Re OJSC International Bank of Azerbaijan v Sberbank of Russia

The Court of Appeal dismissed the appeal and upheld the High Court's decision that the Cross-Border Insolvency Regulations 2006 (the CBIR), implementing the UNCITRAL Model Law, do not empower the English court to use article 21 to effectually discharge or vary substantive English-law rights of dissentient creditors by means of an indefinite stay. The court treated article 21 as providing discretionary procedural relief to protect the assets of the debtor or the interests of creditors, but not as a vehicle for substantive unification of insolvency law or for overriding the rule in Antony Gibbs. The court also endorsed a temporal limitation on Model Law relief: relief granted under the Model Law should not continue beyond the life and purpose of the foreign proceeding.

Background and parties.

The appellant, the foreign representative of OJSC International Bank of Azerbaijan (IBA), sought an order under the Cross-Border Insolvency Regulations 2006 recognising an Azeri restructuring as a foreign main proceeding and securing an extension of a moratorium so that English-law creditors could not enforce their claims indefinitely. The main respondents were Sberbank (lender under an English-law governed facility) and holders of IBA 2019 notes (Franklin Templeton entities), whose claims were governed by English law and who had not participated in the Azeri restructuring.

Nature of the application.

• The foreign representative sought continuation of the moratorium under article 21(1)(a) and (b) CBIR so that English creditors could not commence or continue enforcement of their claims, effectively making the foreign restructuring binding on those creditors.

Procedural posture. The restructuring had been approved by Azeri creditors and the Azeri court; the High Court (Hildyard J) dismissed the application for an indefinite stay ([2018] EWHC 59 (Ch)). Permission to appeal was granted and the appeal was heard by the Court of Appeal.

Issues framed.

• Whether article 21 CBIR gives the English court power to grant relief that has the substantive effect of discharging or varying English-law rights of dissenting creditors (contrary to the rule in Antony Gibbs).
• Whether relief under article 21 may properly continue beyond the termination of the foreign proceeding.
• If jurisdiction exists, whether a stay should be granted in the exercise of the court's discretion.

Reasoning.

• The court emphasised that the Model Law is primarily procedural and does not attempt substantive unification of insolvency law; the Guide to Enactment and article 8 require purposive, uniform interpretation but do not displace choice-of-law rules. The established rule in Antony Gibbs (that foreign insolvency discharges bind only where the law governing the obligation so provides) remains applicable and is not abrogated by the CBIR as incorporated into English law.
• Article 21 permits appropriate procedural relief but, as a matter of settled practice, the court should not use article 21 to achieve the substantive abrogation of English-law rights nor to circumvent established domestic remedies (for example by avoiding the established route of parallel English schemes of arrangement where creditors governed by English law are to be bound).
• The court treated the requested indefinite stay as unnecessary to protect creditors collectively because the restructuring had achieved its domestic purpose and participating creditors had received their entitlements; necessity and appropriateness are required under article 21.
• Relief under the Model Law is also conceptually tied to the foreign proceeding: once the foreign proceeding has terminated, the justification for continuing Model Law relief normally disappears.

Conclusion. The appeal was dismissed because article 21 should not be employed to discharge or vary substantive English-law rights of dissentient creditors or to maintain relief beyond the life and purpose of the foreign proceeding.

Appeal dismissed. The Court of Appeal held that (1) article 21 of the Cross-Border Insolvency Regulations 2006 confers discretionary procedural powers to grant appropriate relief in support of a recognised foreign proceeding but does not authorise the English court to abrogate or vary substantive English-law rights (the rule in Antony Gibbs remains applicable in that respect); and (2) relief under the Model Law is tied to the life and purpose of the foreign proceeding and should not, as a matter of settled practice, be used to maintain an indefinite stay beyond the termination of that proceeding. For those reasons the indefinite stay sought was not available or appropriate.

Appeal from the High Court of Justice, Chancery Division, Insolvency and Companies List (Hildyard J) [2018] EWHC 59 (Ch); appeal to the Court of Appeal ([2018] EWCA Civ 2802) dismissed.