Paul Zeital Kemsley v Barclays Bank Plc and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Roth |
| Judgment Date | 15 May 2013 |
| Neutral Citation | [2013] EWHC 1274 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim no: 306 of 2012 |
| Date | 15 May 2013 |
[2013] EWHC 1274 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN BANKRUPTCY
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Roth
Claim no: 306 of 2012
SIMON MORTIMORE QC (instructed by Lawrence Stephens) for the Applicant
ROBIN DICKER QC and RICHARD FISHER (instructed by Clifford Chance LLP) for the 1 st Respondent
Hearing dates: 8 and 11 March 2013
This is an application by Mr Kemsley to restrain two sets of proceedings brought by the 1 st Respondent ("Barclays") in the United States. At the conclusion of the hearing, I announced my decision to refuse the application, since I was told that a hearing was due to take place in the New York court in one of those two actions the following day. These are my full reasons for that decision.
THE FACTS
At least until late 2008, Mr Kemsley was a very wealthy individual. This explains the fact that on 25 June 2008, Barclays granted him a personal loan of £5 million on an unsecured basis. The loan was repayable after a year but the loan period was subsequently extended.
In 2009, Mr Kemsley's business in England collapsed when the Rock group of companies went into administration. As a result, he experienced financial difficulties. Already on 23 October 2008, Spreadex Ltd ("Spreadex") had started proceedings against him on a claimed debt of £6.5 million. On 21 December 2012, after it had obtained a judgment against him, Mr Kemsley reached a settlement with Spreadex but he failed to pay the instalment due in December 2011 and on 17 February 2012 Spreadex served a statutory demand for £6.8 million.
Mr Kemsley was also unable to keep up repayment to Barclays of instalments under the extended loan. On 24 February 2012, Barclays demanded payment under the loan agreement of £5.1 million.
Mr Kemsley is a British citizen and had lived until 2009 in England, most recently in rented premises in Radlett. Following the collapse of his business here, he moved in June 2009 with his wife and family to the house in Boca Raton, Florida ("the Florida Property") which they had purchased in 2007. They moved to New York City in about May 2010 but subsequently Mr and Mrs Kemsley became estranged and Mrs Kemsley moved back with their children to England in about June 2012. Mr Kemsley has remained in the United States.
On 15 November 2011, Her Majesty's Revenue and Customs ("HMRC") presented a bankruptcy petition based on a debt of £3 million.
On 13 January 2012, Mr Kemsley presented his own bankruptcy petition to the High Court. His petition was based, as set out in his witness statement of 16 January 2012, on his physical presence in England on the date of presentation, within the terms of s 265(1)(b) of the Insolvency Act 1986 (the " IA"), and on his having had a place of residence in England within three years of presentation: IA s 265(1)(c).
On 31 January 2012, the court adjourned both HMRC's and Mr Kemsley's petitions to 26 March 2012. On that date, Mr Kemsley was adjudicated bankrupt on his own petition. The 2 nd and 3 rd Respondents ("the Trustees") were appointed his trustees.
On 1 March 2012, shortly before Mr Kemsley became bankrupt, Barclays commenced proceedings against him under the loan agreement in the Supreme Court of the State of New York (respectively, "the NY Proceedings" and "the NY Court"). The NY Proceedings were served on him shortly afterwards. On 10 July 2012, Barclays applied for summary judgment in the NY Proceedings.
On 21 August 2012, the 2 nd Respondent, Mr Fry, as joint trustee in bankruptcy applied in the US Bankruptcy Court for the Southern District of New York under Chapter 15 of the US Bankruptcy Code for recognition of the English bankruptcy as a foreign main proceeding. Chapter 15 is the provision implementing the UNCITRAL Model Law on insolvency. The Trustee's petition in the US Bankruptcy Court estimated Mr Kemsley's debts at between US$10–50 million, and stated the Trustee's belief that the majority of Mr Kemsley's primary assets and creditors are in England. Barclays filed objections to the Trustee's application.
On 14 November 2012, the NY Court adjourned the application for summary judgment in the NY Proceedings to await the outcome of the application for recognition under Chapter 15 in the US Bankruptcy Court. The trial of that application was heard in the US Bankruptcy Court on 11 December 2012 and 29 January 2013, during the course of which Mr Kemsley was cross-examined. Judgment was reserved and had not been given as at the time that the present application was argued.
