Bankruptcy «tourism»: Russian banks fail to annul English bankruptcy of Russian businessman

Russian banks fail to annul English bankruptcy of Russian businessman
Instead, the Court determined that Mr Kekhman’s bankruptcy order should stand because, even if though it appeared at first sight like self serving opportunistic «forum shopping» by Mr Kekhman, the Court should look at all the conditions of the case.

The facts, briefly, were that Mr Kekhman, as well as being the general manager of the Mikhailovsky Theatre in St Petersburg, was the supreme holder of the JFC Group of firms, the business funded by loans from several banks and which got into financial problems in late 2011. Security was enforced, promises called, and insolvency proceedings were started in Russia. On 25 September 2012, whilst he was in London on a really brief visit (he arrived at Gatwick Airport the previous day, stayed in a hotel overnight, and went back to Russia the next day) Mr Kekhman presented his own bankruptcy petition in the London High Court. He was entitled to do this, because s 265(1)(b) Insolvency Act 2006 says that the English Court has bankruptcy jurisdiction when there is a debtor (Mr Kekhman) present in England to the day he presents his petition. Mr Kekhman’s Court documents said that he was the topic of ten sets of legal proceedings has assets and owed around $316m to his lenders including Bank of Moscow and Sberbank. He said he spent around GBP50,000 a month in living expenses, and also brought into England GBP200,000 in cash with him. On 5 October 2012 a bankruptcy order was made by the English Court, and two accountants from the firm were appointed as Mr Kekhman’s Trustees in bankruptcy.

Each of Sberbank and Bank of Moscow applied to set the insolvency aside. They contended that (i) Mr Kekhman had misled the Court when he applied for his own bankruptcy: for example he had not divulged that his Russian assets were arrested so cannot be realised by means of an English Trustee, and (ii) although the English court had the power to make the bankruptcy order, it should not have done thus in this case: there was no actual connection with England, there clearly was no chance that an English insolvency would profit Mr Kekhman’s many Russian creditors, and an English bankruptcy order would not be recognised in Russia. In a nutshell, the banks asserted that Mr Kekhman was simply a «insolvency tourist» who was «shopping» in England to evade Russian law.

Expert evidence, plus evidence from Mr Kekhman himself, the Judge determined that Mr Kekhman had not deliberately misled the court or his private position, so wasn’t prepared to set the insolvency order aside because of this, after hearing extensive Russian law. Farther, in reaching a balance between the competing interests of Mr Kekhman and the banks, the banks were not prejudiced since they’d get a distribution from Mr Kekhman’s insolvent estate if any assets in England were realised, plus they could still pursue their claims in Russia against Mr Kekhman’s Russian assets. Eventually, what’s called «financial rehabilitation» of the debtor (Mr Kekhman) under English law proved to be a significant aspect in enabling Mr Kekhman’s insolvency order to stand: unlike under English law, there’s little or no incentive under Russian law to get a bankrupt to «pick himself up» by obtaining a discharge from bankruptcy and beginning his business life again.

The case is vital for lawyers: it rejects the thought of bankruptcy «forum shopping» as objectionable by itself. The case can be important for the debtors, creditors along with non UK banks who may have mistakenly believed that what goes on outside England, remains outside England.

 

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