Bakhshiyeva v Sberbank of Russia & Ors

The court considered whether the Cross-Border Insolvency Regulations 2006 (implementing the UNCITRAL Model Law) permit a permanent extension of a moratorium so as effectively to prevent creditors enforcing rights under contracts governed by English law. The applicant accepted she was bound by the rule in Antony Gibbs that English-law debts are not discharged by foreign insolvency proceedings unless governed by the foreign law or the creditor submits.

The judge held that the Model Law/CBIR provide procedural relief to assist a recognised foreign proceeding but do not authorise the English court to use procedural orders to produce the substantive effect of varying or discharging English-law contractual rights. Articles 20 and 21 permit stays and other procedural relief, but that power is limited by precedent (notably Rubin and Pan Ocean) and cannot be deployed so as to defeat the substantive protection of an English-law creditor. The Moratorium Continuation Application was therefore refused.

Background and parties: IBA, an Azerbaijani bank, underwent a voluntary restructuring under Azerbaijani law. The Foreign Representative obtained recognition under the Cross-Border Insolvency Regulations 2006 and a moratorium. A restructuring plan approved in Azerbaijan binds creditors under Azeri law but the present respondents (Sberbank and Franklin Templeton beneficiaries/trustee) hold instruments governed by English law and did not participate in the Azeri vote.

Nature of the application: the Foreign Representative sought a continuation of the moratorium indefinitely (the Moratorium Continuation Application) in respect of Designated Financial Indebtedness so that the respondents could not enforce their English-law claims after the Azerbaijani restructuring proceeding terminated. The respondents opposed and brought cross-applications to proceed in England.

Issues framed by the court:

• Whether the court has jurisdiction under the CBIR/Model Law to grant a moratorium or stay beyond the termination of the foreign proceeding (and possibly permanently) so as to prevent enforcement of English-law rights;
• If jurisdiction exists, whether the discretion should be exercised to continue the moratorium so as to prevent the respondents enforcing English-law governed claims.

Reasoning: The judge accepted the binding nature of the Antony Gibbs rule for present purposes, and emphasised that the Model Law/CBIR supply procedural mechanisms to assist foreign proceedings but do not effect substantive unification of insolvency law. He analysed authorities including Rubin, Pan Ocean and Norris J's decisions (BTA, Atlas Bulk, Ronelp). Pan Ocean and Rubin were treated as persuasive that Article 21 and associated powers are procedural and cannot be used so as to effect the substantive discharge or variation of English law rights. The judge rejected the submission that a procedural stay could be made effectively permanent to nullify English-law creditors' enforcement rights, finding such an order would improperly achieve by procedure what Gibbs forbids as a matter of substantive law. He distinguished earlier unopposed orders (eg BTA) and decisions where English and foreign insolvency law produced the same outcome (eg Atlas Bulk).

Conclusion: the Moratorium Continuation Application was refused. The cross-applications were left for further consideration and further submissions.

The Moratorium Continuation Application is refused. The court held that the CBIR and the Model Law provide procedural relief to assist recognised foreign proceedings but do not authorise the English court to grant procedural orders that would have the substantive effect of discharging or varying rights governed by English law; accordingly, a permanent stay to prevent enforcement of English-law debts could not be granted in the circumstances of this restructuring.