Gunel Bakhshiyeva (in her Capacity as the Foreign Representative of the OJSC International Bank of Azerbaijan) v (1) Sberbank of Russia

JurisdictionEngland & Wales
JudgeMr Justice Hildyard
Judgment Date18 January 2018
Neutral Citation[2018] EWHC 59 (Ch)
CourtChancery Division
Docket NumberCase No: CR-2017-003973
Date18 January 2018

In the Matter of the OJSC International Bank of Azerbaijan

And in the Matter of the Cross-Border Insolvency Regulations 2006

Between:
Gunel Bakhshiyeva (In her Capacity as the Foreign Representative of the OJSC International Bank of Azerbaijan)
Applicant
and
(1) Sberbank of Russia
(2) Franklin Global TrustFranklin Emerging Market Debt Opportunities Fund
(3) Franklin Emerging Market Debt Opportunities Fund Plc
(4) Franklin Templeton Frontier Emerging Market Debt Fund
(5) Franklin Templeton Emerging Market Debt Opportunities (Master) Fund, Ltd
(6) Franklin Templeton Series Ii Funds
(7) Franklin Emerging Market Debt Institutional Fund
Respondents

[2018] EWHC 59 (Ch)

Before:

The Honourable Mr Justice Hildyard

Case No: CR-2017-003973

IN THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

INSOLVENCY AND COMPANIES LIST (Ch D)

Royal Courts of Justice

7 Rolls Building, Fetter Lane, London, EC4A 1NL

Daniel Bayfield QC and Ryan Perkins (instructed by White & Case LLP) for the Applicant

Barry Isaacs QC and Alexander Riddiford (instructed by Fried, Frank, Harris, Shriver & Jacobson (London) LLP) for Respondent (1)

Gabriel Moss QC and Richard Fisher (instructed by Dechert LLP) for Respondents (2) – (7)

Hearing dates: 14th, 15 th and 21st December 2017

Mr Justice Hildyard

The subject-matter of this judgment

1

The interesting question raised by the three applications which are the subject of this judgment concerns the tension between what is often referred to as the ‘rule’ in Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux (1890) LR 25 QBD 399 and, in the context of a foreign insolvency proceeding which has been recognised in this jurisdiction, the principle or practice of ‘modified universalism’.

2

More especially, the question raised is whether the Court has power to grant a permanent moratorium or stay to prevent a creditor exercising its rights under a contract governed by English law in order to prevent that creditor enforcing its rights contrary to the terms of the foreign insolvency proceeding by which all creditors were, under the relevant foreign law, intended to be bound. If it does, the second question is whether in its discretion the Court should exercise that power.

3

There are two further questions raised by counter-applications on behalf of the Respondents: both essentially concern whether such Respondents should be given permission now to proceed with claims in this jurisdiction.

The relevant foreign insolvency proceeding

4

These questions arise in the present applications in relation to the OJSC International Bank of Azerbaijan (“IBA”), which is the largest commercial bank in Azerbaijan. IBA's largest shareholder is the Government of Azerbaijan; its registered office and headquarters are situated in Baku, Azerbaijan and it is managed from its headquarters in Baku.

5

IBA has fallen into financial difficulties, obliging it to enter into a restructuring proceeding under Azeri law (the “Restructuring Proceeding”). The purpose of the Restructuring Proceeding was to enable IBA to propose a plan to restructure its debts.

6

On 5 May 2017, the applicant (Ms Gunel Bakhshiyeva) was appointed as IBA's Foreign Representative (the “Foreign Representative”). On 24 May 2017 the Foreign Representative applied to this Court for an order (the “Recognition Order”) recognising the Restructuring Proceeding as a foreign main proceeding under the Cross-Border Insolvency Regulations 2006 (the “CBIR”). At a hearing on 6 June 2017, Barling J made the order sought.

7

Paragraph 2 of the Recognition Order imposes a wide-ranging moratorium akin to that which would arise in an English administration proceeding (the “Moratorium”). The Moratorium prevents creditors from commencing or continuing any action against IBA or its property without the permission of the Court.

8

The plan proposed by IBA pursuant to the Restructuring Proceeding (“the Plan”) has been approved by a substantial majority at a meeting of creditors in Azerbaijan on 18 July 2017. It was thereafter approved by the Nasimi District Court on 17 August 2017 (the “Azeri Confirmation Order”). As a matter of Azeri law, the Plan is now binding on all affected creditors, including those who did not vote and those who voted against the Plan.

