 
 

So, what can we say of this case? 

ICC Judge Mullen sums up the position well: “[AI] is a tool to be used with caution. AI has the potential to be wholly unreliable. AI may of course provide a jumping off point for research and legal reasoning but it does not, at least at present, do away with the need for proper research…” 
 

For receivers reading this, ask your advisors to tell you if they’re using AI - the legal profession should add a clause into their client care letters if they have AI tools at their disposal. 
 

Ensure that if you are using AI yourself, let all interested parties know about it and consider all situations fully with your human mind before putting anything in writing. 
 

July 2026 
 

Harriet Swainson - Partner 
Gunnercooke