Bakhshiyeva (Foreign Representative of the Ojsc International Bank of Azerbaijan) v Sberbank of Russia & Ors

The powers under article 21 of the Model Law, as incorporated by the Cross-Border Insolvency Regulations 2006, are procedural and supportive. They cannot ordinarily be used to impose an indefinite stay which circumvents substantive contractual rights governed by English law.

Relief must be necessary to protect the debtor’s assets or creditors’ interests and appropriate for that purpose. A theoretical risk to creditors after a restructuring has achieved its purpose does not establish necessity. Relief supporting a foreign proceeding should also cease when that proceeding ends. Modified universalism remains subject to local law and to the limits of the court’s statutory and common law powers.

An Azeri bank underwent a court-approved restructuring which purported to discharge designated debts and replace them with new entitlements. Certain creditors whose contracts were governed by English law neither participated in the restructuring nor submitted to the Azeri court.

The restructuring was recognised as a foreign main proceeding under the Cross-Border Insolvency Regulations 2006. The foreign representative sought an indefinite stay preventing the English creditors from enforcing their contractual claims, including after the foreign proceeding ended. Hildyard J refused that relief in [2018] EWHC 59 (Ch), [2018] Bus LR 1270.

The central issues were whether article 21 permitted such relief, whether an indefinite stay could properly defeat rights preserved by the rule in Antony Gibbs, and whether relief could continue after termination of the foreign proceeding.

1. Appeal dismissed. Article 21(1)(a) and (b) conferred jurisdiction in the strict sense to entertain the application. Their language was not confined to giving a foreign non-main proceeding relief equivalent to the automatic stay arising upon recognition of a foreign main proceeding. The controlling question was whether settled practice permitted the power to be exercised in the manner requested.

2. The requested stay was neither necessary to protect creditors nor appropriate. The participating creditors had received the entitlements due under the restructuring, the bank had resumed trading, and the plan’s success did not depend on restraining the English creditors. Possible future prejudice to holders of the replacement instruments was theoretical and too indirect to satisfy article 21(1).

3. The Model Law is limited to procedural aspects of cross-border insolvency and does not unify substantive insolvency law. Its omission of choice-of-law rules was significant. Article 21 therefore could not properly be used to circumvent the rule in Antony Gibbs, under which a foreign insolvency process does not discharge or vary a contractual liability governed by English law unless the creditor submits to that process. An English scheme of arrangement remained available as a means of binding the relevant creditors.

4. Modified universalism did not justify a different result. That principle is subject to local law and public policy, and a court may act only within its statutory and common law powers. Although relief may occasionally affect English-law rights, including through the remission of assets to a foreign liquidation, an indefinite stay designed to reproduce the substantive effect of foreign law was impermissible in this restructuring.

5. Relief under the Model Law should not continue beyond termination of the foreign proceeding. Once that proceeding and the foreign representative’s appointment end, there is no proceeding to assist and no representative able to seek assistance. The Azeri proceeding had achieved its purpose and could not acquire a continuing substantive function merely because its formal existence had been extended pending the litigation.

Henderson LJ gave the judgment of the court. Baker and Lewison LJJ agreed.

1. Court of Appeal (Civil Division): The foreign representative’s appeal was dismissed by [2018] EWCA Civ 2802.
2. High Court, Insolvency and Companies List: Hildyard J dismissed the application for an indefinite stay in [2018] EWHC 59 (Ch), [2018] Bus LR 1270.
3. High Court: Barling J had earlier recognised the Azeri restructuring as a foreign main proceeding and imposed a modified automatic stay.