IV Conference of the Arbitration Association "Debt Collection in International Disputes": an overview
One of the latest live and therefore presently rare events dedicated to the issues of cross-border bankruptcy and connected disputes was the IV Conference "Debt Collection in International Disputes" held by the Russian Arbitration Association in Moscow on April 23, 2021. Owing to the offline format of the event, with some speakers connected via video conferencing, the participants were able to discuss pressing issues of cross-border bankruptcy, third-party funding, asset search abroad and liability of controlling persons in Russia, as well as other related issues that have become even more acute during the COVID-19 pandemic.
The 1st session was devoted to theissues of litigation funding and investing in the proceedings in international arbitration.
Alexander Khaki, Executive Director, CSI Group,acted as a moderator. Before opening of the session, he asked the listeners if any of them had resorted to litigation funding - two lawyers raised their hands, both of them have had experience attracting investment from foreign funds.
Maxim Karpov, Managing Partner, NLF Group,noted that litigation investment funds receive 20% or more profit, which is significantly higher than the market average. As an example, based on his own experience, Maxim talked about the criteria funders pay attention to when deciding to invest money in a dispute: the probability of claims being satisfied, legal reasoning, amount of investment needed and duration of the proceedings (1.5–2 years is an optimal term). At the same time, investors evaluate not the percentage from prospective winning, but the multiplier of the invested funds.
Alexander Zablotskis, Chief Legal Officer, A1 Law Office,devoted his speech to the typical mistakes of clients when seeking legal funding, describing them as follows: “too late”, “case is already lost”, “greed”, “no package”, “slyness”, “no case economy”. When asked who should coordinate an international case (client, consultants, third party funder or all of them together), Alexander noted that the most preferable model is the participation of a third independent person.
Alexander Khakinoted that in order to increase the chances to receive the financing, client should provide preliminary legal opinions, quantum report, risk assessment (political, economic, etc.) and a detailed budget with options for possible scenarios.
Dmitry Ivanov, Partner, Morgan Lewis, Moscow, moderated the 2nd session addressing the issues of collecting information. Other panelists joined it online.
Dmitry noted that in order to search for necessary information, in addition to public sources or even Telegram channels, one can use public registries that exist in all jurisdictions. In England, these allow to find a lot of internal connections, to identify offshore structures.
Izabella Prusskaya, Associate, Carey Olsen, British Virgin Islands,dispelled the myth that information from the BVI cannot be obtained – it is possible, all you need is to be persistent and know where to search for it. What shall one do if public search failed? It is worth searching in the real estate registries (access usually requires personal presence), registries of companies, ships, aviation registries, registries of shareholders and directors.
Denis Olaru, Partner, Carey Olsen, British Virgin Islands, Cayman Islands,gave a brief overview of litigation tools, including Norwich Pharmacal Orders, foreign court requests under the Hague Convention on the Taking of Evidence Abroad, Bankers Trust, obtaining information about assets from the defendant when issuing an asset freezing order, Anton Piller order, and the debtor cross-examination. Denis also spoke about the latest developments in information search tools in the BVI and the Cayman Islands jurisdictions.
Olivia Ellison, Senior Managing Director, K2 Integrity, London,recommended to make the most of public sources and noted that human error is often a great way to find information.
At the 3rd and 4th sessions, the issues of bankruptcy and return of foreign assets for Russian companies were considered.
Nikolay Pokryshkin, Partner, KK&P,spoke about general factors that influence a lender's strategy. These include location of an asset, its sufficiency to satisfy claims, share of the claim in the Russian creditors’ claims register, factors affecting the priority of the creditor's claims, degree of creditor's control over the Russian bankruptcy trustee, urgency of interim measures in respect of foreign assets.
Particular factors include issues of recognition and enforcement of Russian judgments in foreign jurisdictions, obtaining interim measures, recognition of powers of a foreign bankruptcy trustee, presence of the local Gibbs Principle in the relevant jurisdiction, application of Russian bankruptcy law, etc.
Vyacheslav Khorovsky, Managing Partner, GRATA International,analyzed the problem of return of assets in case of their concentration in the post-Soviet states. He underlined the principle of reciprocity and multi- and bilateral agreements among the grounds for the recognition and enforcement of Russian courts’ decisions in bankruptcy cases. Vyacheslav pointed out that Russian courts generally refuse to recognize foreign bankruptcy decisions on the basis of the Kyev Agreement and the Minsk Convention, which increases the risk of non-recognition of Russian judgments in foreign jurisdictions on the same basis.
Bakhyt Tukulov, Partner, Tukulov & Kassilgov Litigation,in his speech highlighted the specifics of debt collection in Kazakhstan and described the main difficulties that arise in this process: inefficient and sometimes biased state bodies, local customs, active role of court in collecting evidence, inflexible judicial system, contradictions in the court practice.
Pavel Novikov, Partner, Baker McKenzie,spoke about parallel processes conducted for support of Russian bankruptcy proceedings and evidence disclosure in the UK. Pavel noted that the way of collecting evidence in England depends on the chosen strategy, and resorting to this jurisdiction means desire for real enforcement.
Alexander Popelyuk, Partner, Lidings,talked about unexpected twists and turns in cross-border bankruptcy proceedings, referring to the East-West United Bank v New Сinema Distributionand VTB v Laptev[1]cases as examples.
Oxana Peters, Partner, Eversheds Sutherland,analyzed the court practice regarding bringing foreign controlling persons of a debtor to subsidiary liability. In 2020, courts in Russia considered more than 5,000 applications to hold persons controlling the debtor liable, almost 3,000 of which were satisfied.
Although Russian legislation does not contain specific rules to determine the applicable law and competence for disputes related to cross-border bankruptcy, including disputes where controlling persons are brought to subsidiary liability, Oksana listed a number of court decisions that addressed these issues.
Jane Fedotova,Associate, Conyers Dill & Pearman,spoke about the receivers involved in the preservation and management of the debtor's assets. Types of receivers include those functioning outside the bankruptcy proceedings to segregate assets and fulfill obligations under pledge agreements, and those appointed as part of a bankruptcy case. A receiver may be appointed before the judgment is made or for the purpose of its enforcement, with or without notice to the defendant. The conditions for the appointment of receivers are large claims and a real risk of concealing assets. The powers of the receiver are wide enough and should be listed in the assigning order - for example, the right to collect assets, disclose information, open bank accounts, appoint and dismiss members of the board of directors.
Andrey Gusev, Managing Partner, Borenius,highlighted the mechanisms for forcing an opponent to cooperate through civil and criminal lawsuits, discovery of tax violations, attachment of assets and other interim measures. Andrey spoke in detail about interim measures against the debtor, third parties (Norwich Pharmacal Order), as well as general interim measures (Mareva Injunction). In course of the presentation, he noted that violation of the disclosure order can lead to the sanctions up to imprisonment, and therefore, these mechanisms are very serious tools.
Anastasia Konovalova, Debevoise & Plimpton, Legal Assistant
Maria Kudinova, Bryan Cave Leighton Paisner, Paralegal
[1] Editor’s note: see the article “Дело Лаптева, или Подходы английских судов к рассмотрению требований российских кредиторов о возбуждении отдельного банкротства на территории Великобритании” by Alexandra Gerasimova in the Russian section of this issue for an in-depth analysis of this case.