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Access to English bankruptcy by foreign debtors

Following a change in the UK’s Enterprise Act, there has been an increase of foreign debtors petitioning for bankruptcy through the English Courts, taking advantage of England and Wales’s more entrepreneur-friendly bankruptcy and insolvency laws.

The recent leading case of JSC Bank of Moscow v Kekhman and Others [2015] EWHC 396 (CH) affirms the English Court's willingness to uphold English Bankruptcy Orders made in favour of non-UK residents, despite accusations from foreign creditors of offending international comity.

Background

Mr Vladmir Kekhman was a successful entrepreneur in Russia. However, in late 2011 one of his group companies got in to financial difficulty and was subject to insolvency proceedings in Russia. Mr Kekhman was exposed personally to multiple liabilities, including substantial English law liabilities, as a guarantor of various loans to the companies.   

Russian law does not have a personal bankruptcy regime for individuals who are not registered entrepreneurs. Mr Kekhman therefore visited London for two days during which he presented a petition for bankruptcy. Chief Registrar Baister granted the Order and subsequently rejected an annulment application by the Bank. The Bank appealed.

Decision

In hearing the appeal, Morgan J decided that the Chief Registrar had erred in principle in the exercise of his jurisdiction but had been correct when deciding to dismiss the annulment application.

The Judge held that Mr Kekhman did have a sufficiently close connection with England and Wales by reason of the £86million worth of personal guarantees he had given which were governed by English law, as well the presence of assets in the jurisdiction, although this was not a pre-requisite for the making of a Bankruptcy Order. The benefit of the creditors was to be considered, however, the Judge held it would be inappropriate to consider only the Bank’s benefit, which was what it was being asked to do in this case.

The Judge concluded that the English Bankruptcy Order did not offend comity as Russia could choose to not recognise the English Order.   The Judge found that Mr Kekhman would benefit from the English Order as it would discharge him from his £86million of English liabilities and provide an opportunity for his partial rehabilitation in England and/or in other jurisdictions that recognised the Order. The Chief Registrar was therefore correct to reject the Bank’s application. The Bankruptcy Order was upheld and the Bank’s appeal dismissed.  

This is a leading judgment on the accessibility of English bankruptcy to foreign debtors, which could be valuable where the law of the debtor’s home state may not offer the same opportunity for international rehabilitation with orderly and transparent distribution of the debtor’s assets as is provided in England.

For further information on how our Dispute Resolution team can assist you in relation to any of these matters, please contact us on 0113 220 6270.

 

About the Author

Annie Hui-Gillen

Associate

Annie is an Associate in the Commercial litigation department specialising in all types of commercial…

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