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JSC Bank of Moscow v Vladimir Kekhman  EWHC 396 (Ch)
In our update in April last year we reported a Russian debtor, Vladimir Kekhman ("the Respondent") had been made Bankrupt on his own petition on the grounds that he was personally present in England and Wales on the day of presentation of the petition. By way of reminder, Chief Registrar Baister dismissed an application by JSC Bank of Moscow ("the Appellant") to annul the Bankruptcy Order on the grounds that the order ought not to have been made, but gave permission to appeal his decision.
In hearing the appeal, Mr Justice Morgan looked at the test to be applied when deciding whether a Bankruptcy Order "ought not to have been made" and in doing so, decided that Chief Registrar Baister had erred in principle in the exercise of his jurisdiction but had been correct when deciding to dismiss the annulment application. He then set out the correct test to be applied and the factors which the Court could take into consideration in exercising its discretion. The Judge indicated that the Court ought to have regard to:
1. Did the petitioner have a sufficiently close connection with England and Wales?;
2. Was there a reasonable possibility of benefit from the bankruptcy order?; and
3. Was there one or more persons interested in the distribution of assets that the Court could exercise jurisdiction over?
The Judge held the Respondent did have a sufficiently close connection by reason of £86 million worth of personal guarantees which were governed by English law, as well as the presence of assets in the jurisdiction, although this was not a pre-requisite for the making of a Bankruptcy Order. Interestingly, he held that the principles applicable in winding up cases were also relevant in the bankruptcy context.
The Judge held that the Court needed to be satisfied that there had to be benefit to making an order as a Court would not wish to make an order that was pointless. The Judge found that although the Respondent's full rehabilitation was not possible, the Respondent would benefit from the discharge of £86 million of debt despite the fact that his total indebtedness exceeded £316 million.
The benefit to creditors was also to be considered, as it would be inappropriate to only consider the benefit to the petitioner and a Court clearly should not be restricted to only considering the benefit to the petitioner. Whilst it was argued that the Bankruptcy Order would not be recognised in Russia and therefore creditors could still pursue their debts on a "free-for-all" basis, this was not in itself a good reason for declining to make a Bankruptcy Order, as they could equally choose to prove and therefore participate in the Bankruptcy. The Respondent held assets outside of Russia and the Trustees had realised some of those. Therefore an orderly realisation and distribution to creditors was favourable. It was also noted that there might be some further benefit to creditors as the Trustees would be able to investigate the Respondent's affairs, including a $1 million gift to his son.
The Judge considered the Appellant's argument that the Bankruptcy Order offended the principles of comity and held that there was no infringement as matters would proceed in Russia as if the bankruptcy order had not been made. The Judge held that it is not contrary to the principles of comity for an English court to make an order which will be effective to discharge the debtor's liability under a contract which the parties had agreed should be governed by English law and which was the subject of an English jurisdiction clause.
Mr Justice Morgan decided that the Bankruptcy Order ought to have been made and therefore, the Court's discretion to annul the Order did not arise and the application to annul was rightly dismissed by the Chief Registrar.
This was an unusual case of "bankruptcy tourism" and was not about COMI given the Respondent was made bankrupt on jurisdictional grounds. It will be interesting to see if the decision will result in a new wave of "bankruptcy tourists" from non-Member States presenting petitions based on physical presence in the jurisdiction at presentation.
In the matter of Northsea Base Investment Ltd & 7 ors  EWHC 121 (Ch)
The High Court heard an application on behalf of Administrators, appointed a week earlier, of a shipping group of companies for a declaration in relation to each company that its Centre of Main Interests ("COMI") is England and Wales.
Six of the companies were special purpose vehicles owning one ship each (the "Ship Companies") and were owned by the Second Applicant, Baltic Tankers Holding Limited, which in turn was owned by the First Applicant, Northsea Base Investment Limited ("NSBI"). The Hamilton Corporation, the sole shareholder of NSBI, is owned by three Nevis family trusts, The three settlors of these trusts are Directors of Marine Cross Services Limited ("Marine Cross"), a shipping agent incorporated in the UK whose sole clients were the Ship Companies. Marine Cross had its registered office in London, however all eight companies were incorporated in Cyprus and share the same registered office in Cyprus.
The Court reiterated the presumption that the COMI is the Member State in which the registered office is situated, in this case Cyprus, but noted that this presumption can be rebutted by evidence to the contrary. The Court made reference to the Eurofood and Interdil cases whereby the CJEU emphasised the importance of determining a COMI by reference to criteria that are both objective and ascertainable by third parties. In Eurofood, it had also been established that each company in a group must be considered separately.
