Lyubov Andreevna Kireeva (As Trustee and Bankruptcy Manager of Georgy Ivanovich Bedzhamov) v Alina Zolotova & Anor

A subsisting recognition order cannot ordinarily be challenged collaterally in later proceedings. A single creditor’s subsequent payment does not, without more, terminate recognition of a collective foreign bankruptcy.

The general rule that recognition may vest English movable property in a foreign trustee remains subject to proof of the relevant foreign law and any applicable exceptions. Issues involving sanctions, litigation funding, champerty and abuse of process may require a trial where they depend on disputed facts and undisclosed arrangements. Champerty is not itself a substantive defence, but a funding arrangement may contribute to an abuse of process. Declaratory relief is discretionary and may be refused where its purpose or consequences are improper or unlawful.

The claimant, the recognised Russian trustee in bankruptcy of Georgy Bedzhamov, sought relief concerning a share in Basel Properties Ltd registered in the name of Alina Zolotova. The underlying claim alleged that the share was held on bare trust, or that its transfer was ineffective or vulnerable under Insolvency Act 1986 s.423.

Zolotova’s Defence raised alleged absence of automatic vesting, loss of recognition following discharge of the petition debt, sanctions affecting the claimant’s funder, maintenance and champerty, and an alleged collateral purpose. The claimant applied to strike out those parts of the Defence or obtain summary judgment.

1. Recognition and standing. The Recognition Order was effective, extant and unchallenged. Zolotova could not mount a collateral attack on it in the Share Proceedings. The Recognition Defence was therefore struck out.
2. Movable property. Although recognition of a foreign bankruptcy may generally vest English movable property in the foreign trustee, that rule depends on the foreign bankruptcy law having the necessary extra-territorial effect and is subject to exceptions. The trustee had produced no evidence of Russian law. The issue had not been determined previously, and the Movables Defence could properly proceed to trial.
3. Discharge of petition debt. Payment of one creditor after commencement of collective insolvency proceedings would not, without proof of further circumstances, obviously terminate the bankruptcy or recognition. In any event, the evidence showed that the debt had been assigned and that other creditors remained. The pleaded Recognition Defence was hopeless and misconceived.
4. Declaratory relief. The jurisdiction under s.19 of the Senior Courts Act 1981 is discretionary. The court may consider whether relief serves a useful, proper and lawful purpose and the wider consequences of granting it. The discretion is not confined to a rigid list of factors.
5. Sanctions. The Share was a pre-existing fund potentially subject to the prohibitions in Regulations 11 and 12 of the Russia (Sanctions) (EU Exit) Regulations 2019. The factual question whether the funder was controlled by designated persons, and whether transfer or declaratory relief would have unlawful consequences, could not fairly be resolved summarily. The Sanctions Plea therefore remained.
6. Maintenance and champerty. Champerty does not itself provide a substantive defence, although a funding arrangement may render proceedings abusive and justify a stay or, exceptionally, strike-out. The undisclosed funding terms and evidence of possible funder control made summary determination inappropriate.
7. Collateral purpose. The allegation that the proceedings were brought to deprive Bedzhamov of assets had no real prospect of success. The claimant’s stated purpose of collecting assets for the continuing bankruptcy was proper, and Zolotova’s own case was that the share belonged to her.
8. The Application succeeded against the Recognition Defence and Collateral Purpose Plea, but failed against the Movables Defence, Sanctions Plea and Maintenance and Champerty Plea.

The judgment records earlier recognition proceedings concerning the Russian bankruptcy. Snowden J granted recognition but declined assistance concerning immovable property: [2021] EWHC 2281. The Court of Appeal remitted part of that decision and upheld the conclusion concerning immovable property: [2022] EWCA Civ 35. Falk J subsequently restored the Recognition Order after trial: [2022] EWHC 2676. The present judgment determined an interlocutory strike-out and summary-judgment application in separate Share Proceedings.