Bankrupt can sell a London property subject to a freezing order
(Vneshprombank LLC v Bedzhamov; Kireeva v Bedzhamov  EWHC 1459 (Ch))
The facts and issues before the court
This was an application made by Mr Bedzhamov (B), a bankrupt, for permission to sell his interest in a valuable property in Belgravia. The property was subject to a worldwide freezing order (WFO) made in English proceedings brought against him by an insolvent Russian bank (VPB). VPB alleges B carried out a massive fraud against the bank (which is denied by B). B has been made bankrupt in Russia. Ms Kireeva (the Trustee) was appointed as his trustee in bankruptcy.
The application to approve the sale as a variation to the WFO was opposed by the Trustee. This application was further to an earlier order of the court giving permission in principle to sell the property in June 2022 (reported at  EWHC 1166 (Ch)). B was seeking permission to raise funds to pay his legal costs in defending the proceedings brought against him by VPB and the Trustee. The Trustee had argued that the Bankruptcy Order vested all of B's worldwide assets in her automatically under Russian law. However, the court in the 2022 decision held that, under common law principles, a foreign bankruptcy order did not vest immoveable property in the trustee in bankruptcy; to find in favour of the Trustee would create a common-law exception to the immovables rule, which was held to be a matter for Parliament, not the courts. The Trustee has made a further appeal to the Supreme Court on the immovables question, and the appeal is due to be heard in November 2023.
The court had to consider the history of the matter and evidence to decide if it should approve the proposed sale and development of the property.
The court granted the application giving permission to vary the WFO to permit the proposed sale. The Trustee’s arguments that the June 2022 order was no longer effective were technical in nature and not well founded. The court also rejected the Trustee's contention that the current proposal was not as envisaged in the June 2022 order. The differences that did exist were not material and related to professional fees and financing costs.
There is an established rule that a party cannot re-litigate a decided issue unless there has been a significant change in circumstances. The Trustee was, in effect, seeking a variation from the June 2022 order, so submitted that there was a “material change of circumstances”. This submission did not recommend itself to the Judge.
The court also assessed the valuation evidence and commercial terms of the proposed transaction. The court concluded that there was a real risk that if the proposed sale does not proceed there would be a loss of value for B. Were the Trustee to prevail, B would be deprived of those proceeds. The court appeared to be concerned that this was the Trustee’s tactic. It did not wish to see the June 2022 order to be frustrated. The fact that there was a pending appeal to the Supreme Court on the recognition of the bankruptcy did not alter the analysis.
On the question of the outstanding appeal to the Supreme Court relating to the immovables rule, the Judge held that she "… did not think that allowing the sale [of the property] would render the appeal to the Supreme Court nugatory and in any event [did] not think this [was] a sound objection."
This is a fact-sensitive decision but helpful to understand the analysis and approach that will be taken where a court is considering a variation to freezing order to enable the sale of a property or other asset. The court will consider the commercial terms of the proposed transaction in detail and examine the counter-factual. Here, the court was persuaded that the sale was permissible because B otherwise did not have funds to meet his defence costs. The outcome may have been different if the Trustee had a stronger proprietary claim to the asset in question.
Separately, the Trustee has appealed to the Supreme Court seeking the recognition of the Russian bankruptcy in the English courts and on the immovables rule. This is due to be heard in November 2023 and will be relevant to cross-border insolvencies.
- Court: Business List, Chancery Division
- Judge: Mr Justice Miles and Master Kaye
- Date: 16 June 2023