The evidence demonstrated that the operations and management of each of the Ship Companies were devolved to Marine Cross. Despite the fact that the commercial operational and technical management of the Ship Companies was then contracted out to Scorpio Group in India and the UK, all payments made to trade creditors were paid by Marine Cross as agent for the respective Ship Company, and the agent directed payments to be made in England. Enquiries from third parties in relation to the Ship Companies were also addressed to Marine Cross in London and, in relation to port expenses, there was further evidence that although invoices were raised by the creditors to Scorpio India, they were ultimately passed to Marine Cross for payment.
The Court also considered the view of the banks who were the largest creditors of all eight companies. The relevant loan facilities were governed by English law and contained English jurisdiction clauses, and the banks dealt with Marine Cross in London in relation to receipt of payments.
The Court considered the factors in support of the presumption, namely that the companies were incorporated and had registered offices in Cyprus, none of the directors were based in England, and board meetings were not held in England. The Court was however persuaded that a third party would not necessarily have knowledge of the location of board meetings, and might not consider the directors as being individuals of great significance.
The Court concluded that the only states which could realistically represent the COMI for the Ship Companies were Cyprus or England, despite the involvement of Scorpio India. The Court held that the evidence was sufficient to rebut the presumption in favour of Cyprus and establish that the COMI is England and Wales. Given that NSBI and Baltic Tankers had no real operational function, the only relevant factors for determining their COMI were those relating to the banks, and as such the Court came to the same conclusion that their COMI was England and Wales.
The purpose of the Administrators' application was to assist in recognition of the Administration to other jurisdictions. Had the Administrators been appointed by the Court rather than by the "out of court" route, undoubtedly a declaration as to COMI would have been sought as part of the Administration Order. The case provides a practical reminder that an early declaration as to COMI is recommended particularly in circumstances where recognition in other jurisdictions will be required.
Insolvency litigation exemption from 2012 LASPO Act extended
The UK Parliamentary Under-Secretary of State for Justice has announced today an extension of the temporary exemption of insolvency litigation from the 2012 LASPO Act.
This means that for insolvency litigation only it will remain possible to recover uplifts on CFA cases and insurance premiums from the losing party for the foreseeable future.
Revision of EU Judgments Regulation will bring huge time and costs savings to creditors in cross-border disputes
The revised EU Judgments Regulation which came into force on 10 January 2015 brings three key changes to civil and commercial proceedings in EU countries.
The first revision amends the rule which prioritises the Court where proceedings were commenced when proceedings have been brought in two separate Courts. This revision prevents a party from deploying the 'Italian Torpedo' tactic where proceedings are issued in a jurisdiction with a slow judicial system in order to delay the process. Instead the parties may now agree in advance to confer jurisdiction on the Courts of a particular Member State in the event of a dispute between them.
The second revision abolishes the "exequatur" procedure which was required in order to make a judgment in one Member State enforceable in other Member States, and introduces a presumption of enforceability which will save time and money for creditors.
The third revision abolishes the rule that in order for the Regulation to apply at least one party must be domiciled in an Member State, and agreement to confer jurisdiction on the courts of a member state may be agreed by parties "regardless of their domicile".
Insolvency Service seeks evidence on the European Commission's recommendations for a harmonised approach to business failure and insolvency
On 12 March 2014, the European Commission published its recommendations on a new harmonised approach across Europe to business failure and insolvency. The Commission's recommendations include the implementation of a harmonised preventative framework which allows debtors to restructure their business in the hope of avoiding insolvency, and a statutory scheme whereby entrepreneurs should be fully discharged of their debts after no more than three years from commencement of a liquidation process or repayment plan, with exceptions permitted only in exceptional circumstances. The Insolvency Service published a call for evidence on 4 February 2015, whereby it is seeking evidence as to the practical impact of the Commission's recommendations from industry experts and stakeholders.
Increase in English Bankruptcy Threshold
Business Minister Jo Swinson has announced plans to enable easier access to debt relief for financially vulnerable people. The bankruptcy limit will be increased from £750 to £5,000, the first revision since 1986, and Debt Relief Order limit will be raised from £15,000 to £20,000, enabling some 3,600 more people with low level debt to use DROs instead of bankruptcy. These reforms will come into force on 1 October 2015.