Re OJSC Ank Yugraneft v Sibir Energy Plc

Hearing Dates: 9th22nd July 2008

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.

Millhouse and Mr Abramovich (“the applicants”) seek an order that the appointment of Mr Cork as provisional liquidator, made by Evans-Lombe, J, on 14 ^th November 2007, be set aside, a declaration that the Court declines to exercise its insolvency jurisdiction over Yugraneft and an order that the petition to wind up Yugraneft, which is also before me, should be dismissed.

I have already decided that the proceedings against the applicants should be dismissed and declined to give Yugraneft permission to serve Mr Abramovich out of the jurisdiction. In those circumstances the petitioners accept that the petition should be dismissed (subject to any question of appeal), whereupon the appointment of the provisional liquidator will also terminate automatically; see Rule 4.31(2) of the Insolvency Rules (“IR”). However, the application is a free standing application and I deal with it accordingly. I do so on the assumption that, contrary to my earlier judgment, the applicants are not entitled to succeed in their reverse summary judgment application.

In essence the applicants contend:

(a) that there is not, and has never been, any need for the Court to exercise its insolvency jurisdiction in relation to Yugraneft;

(b) that the requirements for the winding up of Yugraneft as an unregistered company are not met; and

(c) that the appointment of the provisional liquidator was procured by materially misleading statements and by a failure to disclose matters of relevance and importance to the Court.

The petitioners contend that, on the assumption that the defendants fail in their Commercial Court applications, the Court has jurisdiction under s 221 of the Insolvency Act 1986 (“the Act”) to wind up Yugraneft and should do so. They further submit that, if the Court were to dismiss the petition or set aside the appointment of the provisional liquidator, the Commercial Court proceedings would nevertheless remain on foot because:

(a) The acts of the provisional liquidator are valid notwithstanding any defects that there may have been in his appointment; s 232 IA 1986.

(b) Even if the provisional liquidator had never been appointed, the Commercial Court proceedings would still have been properly commenced. Mr Kotov, the Russian liquidator, had authority to cause Yugraneft to commence them. He did in fact authorise their commencement and has ratified them: as appears from para 38 of his second witness statement and para 24 of his third. It is common ground that his authority to do so will be recognised by the English Court without the need for any separate application or order of this Court.

Is there a need to exercise the Court's insolvency jurisdiction?

The jurisdiction of the Companies Court to wind up a company is markedly different from that of the Commercial Court to resolve disputes. Liquidation, as Lord Scott observed in Gamlestaden Fastigheter AB v Baltic Partners Ltd [2008] 1 BCLC 468 is,”although from a financial point of view carried out for the benefit of the creditors, … a public act or process in which the public has an interest”. The purpose of the proceedings is to ensure that all creditors recover in accordance with the statutory order of priorities and that all of them rank pari passu within their class.

Buckley, LJ expressed matters thus in Re Crigglestone Company Ltd [1906] 2 Ch 327,331–2:

“… the order which the petitioner seeks is not an order for his benefit, but an order for the benefit of a class of which he is a member. The right … is not his individual right, but his representative right …”

“The Court has often refused a [winding up] order … because the Court does not make an order when no benefit can result. If the order will be useful (not necessarily fruitful) there is jurisdiction to make it.”

“The only real danger is lest petitions should be presented simply for the purpose of making costs where there is really nothing to wind up —a danger against which the Court is strong enough to defend itself.”

In the Court of Appeal Collins, MR said:

“If there is a reasonable probability or even a reasonable possibility that the unsecured creditors will derive any advantage from a winding up, the order ought to be made”

Yugraneft is currently being wound up in Russia. On 14 ^th December 2004 Yugraneft, by its general director, declared that it was unable to meet its liabilities and applied for the appointment of a temporary administrator. On 20 ^th December 2004 it petitioned the Moscow Arbitrazh Court (“the Moscow Court”) for its own bankruptcy. On 22 ^nd December 2004 the Moscow Court ordered the suspension of the powers of Yugraneft's board and the imposition of a supervision procedure under Article 62 of the Federal Law on Insolvency. On 12 ^th January 2005 Mr Kotov was appointed interim administrator of the company. On 19th April 2005 the Moscow Court ordered that there should be external management of Yugraneft for 1months and appointed Mr Kotov as external manager. On 23 ^rd October 2006 the Moscow Court extended the term of the external management of the company. On 28 ^th May 2007 the Moscow Court reviewed the administration, declared Yugraneft insolvent, and appointed Mr Kotov as bankruptcy administrator for a year. On 23 ^rd June 200that appointment was extended for another year.

Yugraneft is an “unregistered company” within the meaning of section 220 of the Act. Sections 221 (1) & (5) of the Act provide that such a company may be wound up in the following circumstances:

“(a) if the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs;

(b) if the company is unable to pay its debts;

(c) if the Court is of opinion that it is just and equitable that the company should be wound up.”

Yugraneft is carrying on business only for the purpose of winding up its affairs and is unable to pay its debts. The Court therefore has the power to wind it up.

The apparently unlimited discretion conferred by section 221 (1) and its predecessors has been the subject of considerable definition by the Court. In Banque des Marchands de Moscou (Koupetschesky)(in liq) v Kindersley [1951] Ch 122, 115 Lord Evershed MR said:

“As a matter of general principle, our courts would not assume, and Parliament should not be taken to have intended to confer, jurisdiction over matters which naturally and properly lie within the competence of the courts of other countries. There must be assets here to administer and persons subject, or at least submitting, to the jurisdiction who are concerned or interested in the proper distribution of the assets. And when these conditions are present the exercise of the jurisdiction remains discretionary. Prima facie, if the local law of the dissolved foreign corporation provided for the due administration of all the property and assets of the corporation wherever situate among the persons properly entitled to participate therein, the case would not be one for interference by the machinery of the English courts.”

[Bold added in this as in other citations]

As Lawrence Collins J explained in Re Drax Holdings Ltd, [2004] 1 WLR 1049 at § 24 – 25:

“The English Court will not wind up a foreign company where it has no legitimate interest to do so, for that would be to exercise an exorbitant jurisdiction contrary to international comity …”

In Re Compania Merabello San Nicholas [1973] Ch 75, 91 Megarry J summarised the essentials:

“(1) There is no need to establish that the company ever had a place of business here.

(2) There is no need to establish that the company ever carried on business here, unless perhaps the petition is based upon the company carrying on or having carried on business.

(3) A proper connection with the jurisdiction must be established by sufficient evidence to show (a) that the company has some asset or assets within the jurisdiction, and (b) that there are one or more persons concerned in the proper distribution of the assets over whom the jurisdiction is exercisable.

(4) It suffices if the assets of the company within the jurisdiction are of any nature; they need not be “commercial” assets, or assets which indicate that the company formerly carried on business here.

(5) The assets need not be assets which will be distributable to creditors by the liquidator in the winding up: it suffices if by the making of the winding up order they will be of benefit to a creditor or creditors in some other way.

(6) If it is shown that there is no reasonable possibility of benefit accruing to creditors from making the winding up order, the jurisdiction is excluded.”

In International Westminster Bank plc v Okeanos Maritime Corp [1987] BCLC 450, Peter Gibson J held that the existence of a potential claim in respect of fraudulent or...