In the meantime, on 26 November 2012, Barclays commenced proceedings in the Florida State Court against Mr and Mrs Kemsley in relation to the Florida Property ("the Florida Proceedings"). In the Florida Proceedings, Barclays seeks to set aside certain transfers of the Florida Property as, in effect, fraudulent transfers designed to defeat the interests of creditors. I was told that those proceedings were commenced just before the limitation period under Florida law for such claims would have expired.
It was common ground that if the US Bankruptcy Court granted the Trustee's petition for recognition under Chapter 15, then the NY Court would stay the NY Proceedings. It appears that if the NY Proceedings were stayed, Barclays may not effectively be able to pursue the Florida Proceedings that are founded on the same debt.
THE PRESENT APPLICATION
Mr Kemsley seeks to restrain Barclays from pursuing both the NY Proceedings and the Florida Proceedings against him. His application was put forward on two grounds:
i) that Barclays would obtain as a creditor an advantage for itself over the equitable distribution among creditors that is fundamental to the bankruptcy regime;
ii) that Barclays' actions would avoid the operation of the British bankruptcy regime whereby Mr Kemsley will be released from his bankruptcy debts on his discharge from bankruptcy. Unless the Trustees apply to extend the period, that would expire on 26 March 2013. Although the Trustees would of course still be able to recover the debt against the estate in bankruptcy, any property Mr Kemsley might acquire after discharge will be free from Barclays' claims. However, if Barclays is able to obtain a judgment in the NY Proceedings, that judgment would be enforceable against Mr Kemsley under the New York Civil Practice Law, section 211(b), for 20 years in the United States and other jurisdictions that would recognise it.
The application had been adjourned in the hope that judgment might be given in the US Bankruptcy Court. However, it was now urgent since if Mr Kemsley was discharged from his bankruptcy on 26 March 2013 and his debt to Barclays released, Barclays may then be unable to obtain judgment in the NY Proceedings. Presumably for that reason, the hearing of its motion for summary judgment was due to be heard in the NY Court on 12 March.
The first of the above two grounds was effectively resolved in the course of the hearing by an undertaking offered by Barclays that it would transfer to the Trustees any assets recovered in the United States that form part of the estate in bankruptcy, subject to deduction of its reasonable costs and expenses. Accordingly, the thrust of Mr Kemsley's application was directed at the second ground. As Mr Mortimore QC put it on behalf of Mr Kemsley: "this is, in a sense, a one-point case,… based on the fact that a bankrupt, in this case, needs the protection of an injunction to preserve the rehabilitation and release of debts which he is allowed under the bankruptcy regime of this jurisdiction."
It is appropriate to record the position of the Trustees, who were served with the application but did not appear. Mr Leese, of Barclays' solicitors, said in his witness statement of 3 December 2012 that Barclays had been told by the Trustees that the pursuit by Barclays of the NY Proceedings against Mr Kemsley which pre-dated the bankruptcy was not objectionable, and that Barclays remained in discussion with the Trustees regarding those proceedings. However, in his declaration filed on 7 December 2012 in the US Bankruptcy Court in support of his petition under Chapter 15, Mr Fry as Trustee stated that: "Barclays' litigation against Mr Kemsley in the US seeks to circumvent the UK statutory regime of debtor and creditor rights." And in the hearing in the US Bankruptcy Court on 29 January 2013, counsel for the Trustee told the court: "The trustee believes that Barclays is spending a lot of money on pointless litigation in [sic] the Florida property." Mr Kemsley has supported the Trustee's Chapter 15 petition. In that regard, I note that in his remarks at the conclusion of that hearing, the Hon Judge Peck observed:
"[Mr Kemsley's] support through friends of the Trustee's litigation effort frankly casts a net of suspicion over the entire process of seeking recognition and that's a factor that I need to take into consideration."
Spreadex has stated through its solicitors that it supports Barclays' opposition to the present application.
THE LAW
(a) The British bankruptcy regime
Under the statutory regime, Mr Kemsley's estate vested in the Trustees, whose function it is to get in, realise and distribute it: IA, ss. 305–306. His bankruptcy estate comprises all property belonging to or vested in him (subject to some exceptions) at the start of his bankruptcy, i.e. 26 March 2012, whether within or outside the jurisdiction: IA, s. 283. The bankruptcy estate may be supplemented if (i) there are successful claims to adjust prior transactions: IA, ss. 339–344; or (ii) the Trustees claim for the estate any property which has been acquired by, or has devolved on, Mr Kemsley since the commencement of his...
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