Protasov v Derev

After recognition of a foreign main insolvency proceeding, the automatic effects of recognition may make continuation of provisional asset-protection relief unnecessary. Under Articles 20 and 21 of the Model Law, as given effect by the Cross-Border Insolvency Regulations 2006, the court should generally avoid duplicating the comprehensive protections supplied by the domestic insolvency regime. A freezing order may remain available in an exceptional case, but serious concerns about a debtor’s conduct do not by themselves justify continuing an order whose purpose has been overtaken by recognition. The court retains jurisdiction in the strict sense where the debtor is within England and Wales, but the separate question is whether injunctive relief is proper. The court may instead declare the automatic suspension, entrust local assets to an insolvency practitioner and make ancillary orders under the Model Law and the Insolvency Act 1986.

The applicant was the bankruptcy manager appointed in Russian insolvency proceedings concerning the respondent. The respondent had assets and interests in England and elsewhere. Before the recognition application was determined, Zacaroli J granted interim relief under Articles 19 and 21 of the Model Law, including suspension of the respondent’s ability to deal with his assets.

The Russian proceedings were later recognised as a foreign main proceeding by Deputy Judge Karet. The applicant sought continuation of Zacaroli J’s order, relying on alleged deficiencies in the respondent’s disclosure and concerns about dissipation. The respondent argued that recognition had already produced an equivalent suspension under Article 20 and that the domestic insolvency regime supplied a comprehensive code. The central issue was whether the interim order should continue and what ancillary relief should be granted.

1. Continuation of interim order refused. Although the respondent’s conduct gave rise to legitimate concerns, those concerns did not justify continuing Zacaroli J’s order. Following recognition, there was no good reason for the provisional order to remain in place.
2. Jurisdiction and proper exercise distinguished. Section 25 of the Civil Jurisdiction and Judgments Act 1982 did not apply because the Russian bankruptcy was not substantive proceedings within the meaning of that provision. The court nevertheless had jurisdiction in the strict sense over the respondent, who was within England and Wales. The separate question was whether the restrictions developed through authority and court practice made injunctive relief proper.
3. Effect of recognition. Article 19 relief was provisional and ordinarily terminated when recognition was decided. Article 20 automatically suspended the respondent’s right to transfer, encumber or dispose of his assets. Article 20(2) required the suspension to have the same scope and effect as bankruptcy under the Insolvency Act 1986. In this case, the domestic law produced no relevant difference, so there was no gap for Article 21(1)(c) relief to fill. Article 21(1)(f) could not be used to extend provisional relief which had been overtaken by recognition.
4. No exceptional basis for a freezing order. The domestic insolvency regime already deprived the bankrupt of control over his assets and provided extensive powers concerning information, supervision and enforcement. The Model Law was intended, so far as practicable, to place the foreign officeholder in the position of a domestic officeholder. A freezing order would therefore ordinarily be unwarranted absent exceptional circumstances.
5. Ancillary relief. The court made a declaration confirming the worldwide suspension of the respondent’s rights from recognition. It entrusted administration and realisation of assets located in Great Britain to Mr Allen and conferred reasonably necessary office-holder powers, subject to any joint ownership interests of the respondent’s wife. An express order requiring compliance with section 333 of the Insolvency Act 1986 was made, although the duty already applied by statute. No order was made at that stage concerning assessment of the respondent’s legal expenses.