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

JurisdictionEngland & Wales
CourtCourt of Appeal
JudgeBaker LJ,Lord Justice Henderson,Lewison LJ
Judgment Date18 Dec 2018
Neutral Citation[2018] EWCA Civ 2802
Docket NumberCase No: A2/2018/0084

[2018] EWCA Civ 2802

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES

INSOLVENCY AND COMPANIES LIST (Ch D)

THE HONOURABLE MR JUSTICE HILDYARD

[2018] EWHC 59 (Ch)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Lewison

Lord Justice Henderson

and

Lord Justice Baker

Case No: A2/2018/0084

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)
Appellant
and
(1) Sberbank of Russia
(2) Franklin Global Trust—Franklin Emerging Market Debt Opportunities Fund
(3) Franklin Emerging Market Debt Opportunities Fund Plc
(4) Franklin Templeton Frontier Emerging Markets 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

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

Mr Mark Howard QC and Fred Hobson (instructed by Fried, Frank, Harris, Shriver & Jacobson (London) LLP) for the 1 st Respondent

Mr Gabriel Moss QC and Mr Richard Fisher (instructed by Dechert LLP) for the 2 nd to 7 th Respondents

Hearing dates: 24 and 25 October 2018

Approved Judgment

Lord Justice Henderson

Introduction

1

This appeal raises important questions about the proper scope of the powers conferred on the English court by the Cross-Border Insolvency Regulations 2006, SI 2006 No 1030, (the “CBIR”) to order a stay of proceedings in this jurisdiction in support of a foreign insolvency proceeding.

2

The CBIR were made in order to implement and give the force of law in Great Britain to “the UNCITRAL Model Law”, that is to say the Model Law on cross-border insolvency as adopted by the United Nations Commission on International Trade Law on 30 May 1997, “with certain modifications to adapt it for application in Great Britain”: see regulations 1 and 2(1). The Model Law, with those modifications, is set out in Schedule 1 to the CBIR. References in this judgment to articles of the Model Law are (unless otherwise stated) to the version of it set out in the schedule.

3

By virtue of regulation 3(1), British insolvency law (as defined in article 2) is to apply with such modifications as the context requires for the purpose of giving effect to the CBIR, while regulation 3(2) provides that in the case of any conflict with British insolvency law, the CBIR shall prevail. The relevant definition of British insolvency law incorporates, in relation to England and Wales, the provisions of the Insolvency Act 1986, or any extension or application thereof by or under any other enactment.

4

The scope of application of the Model Law is laid down by article 1, which states that it applies where:

“(a) assistance is sought in Great Britain by a foreign court for a foreign representative in connection with a foreign proceeding.”

It also applies in the converse situation, immaterial for present purposes, where assistance is sought in a foreign State in connection with a proceeding under British insolvency law, and in certain other specified circumstances. “Foreign proceeding” is widely defined in article 2(i) to mean:

“a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation.”

A “foreign representative”, by virtue of article 2(j), means:

“a person or body, including one appointed on an interim basis, authorised in a foreign proceeding to administer the reorganisation or the liquidation of the debtor's assets or affairs or to act as a representative of the foreign proceeding.”

5

Article 9, headed “Right of direct access”, entitles a foreign representative “to apply directly to a court in Great Britain”. Such an application may be made for recognition of the foreign proceeding in which the foreign representative has been appointed: see article 15, which specifies the formalities which have to be complied with on such an application. Article 17 then provides for the mandatory recognition of a foreign proceeding if the necessary conditions are satisfied. By virtue of article 17, the foreign proceeding must be recognised as “a foreign main proceeding” if it is taking place in the State where the debtor has the centre of its main interests (or “COMI”), or as “a foreign non-main proceeding” if the debtor has an establishment in the foreign State.

6

Article 20 then provides for certain automatic effects of recognition of a foreign main proceeding:

“(1) Upon recognition of a foreign proceeding that is a foreign main proceeding, subject to paragraph 2 of this article –

(a) commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations or liabilities is stayed;

(b) execution against the debtor's assets is stayed; and

(c) the right to transfer, encumber or otherwise dispose of any assets of the debtor is suspended.”