The Respondents

9

However, the Respondents (either together “the Respondents” or when more convenient, “Sberbank” and “Franklin Templeton”), contend that the Plan cannot bind them. In each case their relationship as creditor with IBA is governed by English law. They rely on the rule in Gibbs, which states that a debt governed by English law cannot be discharged by a foreign insolvency proceeding.

10

Sberbank is the sole lender under a US$20m term facility agreement dated 15 July 2016 (“the Sberbank Facility”). Franklin Templeton are the beneficial owners through Citibank NA, London Branch (“Citibank”) as trustee of US$500m 5.62% notes issued under a trust deed dated 11 June 2014 (the “2019 Notes”) and both the Sberbank Facility and the 2019 Notes expressly state that they are governed by English law.

11

The Respondents did not vote or participate in any way in the meeting in Azerbaijan to approve the Plan. It is for present purposes accepted by the Foreign Representative that they have not acquiesced in its application to them.

The Foreign Representative's application in detail and its urgency

12

The Restructuring Proceeding is due to terminate on 30 January 2018. It cannot, as Azeri law presently stands, be extended any further. Unless extended the Moratorium will lapse. In those circumstances, the Foreign Representative has issued an application to continue the Moratorium (“the Moratorium Continuation Application”).

13

The Moratorium Continuation Application seeks an order in the following terms:

(1) Notwithstanding the termination of the Restructuring Proceeding, the Moratorium shall continue until further order (but only in relation to the Designated Financial Indebtedness) so that no legal process in relation to the Designated Financial Indebtedness may be instituted or continued against IBA or its property except with the permission of the Court; and

(2) The Moratorium shall not be lifted so as to permit Sberbank or Franklin Templeton to enforce their loans.

14

The Respondents oppose the Moratorium Continuation Application. On the basis of the rule in Gibbs they assert that their claims against IBA have not been discharged by the Plan. They contend that they retain the right to enforce their English law-based claims, subject only to the Moratorium presently in force. They submit that the continuation of the Moratorium would prevent them exercising and vindicating their continuing rights.

15

The determination of these matters has become urgent: in effect, unless Azeri law is changed to permit a further extension, the Foreign Representative must obtain the relief before the termination date of 30 January 2018 for the Restructuring Proceedings.

Common ground as to the application of the ‘rule’ in Gibbs

16

The Foreign Representative accepts that I am bound by the decision (in the Court of Appeal) in the Antony Gibbs case and that, for the purpose of the application before me (though she reserves the right to argue to the contrary on appeal), the Respondents' claims have not been discharged by the Plan.

17

She also accepts that, for those purposes, the Azeri Confirmation Order itself cannot be directly enforced under the CBIR (so as to give rise to an estoppel per rem judicatam as against the Respondents); though again, she reserves the right to argue on appeal that the CBIR can be used to recognise and enforce foreign judgments which confirm or sanction restructuring plans.

18

Thirdly, it is not suggested that the Respondents have submitted to Azeri law or acquiesced in its application to them (and see paragraph [11] above).

The fundamental issues

19

As indicated at the beginning of this judgment, the Moratorium Continuation Application thus raises before me two short but fundamental points of cross-border insolvency law, namely:

(1) Whether the Court has jurisdiction to extend a moratorium imposed under the CBIR without limit as to time, and in particular, beyond the date on which the foreign proceeding will terminate; and

(2) If so, whether the Court should refuse to lift the continuing moratorium in favour of a creditor whose debt is governed by English law, so as to prevent that creditor from achieving a better return than that enjoyed by all of the company's other creditors under a restructuring plan promulgated in the jurisdiction in which the company is registered and has its centre of main interests (“COMI”).

20

Sberbank's cross-application seeks an order granting it leave to commence proceedings against IBA in the form of a Part 7 Claim Form and Particulars of Claim annexed. Franklin Templeton's cross-application seeks orders for the modification of the Moratorium imposed by Barling J's order on 6 June 2017 to enable proceedings to be commenced to establish and enforce IBA's obligations to them under their Notes and then for the Moratorium to be lifted and cease to have effect altogether on termination of the Restructuring Proceeding.

21

Although Franklin Templeton's cross-application raises additional timing points, both cross-applications are to a large extent the obverse of the Foreign Representative's Moratorium Continuation Application; it was on the latter that argument was almost entirely focused at the hearing, and this judgment is focused accordingly.

22

The points raised are intriguing and complex, and of general potential application and thus importance. Furthermore, the matters reserved for argument in the event of the matter going up on appeal are of very considerable legal significance. They have been the subject of recent...

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