JSC Bank of Moscow v Kekhman & Ors

The court considered an appeal by JSC Bank of Moscow against the Chief Registrar's refusal to annul a bankruptcy order made on a debtor's petition presented by Mr Kekhman on 5 October 2012. The principal statutory provision in issue was section 282 of the Insolvency Act 1986 (annulment) read with the debtor's petition provisions (sections 264–272) and the court's general discretion to make or to annul a bankruptcy order.

The judge held that a bankruptcy petition by a foreign domiciliary personally present in England may be granted if there is a sufficient connection to the jurisdiction and a reasonable possibility of utility or benefit (including possible benefit to the debtor). The court must exercise care and have regard to international comity and the interests of creditors, but those considerations do not prevent the making of an English bankruptcy order when there is a genuine commercial connection and a purpose the order can achieve.

On the facts the court concluded that, although a number of matters relied on at the annulment hearing (recognition and enforcement in Russia and the £200,000 brought into the jurisdiction) reduced the perceived utility of the order, the bankruptcy order still had sufficient utility when made: it could investigate and realise non-Russian assets, assist orderly administration for those creditors able to prove in England and discharge an English-law liability under guarantees. Accordingly the Chief Registrar's approach contained an error of principle but his ultimate result was correct: the bankruptcy order ought to have been made and could not be annulled under section 282.

Parties and background. JSC Bank of Moscow appealed the Chief Registrar Baister's refusal (9 April 2014; consequential order 15 April 2014) to annul a bankruptcy order made on 5 October 2012 on the debtor's petition of Mr Vladimir Kekhman, a Russian domiciliary who was personally present in England when he presented his petition. Mr Kekhman owned international business interests and his affairs involved proceedings and enforcement steps in Russia, Curaçao and other jurisdictions. Bank of Moscow claimed to be a creditor for substantial sums in damages; Mr Kekhman denied wrongdoing and maintained some claims against the bank which vested in the trustees.

Nature of the application and relief sought. Bank of Moscow applied under section 282 IA 1986 for annulment of the bankruptcy order on the ground that the order should not have been made (and sought ancillary orders). The application was not that the court lacked jurisdiction to make the order but that the discretion should not have been exercised in favour of making it.

Issues for decision. The court framed and decided these main issues: (i) the correct legal approach to an application to annul a bankruptcy order under section 282, including the relationship between (a) the inquiry whether, on the grounds existing when the order was made, the order ought not to have been made and (b) the court's discretion whether to annul; (ii) whether Mr Kekhman had a sufficient connection with England and Wales to justify making the order; (iii) whether there was a reasonable possibility of benefit or utility from the bankruptcy order (to debtor and/or creditors); (iv) whether making the order offended international comity given Russian law; and (v) whether the Chief Registrar erred in principle in his approach and if so what the court's own conclusion should be.

Court's reasoning and findings. The judge analysed authorities on winding-up and cross-border insolvency and concluded those principles apply in the bankruptcy context: connection and utility are relevant to the court's exercise of its admitted jurisdiction. The court restated that section 282 requires consideration of the grounds existing when the order was made; later events may be admissible to illuminate those grounds but do not displace the focus on the position at the earlier date. The Chief Registrar's formulation at paragraph 107 was held to conflate (and thereby confuse) the separate questions whether the order should have been made and whether the court should exercise its discretion to annul. Nonetheless, on a full re-assessment of the facts as they existed on 5 October 2012 the judge concluded, by a narrow margin, that the bankruptcy order ought to have been made: there was a sufficiently close connection (notably English-law guarantees with English jurisdiction), some prospect of utility (including discharge of the English-law guarantee liability and investigation/realisation of non-Russian assets) and no comity principle which should have prevented the order, even though recognition in Russia was unlikely. The appeal was dismissed because the bankruptcy order could not properly be annulled under section 282.

Subsidiary findings. The court recorded that the Chief Registrar was entitled to take account of later events to the extent they illuminated the position at the date of the order; it found that the £200,000 brought into England and the non-recognition/enforcement prospects in Russia reduced utility but did not eliminate it; the trustees' reports and modest realisations carried some weight; and claims alleged by Bank of Moscow might be within the fraud exception to discharge (section 281(3)).

Appeal dismissed. The court held that the Chief Registrar had erred in part in framing the legal test for annulment (paragraph [107]) by conflating the questions whether the order ought to have been made and whether the court ought to exercise its discretion to annul, but on a fresh assessment of the grounds existing on 5 October 2012 the bankruptcy order ought to have been made. Consequently there was no power to annul under section 282 and the Chief Registrar's dismissal of the annulment application was upheld on the merits.

This decision is an appeal to the High Court (Chancery Division) from orders of Chief Registrar Baister: the judgment refusing annulment was handed down on 9 April 2014 and the consequential order was made on 15 April 2014. Permission to appeal was granted by the Chief Registrar. The present judgment appears at [2015] EWHC 396 (Ch).