Igor Vitalievich Protasov v Khadzhi-Murat Derev
| Jurisdiction | England & Wales |
| Judge | Mr Justice Adam Johnson |
| Judgment Date | 24 February 2021 |
| Neutral Citation | [2021] EWHC 392 (Ch) |
| Docket Number | Case No: BR-2020-000418 |
| Court | Chancery Division |
| Date | 24 February 2021 |
[2021] EWHC 392 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS & PROPERTY COURTS OF ENGLAND & WALES
INSOLVENCY & COMPANIES LIST (ChD)
IN THE MATTER OF KHADZI-MURAT DEREV
AND IN THE MATTER OF THE CROSS-BORDER INSOLVENCY REGULATIONS 2006
7 Rolls Building
Fetter Lane
London EC 4A 1NL
Mr Justice Adam Johnson
Case No: BR-2020-000418
Harry Matovu QC (instructed by Seladore Legal Limited) for the Applicant
William Willson (instructed by Taylor Wessing LLP) for the Respondent
Hearing dates: 18 February 2021
Further written submissions: 19 February 2021
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Covid-19 Protocol: This Judgment was handed down remotely by circulation to the parties' representatives by email and released to Bailii.
Introduction and Background
Mr Khadzi-Murat Derev was declared bankrupt in Russia in July 2019, and the present Applicant Mr Protasov was appointed his bankruptcy manager.
Shortly before he was declared bankrupt Mr Derev left Russia and, as I understand the evidence, has been present in London since then. He has assets in England, including in particular interests in two high value properties, one at Montpelier Street and the other at Basil Street, both in London.
On 21 July 2020, the Applicant, Mr Protasov, made an application to the English High Court seeking recognition of the Russian bankruptcy in this jurisdiction under Article 17 of Schedule 1 to the Cross-Border Insolvency Regulations (the CBIR), which in terms reflects Article 17 of the UNCITRAL Model Law. (In what follows, where I refer to Articles of the Model Law, I am referring to the provisions of the Model Law as given effect in Schedule 1 of the CBIR). Recognition was sought of the Russian bankruptcy as a “ foreign main proceeding”.
The recognition application was heard only in December 2020, but in the meantime the Applicant feared there was a risk of dissipation of assets by Mr Derev. He therefore made a without notice application for interim relief, which was heard by Zacaroli J on 28 July 2020. It is clear from Zacaroli J's judgment that the application was made on the basis of Article 19 of the Model Law.
Article 19(1)(c) identifies certain types of provisional relief which may be ordered “ upon application for recognition”, but by reference to certain categories of relief that may be ordered after recognition. These are set out in Article 21. Article 21(1)(c) says that such relief includes an order “ … 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”.
Having considered the evidence and heard submissions, Zacaroli J made the order sought. Paragraph 7 of his order is as follows:
“Until the Return Date or further order of the Court, the Debtor's right to transfer, encumber or otherwise dispose of any of his assets worldwide is suspended in accordance with the interim relief available under Article 19(1)(c) and Article 21(1)(c) of the Model Law.”
The “ Return Date”, as defined, was the date of the intended application for recognition of the Russian bankruptcy proceedings as a foreign main proceeding.
The Applicant's previous counsel made the application before Zacaroli J on the basis that the appropriate test to apply was that relevant to the grant of a freezing order. Zacaroli J had some doubts about whether that was the correct approach analytically. He commented as follows at [6]:
“It seems to me that the most appropriate analogy in relation to the suspension of dealing with assets is with a proprietary injunction that this court would grant in favour of a proprietary claim. That is because the Russian manager, on the basis of the Russian law evidence that I have seen, steps into the shoes of the bankrupt and is the only person entitled to deal with all the assets of the bankrupt. The consequences is that it is the manager and not the bankrupt who is entitled to claim property belonging to the bankruptcy estate from third parties, thus the claim to assets here has all the hallmarks of a proprietary claim.”
As Zacaroli J went on to note, the order sought included certain provisions which one would ordinarily expect to find in a freezing order. These included requirements for the provision of information by Mr Derev as to his worldwide assets – with initial disclosure to be provided within 3 days (para. 12), and then further disclosure by means of a witness statement verified by a statement of truth within 14 days (para. 13). Zacaroli J was satisfied that in any event, such provisions fell within Model Law Article 21(1)(d) (provision of information concerning the debtor's assets), which they plainly do.
