Paul David Allen (as designated person under Article 21(1)(e) of the Cross-border Insolvency Regulations 2006) v Khadzi-Murat Derev (A Bankrupt)
| Jurisdiction | England & Wales |
| Judge | Raquel Agnello |
| Judgment Date | 09 March 2023 |
| Neutral Citation | [2023] EWHC 387 (Ch) |
| Docket Number | Case Nos: BR-2020-000418 |
| Court | Chancery Division |
[2023] EWHC 387 (Ch)
DEPUTY INSOLVENCY AND COMPANIES COURT JUDGE Raquel Agnello KC
Case Nos: BR-2020-000418
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES COURT LIST (CHANCERY DIVISION)
IN THE MATTER OF KHADZHI-MURAT DEREV (IN BANKRUPTCY)
AND IN THE MATTER OF THE CROSS-BORDER INSOLVENCY REGULATIONS 2006
AND IN THE MATTER OF TRUSTS OF LAND AND APPOINTMENT OF TRUSTEES ACT 1925
AND IN THE MATTER OF THE TRUSTEE ACT 1925
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Rolls Building
London
EC4A 1NL
Mr Daniel Lewis (instructed by Seladore Legal Limited) for the Applicant
No attendance from the Respondents
Hearing date: 7 November 2022
Introduction
This is the hearing of an application seeking a declaration as to the beneficial interests in relation to a property known as Flat 5, 14 Montpelier Street, London SW7 1EZ (‘the property’). The current value of the property is between £11 million and £11.5 million. The application also seeks orders for possession and sale. The First Respondent, Mr Khadzhi-Murat Derev (Mr Derev) was declared bankrupt by the Arbitrazh Court of Karachay-Cherkess Republic in the Russian Federation on 22 July 2019. Mr Igor Vitalievich Protasov (‘Mr Protasov’) was appointed as Mr Derev's Russian Bankruptcy Manager, which Mr Allen believes is equivalent to a trustee in bankruptcy under English law. The bankruptcy was recognised in this jurisdiction on 1 December 2020 by an order made pursuant to the Cross Border Insolvency Regulations 2006 (CBIR) and the UNCITRAL Model Law on Cross Border Insolvency (Schedule 1to the CBIR).
The application is brought by Mr Allen, a designated person pursuant to Article 21(1) (e) of the CBIR by virtue of the order of Mr Justice Adam Johnson dated 24 February 2021 (the appointment order). Under the terms of that order, Mr Allen has all the powers of a trustee in bankruptcy under the laws of England and Wales to be able to realise the assets of the bankruptcy estate.
Mr Derev is the joint legal owner of the property alongside his wife, Zukhara Mussaevna Dereva (Mrs Devera). As explained in the evidence presented to me by Mr Lewis, acting on behalf of Mr Allen, until the issue of the application, Mr Derev accepted that he and Mrs Dereva were joint beneficial owners. In his evidence dated 23 November 2021 filed in these proceedings, Mr Derev now asserts that he agrees with the evidence produced to the court from his wife that he had gifted all his property and assets outside of Russia to his wife and his children. Mr Derev explained that when he had asserted in earlier witness statements that the property was owned jointly, his understanding was, ‘that the UK law worked that way’. Mrs Dereva was herself made bankrupt on 28 June 2021. Her Russian trustee in bankruptcy, Mr Rodionov has been provided with notice of this application and he supports it. There is currently no formal recognition of Mrs Dereva's bankruptcy in England and Wales but I was informed that an application would be made shortly.
The application to adjourn
Before me at the start of the hearing, Mr Manoj Aggarwal, a person who represented before me that he was speaking on behalf of Mrs Dereva, sought an adjournment of the hearing on behalf of Mrs Dereva. Mr Aggarwal explained that Mrs Dereva had been legally represented until 2 November 2022 but had not been able to find new legal representation since her previous solicitors came off the record. He was not currently licensed to act as a solicitor (or a barrister) and therefore, his role was a Mackenzie friend. Mrs Dereva was not in attendance although some of her children were present in court. I dealt with the application which was made seeking to adjourn the hearing and refused the adjournment. That judgment was given on the day. However, I did adjourn the hearing of the application before me to 2 pm on the same day. Neither Mr Derev or Mrs Dereva attended and there was no attendance by any legal representative. For completeness, I add that an earlier adjournment application was made on behalf of Mrs Dereva on 26 October 2002 on medical grounds. This was refused by ICC Judge Prentis on 31 October 2022. At the hearing of that application, Mrs Dereva was represented by both counsel and solicitors. Thereafter, her solicitors came off the record with the Applicant being notified on 2 November 2022.
