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

For security for costs, the court must examine the substance of each application, rather than its procedural form or the hearing at which it will be determined. A recognition application under the Cross-Border Insolvency Regulations 2006 is a proceeding, and persons opposing recognition may be defendants for this purpose. An application to set aside an ex parte recognition order may therefore remain part of the original proceeding and be treated as defensive. The court may order security against a foreign representative where the usual conditions are satisfied, even though courts are generally reluctant to order security against domestic liquidators. The restrictive approach to the public-policy exception and the objectives of cross-border insolvency legislation do not prevent security in an exceptional case involving a credible public-policy challenge and material non-disclosure.

The applicants sought security for the costs of a forthcoming hearing concerning two applications by the respondent, who claimed to be the Russian liquidator of Dalnyaya Step LLC. The first application sought to set aside an ex parte recognition order made under the Cross-Border Insolvency Regulations 2006. The second sought documents and oral examination under article 21 of Schedule 1 to those Regulations and section 236 of the Insolvency Act 1986.

It was common ground that the respondent was resident in Russia, had no assets in England, and would be unable to meet an adverse costs order in Russia. The applicants had a reasonable prospect of success and the respondent could provide security without being prevented from participating. The central questions were whether the applications constituted claims or proceedings and whether security should be ordered.

1. Jurisdiction. The court applied the substance-over-form approach in GFN SA v The Liquidators of Bancredit Cayman Ltd [2009] UKPC 39. The recognition application was a proceeding under CPR 25.12. The detailed statutory procedures governing commencement, service, recognition, relief, enforcement, records and costs could not operate without an underlying proceeding.
2. The applicants were defendants for security purposes. A challenge under article 6 of Schedule 1 to the Cross-Border Insolvency Regulations 2006, or under article 17(4), was effectively opposition to the recognition proceeding. The application to set aside the recognition order was part of that proceeding, rather than a free-standing claim. The respondent should not gain an advantage from having obtained recognition ex parte.
3. The section 236 application was also a claim or proceeding for present purposes, or alternatively an interlocutory application within the recognition proceeding. In either analysis the respondent was the claimant and the applicants were the defendants.
4. The court considered the approach in Diag Human SE v The Czech Republic [2013] EWHC 3190 (Comm) and the full and frank disclosure guidance in In Re OGX Petróleo e Gás SA [2016] EWHC 25 (Ch). The respondent accepted that the applicants had reasonable prospects on public policy and non-disclosure grounds.
5. The ordinary conditions for security were satisfied. The respondent had no enforceable assets in England, recovery in Russia would be practically impossible, and security would not stifle participation. The court rejected any blanket rule protecting foreign representatives from security. The restrictive nature of article 6 and the objectives of the Regulations made security exceptional, but the evidence placed this case within that exceptional class.
6. Having regard to the balance of prejudice and the complexity of the forthcoming hearing, the court ordered security of £1 million for the set-aside and section 236 applications. The applications were not stayed pending payment. The appropriate consequence of default was liberty to apply.