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

The Trustee (recognised by the English court under the Recognition Order) sought strike out and/or summary judgment in respect of parts of the First Defendant's Defence in proceedings seeking a declaration and consequential orders that a single issued share in Basel Properties Ltd be treated as held on bare trust for the bankrupt and transferred to the Trustee; alternatively the Trustee sought relief under section 423 of the Insolvency Act 1986 and rectification of the company register under section 125 of the Companies Act 2006.

The court applied CPR r.3.4(2) (strike out) and CPR r.24.2 (summary judgment) principles and the discretionary nature of declaratory relief (see Rolls-Royce plc). It held that the pleaded challenge to the Trustee's recognition in England (the "Recognition Defence") was a collateral attack on the extant Recognition Order and had no real prospect of success, and so that defence was struck out. The pleaded allegation that the proceedings were pursued for a collateral purpose (to deny the bankrupt access to assets) likewise had no real prospect and was struck out.

Conversely, the court declined to strike out or decide summarily the pleas that (i) the general rule as to automatic vesting of a foreign bankrupt's movable property in a recognised foreign trustee did not apply to the Share (the "Movables Defence"), (ii) that the Trustee's funder A1 is controlled by designated persons and that sanctions law therefore bars the transfer or makes it futile (the "Sanctions Plea"), and (iii) that the funding arrangements "savour of" maintenance and champerty and may render the proceedings abusive (the "Maintenance/Champerty Plea"). Those matters were fact-sensitive, raised issues concerning foreign law and/or evolving sanctions law and public policy, and required fuller evidence and trial, so summary disposal was inappropriate.

Background and parties: The Trustee, Ms Kireeva, acts as trustee in bankruptcy of Mr Bedzhamov by recognition in England; the share in issue is the single issued share in Basel Properties Ltd, registered in the name of Ms Zolotova, the First Defendant. The Trustee alleges the Share was held on bare trust for the bankrupt or that its transfer was a sham or a transaction at an undervalue under s.423 IA 1986, and seeks declarations, transfer of the Share and, if necessary, relief under s.423 and rectification under s.125 Companies Act 2006.

Nature of the application: By application the Trustee sought strike out and/or summary judgment in respect of specified paragraphs of the First Defendant's Defence which raised (i) a denial that the bankrupt's movables in England vested automatically in the Trustee (the Movables Defence), (ii) a contention that the Trustee should not continue to be recognised because the petition debt had been discharged (the Recognition Defence), and (iii) three discretionary bars said to warrant refusal of declaratory or other discretionary relief: maintenance/champerty (funding arrangements with A1), alleged control of the funder by designated persons and resulting sanctions consequences, and an alleged collateral purpose to deprive the bankrupt of assets.

Issues framed: The judge addressed (A) the proper test for strike out and summary judgment (CPR r.3.4(2) and r.24.2), (B) the legal effect of recognition on vesting of foreign movables and the extent to which that had been determined, (C) whether the Recognition Order could be attacked collaterally, (D) the scope of the court's discretion in granting declaratory relief and the relevance of public policy, sanctions law and maintenance/champerty, and (E) whether the Sanctions Regulations and the Sanctions and Anti-Money Laundering Act 2018 precluded the relief sought.

Court’s reasoning and conclusion on the issues:

• The Recognition Defence was struck out: the Recognition Order of 9 November 2022 (Falk J) is extant and unchallenged in these proceedings; a collateral attack by the defendant in these proceedings was impermissible and the mere discharge of the original petition debt would not, without more, terminate the bankruptcy or the Trustee's standing; moreover the Trustee produced evidence that the relevant creditor position had been changed by assignment and court approval in Russia.
• The Collateral Purpose Plea was struck out: the pleaded case lacked a real prospect of success in this context because the Trustee’s recognition is extant and the Share Proceedings are legitimately directed at assets claimed by the Trustee in the continuing bankruptcy.
• The Movables Defence could not be struck out or decided summarily: the general rule of automatic vesting of movables upon recognition may be subject to exceptions including the foreign law of the insolvency; the Trustee had not adduced evidence of Russian law on automatic extra-territorial effect and the Movables Application remains stayed, so the issue requires fuller inquiry at trial.
• The Sanctions Plea and Maintenance/Champerty Plea were also retained: sanctions law (Regulations 11, 12 and 14 of the Russia (Sanctions) (EU Exit) Regulations 2019 and relevant provisions of the Sanctions and Anti-Money Laundering Act 2018) could make the transfer or dealing with the pre-existing asset (the Share) unlawful if the funder were controlled by designated persons; the Court of Appeal decision in Mints was distinguished because the present case concerns a pre-existing fund rather than the entry of a judgment debt. Funding arrangements and champerty allegations are fact-sensitive; whether a champertous arrangement renders proceedings abusive is not susceptible to summary determination without disclosure and evidence.

Procedural history relevant to decision: recognition applications were first determined by Snowden J [2021] EWHC 2281, remitted by the Court of Appeal [2022] EWCA Civ 35 for further evidence, and then restored by Falk J [2022] EWHC 2676 on the Recognition Application; the Trustee's Movables Application is stayed pending other proceedings; the Supreme Court was seized of an appeal in relation to immovable property but that relates to a different aspect.

The application to strike out and/or for summary judgment was allowed in part and refused in part. The Recognition Defence and the Collateral Purpose Plea were struck out as having no real prospect of success because the Recognition Order is extant and cannot be collaterally attacked; the remainder of the challenged defences — the Movables Defence, the Sanctions Plea and the Maintenance/Champerty Plea — were not struck out and summary judgment was refused, because they are fact-sensitive, involve foreign-law or developing sanctions issues or raise public-policy questions that require fuller evidence and determination at trial.

The Recognition Application was first heard by Snowden J ([2021] EWHC 2281). The decision was remitted by the Court of Appeal ([2022] EWCA Civ 35) for further evidence on certain issues. Following a remittal, Falk J conducted a further hearing and by judgment of 9 November 2022 ([2022] EWHC 2676) restored the Recognition Order; that order was not appealed within time. A separate appeal to the Supreme Court concerning the trustee's claim in respect of immovable property was heard on 21–22 November 2023 and judgment was awaited at the time of this decision.