According to the order of Chief ICC Judge Briggs dated 23 November 2021, all those who had filed either witness statements or affidavits were required to attend court at the final hearing to be cross examined. This was subject to the usual provision that no such witness need attend for the purposes of cross examination in a case where the other parties gave notice in writing that a particular deponent was no longer required to attend for the purposes of cross examination. As neither Mr Derev or Mrs Dereva have attended before me, I need to consider the effect of their non attendance in relation to the evidence which has been filed by them. As set out in CPR 32.5, deponents of witness statements are required at attend court at trial to give oral evidence unless the court orders otherwise. Unless there is a proper hearsay notice (which there is not in this case), where a deponent does not attend, the court is not obliged to take into account the evidence which has been filed ( William v Hinton [2011] EWCA Civ 1123). Accordingly, it is a matter for the court to determine whether to take the evidence into account and also what weight to give, if any, to that evidence. Mr Lewis did not ask for the statements to be excluded. He invited me to take them into account but to give limited weight to their contents except where there are contemporaneous documents which support what is being said. I propose to deal with the evidence of both Mr Derev and Mrs Dereva, in principle, as proposed by Mr Lewis.
Acquisition of the property
The property was purchased on 4 May 2017 for £13,500,000 and registered in the joint names of Mr Derev and Mrs Dereva. There are, according to the evidence, creditors' claims in that bankruptcy of over £87 million. Mr Allen sets out some of the background in relation to the affairs of Mr Derev and Mrs Dereva. For current purposes, I do not need to summarise these but reference can be made to the judgments in the appointment application as well as the earlier recognition order and the freezing order which was before Mr Justice Zacaroli on 28 July 2020. The allegations made by Mrs Dereva and Mr Derev relating to alleged misconduct by Mr Protasov and the background to the bankruptcy order against Mr Derev, were before the Judge who made the recognition order. The recognition order was made. Therefore, I proceed on the basis that the recognition order is valid and binding such that Mr Allen's application as a person designated is valid and proper in accordance with these previous orders made by this court.
Mr Allen sought to obtain possession and sale of the property by consensual means. There is evidence of the correspondence in this respect dated 19 March 2021, 23 June 2021 and 25 June 2021. None of these approaches led anywhere. The property is occupied by Mr Derev and his adult children, being Alkhas Derev and Ms Sabina Derev. Additionally, Mrs Dereva asserts that she resides in the property.
As I have set out above, the evidence shows that the current valuation of the property is between £11 million and £11.5 million. The property is subject to a mortgage in favour of Julius Baer Bank of around £7.8 million which is in default and repayment/interest instalments are not being made.
The position of Mr Allen
The appointment order states as follows:-
“Mr Allen shall be entitled to exercise such powers of an insolvency officeholder and/or trustee in bankruptcy under the laws of England and Wales as are reasonably necessary (i) to get in and realise the Debtor's assets located in Great Britain as disclosed in Mr Derev's First and Second Witness Statements served in these proceedings, save for personal chattels other than (to the extent they are located in Great Britain) the Rolex, Parmigiani and Vacheron Constantin watches identified in the Debtor's asset disclosure, which are located at Flat 5, 14 Montpelier Street, London SW7 1EZ and Flat 4, 20 Basil Street, London SW3 1AR”
Mr Lewis submits that the effect of the recognition of the Russian bankruptcy under CBIR is that Mr Allen can rely upon the same rights and legal consequences as would have arisen has the bankruptcy order been made in this jurisdiction. He relied upon the recent decision of ICC Judge Jones of Re Olusoji Samson Tomoye [2020] EWHC 1965 (Civ). In that case, the Judge considered a US appointed Bankruptcy Trustee who had obtained a recognition order pursuant to CBIR on 16 January 2020. The US Bankruptcy had commenced on 20 July 2018. One of the issues before the Judge was whether the effect of the recognition order on the bankrupt's legal and beneficial interest in the lease of Flat 40, Coral Apartments, 17 Western Gateway, Royal Victoria Docks, London E16 1AQ. After considering some of the authorities in this area, the Judge held that the US Trustee can rely in this jurisdiction on the remedies under the Insolvency Act 1986 as though the bankruptcy was an English bankruptcy. That included section 284 of the Insolvency Act 1986 which relates to the avoidance of dispositions. At paragraph 12, the Judge went through the remedies which he stated were available to the US Trustee, and stated the following:-
(1) ‘ Third, section 284 of the Act provides that any disposition of...
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