Russian Trustee Partially Succeeds In A Strike Out Application (Kireeva (As Trustee And Bankruptcy Manager Of Bedzhamov) V Zolotova And Basel Properties Limited)

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Dispute Resolution analysis: An application by a Russian trustee in bankruptcy has succeeded in striking out some parts of a defence to a claim...
UK Insolvency/Bankruptcy/Re-Structuring
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Dispute Resolution analysis: An application by a Russian trustee in bankruptcy has succeeded in striking out some parts of a defence to a claim that a share transfer was a sham or a transaction defrauding creditors. Other parts of the defence were not, however struck out.

Kireeva (as trustee and bankruptcy manager of Bedzhamov) v Zolotova and Basel Properties Limited [2024] EWHC 552 (Ch)

What are the practical implications of this case?

This judgment demonstrates an issue by issue approach which Courts will take to an application to strike out a defence in which a number of distinct grounds. This may involve striking out parts of the defence whilst leaving other grounds to proceed to trial. It also highlights the potential for litigation pursued on the basis of litigation funding to be attacked on the grounds of champerty and maintenance. In this case, the Court was concerned by certain aspects of the funder's conduct, particularly in another set of proceedings where it felt there was a high level of control by the funder over the litigant's conduct. In such circumstances, it would not be appropriate to strike out a plea of champerty or maintenance. This is notwithstanding the relatively narrow circumstances in which a claim funded by a third party could be said to be champertous.

What was the background?

The Claimant is the trustee in bankruptcy and bankruptcy manager of Mr Georgy Bedzhamov pursuant to a Russian bankruptcy order. Her appointment was recognised in this jurisdiction in 2022. The Second Defendant ("Basel") is a company which holds a valuable Italian property. The First Defendant, Ms Zolotova, the partner of Mr Bedzhanmov, is the registered holder of the sole share in Basel. The Claimant argues that at all material times before Mr Bedzhamov's movable property situated in England vested in the Claimant pursuant to the recognition order, Mr Bedzhamov was the beneficial owner of the share in Basel by virtue of Ms Zolotova holding it on bare trust for him. In the alternative, she argues that the purported transfer of the share to Ms Zolotova in 2016 was either a sham or a transaction defrauding creditors under section 423 of the Insolvency Act 1986. Ms Zolotova denies the alleged trust relationship and argues that she is the true owner, indirectly, of the valuable Italian property. In addition, she raised a number of additional defences. (1) She denies that Mr Bedzhamov's movable property in England vested in the Claimant (the "Movables Defence"). (2) She denies that the Claimant should continue to be recognised as Mr Bedzhamov's trustee as the petition debt has now been paid (the "Recognition Defence"). (3) She avers that the declaratory relief should not be granted because of the Movables Defence, the Recognition Defence, because the claims, funded by litigation funders are champertous (the "Champerty Plea") or there are reasonable grounds to believe the litigation is controlled by sanctioned individuals (the "Sanctions Plea") and that the claims were brought for the collateral purpose of denying Mr Bedzhamov access to his assets in the form of the Italian property (the "Collateral Purpose Plea"). The Claimant applied to strike out these additional points of defence.

What did the court decide?

The application succeeded in part. The Recognition Defence was struck out. The recognition order was effective and had not been appealed or set aside. The Court did not accept that the payment of the petition debt would in any event terminate or alter that recognition. In any event, the Court noted there was a valid dispute as to whether that debt had been paid. The Collateral Purpose Plea was also struck out. The Collateral Purpose Plea was also struck out. The purpose of the litigation was the recovery of assets. Furthermore, the Defendants' case was not that Mr Bedzhamov was the beneficial owner of the Italian property. They averred instead that the owner was Ms Zolotova. The allegation of collateral purpose was accordingly misconceived. The remaining defences and pleas were not struck out. The effect of recognition on Mr Bedzhamov's movable property had not been considered by a Court and the Defendants were entitled to require the Claimant to prove her case on that point. The declaratory relief was arguably barred by the sanctions regime. The Sanctions Plea was not struck out. On the evidence available, the Court could not be wholly satisfied that the arrangements for funding were not champertous. The Champerty Plea was not struck out.

Case details

  • Court: High Court of Justice, Business and Property Courts, Insolvency and Companies List (ChD)
  • Judge: ICCJ Greenwood
  • Date of judgment: 13 March 2024

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