Bakhshiyeva v Sberbank of Russia & Ors

The rule in Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux remains binding: an English-law debt is not discharged or varied by a foreign insolvency proceeding merely because that proceeding has been recognised in England. The Cross-Border Insolvency Regulations 2006 and the Model Law provide procedural assistance, but do not authorise the court to use a permanent stay or moratorium to achieve the substantive effect of foreign insolvency law. The court must distinguish temporary relief, which may provide breathing space for a restructuring or liquidation, from relief which permanently prevents enforcement of an English-law right. The latter affects the substance of contractual rights and falls outside the court’s jurisdiction under article 21.

The applicant, the foreign representative of the OJSC International Bank of Azerbaijan, sought continuation of a moratorium imposed under the Cross-Border Insolvency Regulations 2006 after an Azeri restructuring proceeding was due to terminate. The restructuring plan had been approved under Azeri law and was binding there on all affected creditors, but the respondents’ claims were governed by English law and they had not submitted to the Azeri proceeding.

The applicant accepted, for the purposes of the application, that the respondents’ English-law claims had not been discharged under the rule in Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux. The central issues were whether the court had jurisdiction under article 21 of the Model Law and the Regulations to impose a permanent moratorium, and whether it should do so to prevent enforcement contrary to the Azeri plan.

1. The moratorium continuation application was refused. The court was bound by the Court of Appeal’s decision in Antony Gibbs & Sons v La Société Industrielle et Commerciale des Métaux. An English-law debt could not be discharged or compromised by the Azeri restructuring proceeding, absent submission by the creditor to that proceeding.
2. The Model Law and the Cross-Border Insolvency Regulations 2006 are principally procedural. They facilitate recognition, cooperation and temporary relief, but do not substantively unify insolvency laws or import foreign insolvency law into English law. The principle of modified universalism remains subject to local law, public policy and the limits of the court’s statutory and common-law powers.
3. Article 21(1)(a) and (b) did not authorise a permanent stay which would forever prevent enforcement of English-law contractual rights. Although framed procedurally, the proposed order would in substance conform the respondents’ rights to those arising under Azeri law. It would therefore amount to a discharge or variation of the rights, contrary to Antony Gibbs.
4. The appropriate distinction is between temporary relief, which suspends enforcement to provide breathing space for a restructuring or liquidation, and relief which affects the substance of the parties’ contractual rights and obligations otherwise than temporarily. The permanent moratorium sought here fell into the latter category. The reasoning in Fibria Celulose S/A v Pan Ocean Co Ltd was approved.
5. Even if jurisdiction existed, the judge would have refused relief in the exercise of discretion. The respondents’ English-law rights could not be regarded as adequately protected by their practical negation for the benefit of the general creditor body. The applicant could have pursued a parallel English scheme of arrangement, which would have provided the necessary statutory protection.
6. Sberbank substantially withdrew its cross-application. Franklin Templeton’s cross-application to modify or lift the existing moratorium was left for further submissions and determination.

First-instance decision. The judgment records that the applicant reserved arguments for a possible appeal, but no appellate decision is stated.