Cherkasov & Ors v Olegovich, the Official Receiver of Danyaya Step LLC

A foreign representative applying without notice for recognition under the Cross-Border Insolvency Regulations 2006 must give full and frank disclosure of material facts concerning consequences for third parties, including intended applications enabled by recognition. That duty includes facts which proper inquiries would have revealed. Where the intended proceedings are politically charged and may engage the public policy exception, the applicant must disclose the relevant political and public policy context. A later partial disclosure does not cure the breach. In an exceptional case, the court may determine the issue despite agreement that recognition should no longer continue, particularly where setting aside ab initio differs materially from later termination and determination is in the public interest.

The applicants challenged a recognition order made on 8 July 2016 under the Cross-Border Insolvency Regulations 2006 in favour of the respondent, the Russian official receiver of Dalnyaya Step LLC. The respondent had also sought information and documents from the applicants under section 236 of the Insolvency Act 1986. He later sought termination of the recognition order after obtaining a Russian judgment against HSBC.

The respondent agreed to withdraw the section 236 application and pay indemnity costs, but the applicants sought a judicial determination of whether the recognition application had involved material non-disclosure. The central issues were whether the court should determine that question despite the changed procedural position and, if so, whether the respondent had breached his duty of full and frank disclosure.

1. Threshold issue. The court retained jurisdiction to determine the full and frank disclosure issue. The parties were not fully agreed on the proper disposition: the applicants sought an order setting aside recognition ab initio, whereas the respondent sought termination after the order had operated for about seventeen months. That distinction was material. The principles in Barclays Bank v. Nylon Capital LLC [2011] EWCA Civ 826 were therefore not precisely in point. The approach in Gawler v. Raettig [2007] EWCA Civ 1560 supported consideration of whether determination was in the public interest.
2. This was an exceptional case involving serious allegations, repeated requests by Russian authorities for assistance, and repeated United Kingdom Government responses referring to risks to sovereignty, security, ordre public and other essential interests. The court was required to take those views seriously. It was in the public interest to determine whether the English court’s procedures had been improperly used.
3. Full and frank disclosure. The general duty requires disclosure of all material facts and proper inquiries before making an without-notice application: R v. The General Commissioners for the Purposes of the Income Tax Acts for the District of Kensington ex parte Princess Edmond de Polignac [1917] KB 486 and Brink’s Mat Ltd v. Elcombe [1988] 1 WLR 1350. In the recognition context, the duty extends to consequences for absent third parties which may flow from intended future applications enabled by recognition.
4. The respondent intended to apply for orders against the applicants and knew, or ought to have known, that political and United Kingdom public policy issues might be raised. The history of the Russian authorities’ actions, the related criminal proceedings, and the United Kingdom’s refusals of mutual legal assistance were material facts. They should have been disclosed so that the court could consider whether article 6 of schedule 1 to the Cross-Border Insolvency Regulations 2006 was engaged.
5. The respondent’s later partial disclosure did not cure the breach. The strength of the alleged asset-stripping case and the respondent’s status as an insolvency practitioner did not displace the duty. The court concluded that there had been a clear breach of full and frank disclosure, declared that breach, set aside the recognition order ab initio, and dismissed the termination application.

First-instance decision. No appellate history was stated in the judgment.