Allen v Derev & Anor
20 / 03 / 2023
In spite of its cross-border dimension, the subject matter and result of the hearing giving rise to the judgment in Re Khadzhi-Murat Derev (in Bankruptcy); Allen v Derev & Anor  EWHC 387 (Ch) are conventional.
The application before Deputy ICC Judge Agnello KC was for a declaration as to the beneficial interests in a London property valued at £11 – £11.5 million and for orders for possession and sale. The first respondent, Mr Derev, had been made bankrupt by the Arbitrazh Court of Karachay-Cherkess in the Russian Federation in 2019, and Mr Igor Vitalievich Protasov was his Russian bankruptcy manager. The bankruptcy had been recognised in this jurisdiction on 1 December 2020 by an order made pursuant to the Cross-Border Insolvency Regulations 2006. The bankrupt’s wife, Mrs Dereva, had herself been made bankrupt in June 2021. Her Russian trustee in bankruptcy had been given notice of the application and supported it, although his status had not yet been formally recognised in the UK.
The application itself was brought by Paul Allen in his capacity as a designated person within the meaning of art 21(1) (e) of the CBIR by virtue of an order of Adam Johnson J dated 24 February 2021. That order gave Mr Allen all the powers of a trustee in bankruptcy under the laws of England and Wales to enable him to realise the assets of the bankruptcy estate.
Mr Derev was the joint legal owner of the property with his wife, a position he had accepted until the application had been issued. He changed his position after issue, however, adopting his wife’s case that he had gifted all his property and assets outside Russia to her and his children. (He explained this change of position as being due to an initial misconception of the workings of UK property law.)
The deputy judge had three key matters to decide:
(1) whether to adjourn the hearing;
(2) how to deal with the respondents’ evidence where they had failed to attend the hearing for cross-examination;
(3) the parties’ respective beneficial interests in the property.
At the start of the hearing a Mackenzie friend acting for Mrs Dereva, sought an adjournment of the hearing in the light of Mrs Dereva no longer being represented by solicitors. That application was not successful.
As neither Mr Derev nor Mrs Dereva attended the hearing, the deputy judge had to consider the treatment of their written evidence. (Under CPR 32.5, the makers of witness statements are required to attend court at trial to give oral evidence unless the court orders otherwise. Furthermore, unless a hearsay notice has been served, the court is not obliged to take into account evidence which has been filed: William v Hinton.) The deputy judge held that it was a matter for the court whether to take the Derevs’ evidence into account, and, if it did, what weight, if any, to give it. Counsel for the applicant did not ask for the respondents’ statements to be excluded: he invited the judge to take them into account but to give them limited weight, except where there were contemporaneous documents which supported what was being said. The judge agreed.
As to the respondents’ evidence itself, the deputy judge found it wanting: there were too many bare assertions; there were inconsistencies with an earlier witness statement provided by Mr Derev whose current evidence provided “a really unsatisfactory and unbelievable explanation as to why he signed it declaring that the beneficial interest was in equal shares;” and the evidence lacked detail. The deputy judge concluded that “little weight can be given to their statements in this case. The documents which are included in the evidence really do not assist them.”
The application for possession and sale was made pursuant to s 14 Trusts of Land and Appointment of Trustees Act 1996. One year had passed since the making of the bankruptcy order, so s 335A Insolvency Act 1986 applied. The property included a dwelling house which had been or was the home of the bankrupt. That meant that an order for possession and sale should be made unless there were exceptional circumstances, the interests of creditors now outweighing all other considerations. The deputy judge said she was satisfied that the appropriate declaration was that the beneficial interest in the property was held in equal shares by Mr Derev and Mrs Dereva. Neither had given evidence of any exceptional circumstances under s 335A Insolvency Act 1986, so it was appropriate to make an order for possession and sale.
The judgment contains a short but interesting discussion about vesting and powers in the context of the CBIR 2006.
Counsel for the applicant submitted that the effect of recognition of the Russian bankruptcy under CBIR was that Mr Allen had the same rights and as would have arisen had a bankruptcy order been made in this jurisdiction. In support of that he relied on Re Olusoji Samson Tomoye. That case was about a US appointed bankruptcy trustee who had obtained a recognition order under the CBIR on 16 January 2020. The US bankruptcy had commenced on 20 July 2018. One of the issues was the effect of the recognition order on the bankrupt’s legal and beneficial interest in the lease of a London property. The ICC judge in that case held that the US trustee could rely on the remedies available under the Insolvency Act 1986 as though the bankruptcy was an English bankruptcy. That included s 284 on void dispositions and vesting under s 306.
Deputy Judge Agnello agreed that the authority was relevant but went on to say that she was “not necessarily persuaded” that the property in the case before her was actually vested in Mr Allen by the terms of the CBIR simply because he was a person designated to realise the assets in the estate in bankruptcy of Mr Derev.
“Mr Allen,” she said, “is not the foreign insolvency office holder. According to the terms of the appointment order, Mr Allen was given the powers to exercise such powers of a trustee in bankruptcy under the laws of England and Wales to get in and realise the Debtor’s assets which included his interest in the property. There may well be an argument as to whether those ‘powers’ given to Mr Allen as a designated person include what ICC Judge Jones called ‘remedies’, referring to the vesting provision (section 306), as well as other provisions. Clearly under the terms of the appointment order, Mr Allen is entitled to bring these proceedings and seek not only the declaration as to beneficial interests, but also seek possession and sale. All of that relates to realising the assets of the bankrupt. The issue of whether section 306 actually applies to Mr Allen rather than the foreign insolvency office holder can be dealt with, in so far as necessary, under the terms of any order made.”