Hellard & Ors v OJSC Rossiysky Kredit Bank & Ors [2024] EWHC 1783 (Ch) is a recent case from the High Court of England and Wales. This case delves into complex issues surrounding cross-border insolvency, fraudulent transfers, and the jurisdictional reach of English courts over foreign entities.

For insolvency practitioners, this judgment serves as a clear reminder that jurisdictional issues and procedural compliance are essential.

Litigation finance, funding arrangements and insurance allow insolvency practitioners to pursue claims on behalf of their clients whilst reducing financial risks. At Annecto Legal, we can assist clients by helping them secure funding and insurance for insolvency cases.

Hellard & Ors v OJSC Rossiysky Kredit Bank & Ors [2024] EWHC 1783 (Ch)

The trustees were responsible for overseeing the bankruptcy estate of Mr. Motylev, who had extensive business interests, including connections to Russian financial institutions. Some creditors involved were Russian banks potentially subject to UK sanctions under the Russia (Sanctions) (EU Exit) Regulations 2019.

The trustees sought the court’s direction on whether these creditors were “designated persons” under the UK sanction’s regime. This was also done to determine if this designation would impact their involvement in the bankruptcy proceedings.

Deputy High Court Judge Nicholas Thompsell addressed three main issues in response to a request by the bankruptcy trustees of Anatoly Leonidovich Motylev for guidance under section 303(2) of the Insolvency Act 1986. These issues involved:

1. Application of sanctions to Russian bank creditors: The trustees questioned whether certain Russian bank creditors should be treated as subject to UK sanctions under the Russia (Sanctions) (EU Exit) Regulations 2019.
2. Voting Rights of sanctioned creditors: If those creditors were sanctioned, the trustees sought clarification on whether it was lawful for them to accept votes from these creditors in any decision-making process or creditors’ committee meetings.
3. Provision of financial services: The trustees also asked if their duties as trustees, in engaging with these creditors, would violate the financial restrictions outlined in Regulation 18A of the 2019 Regulations.

The court found that, based on the evidence, there was insufficient proof that the Russian creditors were “owned or controlled” by designated individuals subject to sanctions. As a result, the first issue was dismissed.

On the second issue, the judge reasoned that blocking sanctioned creditors from voting would hinder the bankruptcy process without giving them access to any assets. He held that allowing these votes did not equate to dealing with “funds” or “economic benefits” under the sanction’s rules.

Lastly, on the third issue, the judge concluded that the trustees’ duties in bankruptcy administration did not breach restrictions on providing financial services.

The court clarified that its jurisdiction here was limited to interpreting the law without making new legal rules. The judge directed the trustees not to treat the Russian creditors as designated persons, pending any further guidance or regulatory changes.

Why is this case important for insolvency practitioners?

Hellard & Ors v OJSC Rossiysky Kredit Bank is important for insolvency practitioners as it provides clarity on handling cross-border insolvency cases where sanctions may apply.

The judgment offers valuable guidance on when foreign creditors, especially those potentially linked to sanctioned regimes, might be subject to UK sanctions laws. The court’s reasoning assists practitioners in evaluating whether a foreign creditor should be treated as a “designated person” under sanctions regulations. This helps them to avoid potential legal pitfalls in cases involving sanctioned entities.

This case is important for understanding the rights of sanctioned creditors to participate in insolvency processes. The court clarified that creditor voting rights are not equivalent to providing “funds” or “economic benefits”. This means that sanctioned creditors may still participate in decision-making without violating sanctions. For insolvency practitioners, this ensures that sanctioned creditors can still contribute to decisions that benefit the collective creditor body.

Insolvency litigation funding options

Litigation funding, the assignment of claims and/or ATE insurance can play a pivotal role in assisting insolvency practitioners (IPs) in meeting their obligations. Insolvency practitioners involved in insolvency litigation can make use of the following funding methods:

• After-the-event (ATE) legal insurance – ATE insurance is generally used to protect from adverse costs risks & Security for Costs requirements. After-the-event (ATE) legal expenses insurance is perhaps best thought as a similar to a ‘swap’. For either no upfront fee or a small upfront fee, the insurer takes on all of the risk of the potential adverse costs award. The claimant has swapped their obligation to pay the defendants in the event of a loss, with the obligation to pay the insurer in the event of a win. This ‘swap’ is generally an attractive swap as the client is likely to be in a better financial position following a win than following a loss. Also, the payment to the insurer will only be a percentage of the adverse costs rather than the whole amount.
• Third party litigation funding – In some cases, third party litigation funders may be willing to provide funding for a claim in exchange for a share of any financial settlement or damages awarded. This option can be attractive when there are no funds to pursue a strong case. ATE insurance is often used in conjunction with this type of funding.
• Assignment of litigation – Some types of disputes can be assigned to a third party, usually for an upfront payment and a share of recoveries (after costs). This model can be useful on smaller cases when the ATE and CFA model would not deliver value. But giving up control can sometimes be costly, especially on larger claim disputes.

How can Annecto Legal assist?

When handling insolvency matters, insolvency practitioners are obligated to explore all options available in such cases. At Annecto Legal, we assist a wide range of clients in finding the appropriate insolvency litigation funding, assignment options and after-the-event (ATE) insurance.

Annecto Legal regularly assists licensed insolvency practitioners who are involved in dealing with insolvency and jurisdictional matters. If you are in the process of bringing or defending an insolvency dispute and want to find out whether we can assist in helping you fulfil your obligations and secure the right deal, then contact Annecto Legal now.