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International Insolvency: the English Court considers its jurisdiction in cross-border insolvency

Case citation: GUNEL BAKHSHIYEVA v SBERBANK OF RUSSIA AND ORS

Due to financial difficulties, the OJSC International Bank of Azerbaijan (“IBA”) had proposed a USD 3.3bn restructuring program in Azerbaijan for its debts. The vast majority of creditors approved the proposal. Sberbank of Russia and Franklin Templeton, did not approve the proposal. The restructuring proceedings were approved by an Azeri Court and were binding on all creditors, according to Azeri law.

Sberbank had loaned USD 20m and Franklin Templeton were the beneficial owners through Citibank (as trustees) of USD 500m 5.62% Notes. Both the loan and notes were governed by English law. Sberbank and Franklin Templeton argued that the Azeri Restructuring Plan was not binding on them.

Gunel Bakhshiyeva was appointed as IBA’s foreign representative and obtained a Recognition Order in the UK for the Azeri restructuring proceedings under the Cross-Border Insolvency Proceedings Regulations 2006 (“CBIR”). The Order put in place a moratorium on actions being commenced without permission of the Court. The moratorium would lapse on 30 January 2018 when the restructuring proceedings in Azerbaijan came to an end – under Azeri law, these could not be extended.

Bakshiyeva applied on behalf of IBA to the English Court to extend the moratorium.

Key considerations:

  1. Did the Court have jurisdiction to extend a moratorium imposed under the CBIR without a time limit and beyond the date on which the relevant foreign restructuring proceedings ended; and
  2. Should the Court order a further moratorium in the circumstances, beyond the end date for the foreign insolvency proceedings, without which the creditors in the English Court could achieve a better return than other creditors subject to the restructuring proceedings in Azerbaijan?

The basis of the Defendants’ case was the ‘Rule’, from Antony Gibbs & Sons v La Société Industrielle et Commerciale des Matéux (1890) LR 25 QBD 399. This says that a debt governed by English law cannot be discharged or compromised by foreign insolvency proceedings, unless the creditor submits to the foreign proceedings.

The Court found that the ‘Rule’ was still good law therefore refused to extend the moratorium, allowing the claims to proceed in the English Court. The ‘Rule’ in Gibbs does seem to be somewhat at odds with the CBIR and the concept of ‘modified universalism’ (whereby countries’ Courts should strive to work towards consistency on corporate insolvency decisions). The case raises interesting issues of ‘modified universalism’ and ‘extra-judicial’ decision making and illustrates the legal complexity that exists in our inter-connected world.

This decision has been referred to the Court of Appeal so we will have to await further clarification on this point. Interestingly, the Judgment has resulted in an amendment to Azeri law which will allow for extensions to restructuring proceedings.

The full case can be found at:  http://www.bailii.org/cgi-bin/format.cgi?doc=/ew/cases/EWHC/Ch/2018/59.html&query=(Sberbank)

 

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