New Media Distribution Company Sezc Ltd v Kagalovsky (rev 1)

Sections 423 to 425 of the Insolvency Act 1986 may provide relief for a victim of an undervalue transaction even where related claims have already been litigated abroad. The statutory purpose need only be a purpose of the transaction; it need not be dominant or sole. A foreseeable consequence is not necessarily an intended purpose. A court with mandatory personal jurisdiction should be slow to refuse relief, particularly where the order supports rather than undermines foreign proceedings. The statutory victim may be a separate corporate legal person, regardless of its ownership or control.

New Media, a Cayman Islands company, claimed under sections 423 to 425 of the Insolvency Act 1986 against Kagalovsky. The claim concerned a dilution by Iota Ventures LLP of its indirect interest in a Ukrainian television network. Related proceedings in New York had produced a judgment for unpaid licence fees against Iota, but the claim against Kagalovsky personally had failed on appeal. Kagalovsky argued that the English claim was merged in, or an abuse of process arising from, the New York judgment, that the judgment debt had been compromised, and that New Media lacked standing or a sufficient territorial connection. The issues were whether the statutory conditions were met and what relief should follow.

1. Merger and estoppel. The claim was not merged in the New York judgment. The foreign judgment had not determined the same cause of action. The English claim depended on an undervalue transaction and New Media’s status as a victim, matters not litigated in New York.
2. Abuse of process. The claim was not abusive under Henderson v Henderson. The New York proceedings concerned licence fees and related liability; the present claim concerned a distinct statutory cause of action which could not have been articulated before the New York judgment. Preventing it would deny New Media the opportunity to litigate that cause of action for the first time.
3. Settlement. The Settlement Agreement compromised only the Nominee Judgment. It did not compromise the New Media judgment debt.
4. Undervalue and purpose. The dilution fell within section 423(1)(c) of the Insolvency Act 1986. Applying JSC BTA Bank v Ablyazov, the prohibited purpose need only be one purpose of the transaction, even where other purposes existed. The court found that putting TVi beyond New Media’s reach and prejudicing New Media were purposes of the dilution. The simultaneous cessation of licence payments supported that finding.
5. Victim and territorial scope. New Media was capable of being prejudiced and was therefore a victim under section 423(5) and section 424(1)(c). Its corporate ownership was irrelevant. The court had jurisdiction as of right and should not decline relief absent a clear conflict with foreign law. The order would support, not undermine, the New York judgment.
6. Relief. Kagalovsky was ordered to pay US$4,571,059.54, subject to New Media procuring satisfaction of the New York judgment and discharge of Iota. Interest was awarded at Bank of England base rate plus 2% from entry of that judgment.

First-instance decision. The judgment records earlier jurisdictional and preliminary-issue decisions: [2016] EWHC 2221 (Ch) and [2017] EWHC 2334 (Ch). The present court determined the merits and ordered relief.