In the case of a corporate debtor, the stay and suspension are to be the same in scope and effect as if the debtor had been made the subject of a winding-up order under the Insolvency Act 1986, but paragraph (6) also enables the court, either on application or of its own motion, to modify such stay and suspension, or any part of it, “on such terms and conditions as the court thinks fit.” In practice, this means that where the foreign proceeding is not a winding-up or akin to a liquidation, but is a process such as an administration or reconstruction from which it is hoped that the company will emerge as a going concern, the English court is likely to adapt the automatic stay under article 20(1) so that it more closely resembles the moratorium which applies when a company goes into administration under Schedule B1 to the Insolvency Act 1986.

7

Article 21 then provides for relief that may be granted upon recognition of a foreign proceeding, whether main or non-main. Since this is the central provision upon which the present case turns, I will set out the relevant parts of article 21, together with the supplementary provisions in article 22 for the “[p]rotection of creditors and other interested persons”:

Article 21. Relief that may be granted upon recognition of a foreign proceeding

(1) Upon recognition of a foreign proceeding, whether main or non-main, where necessary to protect the assets of the debtor or the interests of the creditors, the court may, at the request of the foreign representative, grant any appropriate relief, including –

(a) staying the commencement or continuation of individual actions or individual proceedings concerning the debtor's assets, rights, obligations or liabilities, to the extent they have not been stayed under paragraph 1(a) of article 20;

(b) staying execution against the debtor's assets to the extent it has not been stayed under paragraph 1(b) of article 20;

(c) suspending the right to transfer, encumber or otherwise dispose of any assets of the debtor to the extent this right has not been suspended under paragraph 1(c) of article 20;

(g) granting any additional relief that may be available to a British insolvency officeholder under the law of Great Britain, including any relief provided under paragraph 43 of Schedule B1 to the Insolvency Act 1986.

(2) Upon recognition of a foreign proceeding whether main or non-main, the court may, at the request of the foreign representative, entrust the distribution of all or part of the debtor's assets located in Great Britain to the foreign representative or another person designated by the court, provided that the court is satisfied that the interests of creditors in Great Britain are adequately protected.

Article 22. Protection of creditors and other interested persons

(1) In granting or denying relief under article 19 or 21, or in modifying or terminating relief under paragraph 3 of this article or paragraph 6 of article 20, the court must be satisfied that the interests of the creditors… and other interested persons, including if appropriate the debtor, are adequately protected.

(2) The court may subject relief granted under article 19 or 21 to conditions it considers appropriate, including the provision by the foreign representative of security or caution for the proper performance of his functions.

(3) The court may, at the request of the foreign representative or a person affected by relief granted under article 19 or 21, or of its own motion, modify or terminate such relief.”

8

In the light of these provisions of the CBIR, I can now formulate the question which arises in this case with more precision. The relevant circumstances may be summarised in this way:

a) the foreign proceeding is not a liquidation, but a voluntary restructuring entered into between the company and its creditors, with the aim of enabling the company to survive as a going concern;

b) the restructuring plan provides for all the company's existing debts of a specified class to be discharged in full and replaced with various entitlements;

c) under the relevant foreign law (which is the law of the company's place of incorporation and COMI), the restructuring plan becomes binding on all the creditors of the relevant class once it has been approved by a specified majority of them and confirmed by the foreign court;

d) the plan is duly approved by the requisite majority and confirmed by the foreign court;

e) the relevant class of creditors includes some whose claims against the company are governed by English law (“the English creditors”), who...

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2 firm's commentaries
  • English Court Of Appeal Upholds 'The Gibbs Rule'
    • United Kingdom
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    • 28 February 2019
    ...Case Background On December 18, 2018, the Court of Appeal provided its decision in the case of Bakhshiyeva v Sberbank of Russia [2018] EWCA Civ 2802. The OJSC International Bank of Azerbaijan ("IBA") was in a voluntary restructuring proceeding in Azerbaijan pursuant to which its d......
  • English Court of Appeal Upholds "The Gibbs Rule"
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    ...Case Background On December 18, 2018, the Court of Appeal provided its decision in the case of Bakhshiyeva v Sberbank of Russia [2018] EWCA Civ 2802. The OJSC International Bank of Azerbaijan ("IBA") was in a voluntary restructuring proceeding in Azerbaijan pursuant to which its d......

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