Another provision is that in para. 10 of the order, which provides:
“This order does not prohibit the Debtor from spending £2,000 a week towards his ordinary living expenses and additional reasonable sums on legal advice and representation. But before spending any money the debtor must inform the applicant's legal representatives of the amount, purpose and source of the intended expenditure.”
At [17], Zacaroli J said that such provisions “ would not be appropriate in a proprietary injunction, but the claimant is happy to leave those in.”
The Order, once made, was duly served, and disclosure was provided by Mr Derev, although on the Applicant's case it was deficient. I will return to this point below.
As already mentioned, the recognition application was eventually heard on 1 December 2020 by Deputy Judge Karet. The requested recognition order was made, effective from 5.30pm on 1 December 2020.
There remained, however, the question of the order made by Zacaroli J. There was disagreement as to what should happen to that, but there was no time to resolve that disagreement at the hearing before Deputy Judge Karet, and so the matter comes before me.
The Present Application
In short, the Applicant seeks to continue Zacaroli J's order on the footing that there remains a risk of dissipation of assets by Mr Derev. He puts forward evidence said to show that Mr Derev has been uncooperative in connection with the ongoing bankruptcy, and that unless restrained by means of an order he may still seek to put assets beyond the reach of his creditors. The order sought by means of paragraph 2(a) of the Applicant's draft Order is as follows (as I will explain below at [27], the words in square brackets have now been superseded, and the order sought is for an extension of Zacaroli J's order pending a hearing in the Isle of Man):
“ Pursuant to Article 21 of the Model Law:
(a) the Order of Mr Justice Zacaroli dated 28 July 2020 … shall be continued [until a further hearing to be listed at the first available date after 15 January 2021]”
Mr Derev says that there is no need for Zacaroli J's order to be continued and possibly no jurisdiction enabling the Court to continue it. He says that a recognition order has now been made, and that has the effect of suspending his rights in relation to his assets in just the same way as if he had been subject to an English bankruptcy order. That brings with it the entire infrastructure of the insolvency legislation which is a comprehensive code for dealing with the position of bankrupts, and there is no role within that framework for the making of freezing (or similar) orders against such persons.
Some ancillary questions also arise. These are: (1) Should the Court make a declaration under Article 20 of the Model Law, that Mr Derev's rights to deal with his assets have been suspended? (2) Should the Court make an order under Article 21(1)(e) of the Model Law, entrusting the realisation of Mr Derev's assets within Great Britain to Mr Paul Allen, a licensed insolvency practitioner? (3) What provision, if any, should be made as to the powers exercisable by Mr Allen? (4) Should an order be made under Article 21 of the Model Law expressly requiring Mr Derev to comply with his obligations under the Insolvency Act 1986, section 333, including his obligation to give information to Mr Allen? (5) If the order of Zacaroli J is continued, then should the proviso in relation to living expenses and legal fees remain in place? (6) Should provision be made to enable the Applicant to participate in an assessment of the legal fees expended by Mr Derev so far? (These come to roughly £400,000, which the Applicant says is obviously unreasonable).
The main point, however, is as to the continuation of Zacaroli J's order. In order to deal with that point, it is necessary to deal briefly with some further background.
Conduct and Assets of Mr Derev
The Applicant's case for continuation of Zacaroli J's order is premised on a continuing risk of dissipation of assets. The evidence is detailed, but the Applicant points to three matters in particular which, taken together with Mr Derev's historic behaviour in relation to the Russian bankruptcy proceedings, are said to give rise to concerns.
The first matter relates to a £200,000 loan due from an individual called Eleanora Boss. There is a loan agreement dated 16 May 2017 between Mr Derev and Ms Boss. The stipulated repayment date was 15 May 2020, but the loan has not been repaid. The loan amount was not identified as an asset either in Mr Derev's initial disclosure under para. 12 of Zacaroli J's order or in his witness statement served under para. 13. This is despite the fact that, on 7 August 2020, after Zacaroli J's order had been served, the Applicant expressly raised the question of Mr Derev's connection with Ms Boss. In his...
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