JSC Bank of Moscow v Kekhman & Ors

On an application under section 282(1)(a) of the Insolvency Act 1986, the court must identify the grounds existing when the bankruptcy order was made, decide afresh whether the order ought not to have been made, and then, only if that condition is satisfied, decide whether to annul it. The inquiry is original, not appellate or judicial review. For a foreign debtor, personal presence may confer jurisdiction, but sufficient connection, practical utility and international comity remain relevant to the discretion. Benefit is not confined to creditors or to the debtor. An order may retain utility where it discharges English-law liabilities or operates in England and jurisdictions recognising it, even though it is ineffective in a foreign jurisdiction.

This was an appeal by JSC Bank of Moscow against Chief Registrar Baister’s refusal to annul a bankruptcy order made on Vladimir Kekhman’s debtor’s petition. The petition had been presented while Mr Kekhman was personally present in England, although he was domiciled and resident in Russia. Bank of Moscow argued that the order lacked sufficient connection and utility, offended international comity, and was unfair to creditors because it was unlikely to be recognised in Russia. The Chief Registrar dismissed the annulment application under section 282 of the Insolvency Act 1986. The central issues were the correct approach to annulment, the relevance of later evidence, and whether the bankruptcy order ought to have been made on the grounds existing at the time.

Appeal dismissed. Morgan J held that the Chief Registrar had erred in principle, but independently concluded that the bankruptcy order ought to have been made and therefore could not be annulled.

1. Section 282(1)(a) of the Insolvency Act 1986 requires three separate questions. The court must identify the grounds existing when the order was made; decide whether, on those grounds, the order ought not to have been made; and, only if so, decide whether to exercise the discretionary power to annul. The annulment court exercises an original jurisdiction, not an appeal or judicial-review function.
2. The court may receive new evidence and consider subsequent events insofar as they reliably illuminate the grounds existing at the date of the order. It may also take account of later circumstances when deciding whether to exercise the discretion to annul. However, the Chief Registrar wrongly treated the appeal-style threshold as relevant and failed clearly to decide whether the order ought not to have been made.
3. Personal presence in England under section 265(1)(b) conferred jurisdiction. Nevertheless, sufficient connection remained relevant to the exercise of that jurisdiction. The principles developed in foreign-company winding-up cases, including Stocznia Gdanska SA v Latreefers Inc (No. 2) [2001] 2 BCLC 116, applied by analogy. They did not impose rigid rules, but required a principled assessment of connection, utility and comity.
4. The court had to consider a reasonable possibility of benefit to the debtor and to other affected persons, including creditors as a whole. It had to assess the practical consequences of making and not making the order, including possible unfairness. A bankruptcy order should not be pointless, but benefit was not restricted to a likely dividend.
5. The order did not offend international comity. Russia’s refusal to recognise the order meant that it would be ineffective there, but did not prevent it operating in England or in jurisdictions which recognised it. The English-law guarantee and English jurisdiction clause supplied a sufficient connection and a real benefit through the discharge of that liability.
6. The inability to prevent a free-for-all in Russia did not make the order pointless worldwide. The order enabled orderly administration where effective, discharged approximately £86 million of English-law liability, and offered some prospect of rehabilitation and protection for assets in recognising jurisdictions. On the overall assessment, by a narrow margin, the order ought to have been made. The application to annul was therefore dismissed.

• High Court (Chancery Division): Morgan J allowed the appeal to be reconsidered on the correct legal approach, but independently held that the bankruptcy order ought to have been made. The appeal was dismissed.
• Chief Registrar Baister: Judgment handed down on 9 April 2014 and consequential order made on 15 April 2014. The applications to annul the bankruptcy order were dismissed.