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Judgements on the cross-border insolvency cases
Judgements on the cross-border insolvency cases
Cross-border insolvency: definition, basic model. The concept of the insolvency institute and its features. Recognition and enforcement of the legal judgments on the cross-border insolvency cases in the world. The problem of the practice of application.
| Рубрика | Государство и право |
| Вид | дипломная работа |
| Язык | английский |
| Дата добавления | 02.09.2016 |
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Depending on the possibility of recognizing, requirement of special procedures and their consequences, Philip R. Wood, one of the most prominent experts in the field of cross-border insolvency, classifies the recognition of foreign bankruptcies as follows: full non-recognition and full/partial recognition. In case of second type, there are four stages: automatic recognition, retroactive procedure of recognition, non-retroactive procedure of recognition and limited recognition Wood P. Principles of international insolvency. London, 1995. P. 242 - 270.
The model of automatic recognition of foreign bankruptcies is characterized by the following: the court does not take part in the procedure of recognizing, but this model allows imposing moratorium on individual actions of the debtor and creditors. According to international and national legal practice, the main desire of such regime of recognition is to simplify these procedures through the establishment special norms regulating such automatic recognition and rejection of preliminary conditions such as existence of an international treaties or reciprocity. There are two essential features of the model of automatic recognition of foreign bankruptcies:
1) it is based on the idea of extending of the scope of foreign courts' judgments on bankruptcy cases to the territory of other states without any special judicial or other official recognition procedures;
2) the effects of recognition, as in case of retroactive recognition procedures, is the moratorium on individual actions of the debtor and creditors.
The consequences of such recognition is the right of a foreign administrator to collect property located in the recognizing state, suspend the proceedings on the individual claims of creditors against property located in the recognizing state and limiting the powers of the debtor, as well as the disposal of his assets.
Article 19 of the Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings establishes principle of recognition of insolvency proceedings. According to it any judgment opening insolvency proceedings handed down by a court of a Member State, which has jurisdiction pursuant this Regulation shall be recognized in all other Member States from the moment it becomes effective in the State of opening of proceedings. And in this case the proceedings recognized in other state shall be secondary proceedings. As for effects of recognition, they are reflected in the article 20, the judgment opening insolvency proceedings as referred to in this Regulation, with no further formalities, produce the same effects in any other Member State as under the law of the State of the opening of proceedings, unless this Regulation provides otherwise and as long as no proceedings referred in the article 3 (2) of this Regulation are opened in that other Member State. Any restriction of creditors' rights, in particular a stay of discharge, shall produce effects vis-а-vis assets within the territory of another Member State only in the case of those creditors who have given their consent. Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings
The Regulation also establishes rules for recognition and enforceability of other judgments handed by a court whose judgments concerning the opening of proceedings, which was recognized in the territory of this state, or which concerns closure of insolvency proceedings, judgments deriving directly from the insolvency proceedings or closely linked with them (even if they were handed down by another court), judgments relating to preservation measures taken after the request for the opening of insolvency proceedings or in connection with it and compositions approved by that court. All the judgment listed above shall also be recognized with no further formalities. It is also stated that recognition and enforcement of judgments other than specified in this article shall be governed by regulation (EU) № 1215/2012 provided that that Regulation is applicable.
This Regulation also provides a condition regarding public policy in the article 33 of the document. It allows any member state to refuse to recognize insolvency proceedings opened in another Member State or to enforce a judgment handed down in the context of such proceedings where the effect of such recognition or enforcement would be manifestly contrary to that State's public policy, in particular its fundamental principles or the constitutional rights and liberties of the individual. Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings
It is worth it to pay attention to the principle applied by the Court of Justice - it is principle of universality, which was described above. But the purpose of the automatic recognition is not to exclude any conditions and basis of such recognition, but to simplify the procedure: judicial proceedings can be switched by the checking of foreign act by any other body or authority. A party in the bankruptcy case or the persons involved in it can directly refer in the court or other body to foreign judicial acts, rendered in the bankruptcy case or related to the bankruptcy proceedings. However, in certain cases, judicial proceeding on recognition may be required: for example, if there are creditors' or other parties' objections.
The model of automatic recognition is a very balanced tool, because it allows eliminating such disadvantages as recognition proceedings for each case and at the same time gives opportunity to commence these procedures if necessary.
The desire to simplify recognition procedures through establishment of models and rules of automatic recognition of foreign bankruptcies is currently the main international trend in this area. Thus, such order helps to avoid such disadvantages and difficulties as national procedures of legalization of foreign bankruptcies, as well as time losses and expenses. But at the same time national legal order is protected by the opportunity to start judicial proceedings on recognition in certain cases, when the foreign bankruptcy can be checked on compliance with the national requirements.
The effective regime of recognition of foreign bankruptcies (especially automatic recognition) can be created only on the international legal basis, instead of national legal regulation. But it means that states should work on conclusion of international treaties and improve cross-border legal acts, which already exist. Insolvency agreements can be also concluded between other actors of legal and economic arena. And these agreements shall either have binding effect on the parties or establish a framework for cooperation that is not intended to be enforceable or to impose obligations on the parties. The agreement in the ISA-Daisystek proceedings stated, that its effectiveness was subject to the approval of the creditors pursuant to German Law. The agreement also stipulated that the German insolvency representative would report the terms of the agreement to the responsible German court after the creditors' approval. UNCITRAL Practice Guide on Cross-Border Insolvency Cooperation. New York. 2010. Available at https: //www.uncitral.org/pdf/english/texts/insolven/Practice_Guide_Ebook_eng. pdf
§3. Choice of law in cross-border insolvency cases
Probably the main problem of regulation of the cross-border insolvency is issue of applicable law. The science distinguishes three main options to solve conflict of law issues; each of them leads to either positive, or negative consequences.
The first approach involves the application of the law of the state, where the first proceeding on bankruptcy case was started. But on the other hand, it also can be a state, where the minor amount of the assets or debtor's creditors are located.
The second approach involves the application of the law of the state, where the place of primary business is located. But quite often it is complicated to determine such place.
The third approach involves the application of the law of the state, where the debtor is registered. But here is another difficulty: there may be neither assets, nor creditors.
There is a special rule specified in the international legal acts and domestic legislation, which helps to determine the law governing transnational insolvency relations, it is called lex fori concursus.
Lex fori concursus - is the law of the country of the court, where the insolvency proceedings take place. Insolvency proceeding is manly a process, that is why the law of the country of commencement of this process is the dominant connecting factor. However, lex fori concursus can not be normally applied to the issues of the status and authority of the insolvency administrator, or to the assignment of the property located abroad to the bankruptcy estate, or to the priority of claims of creditors. In addition, there are some relations, when this rule can not be applied. N. Erpyleva. International private law. 2015. For example, when the relations have independent content - such as obligations of the debtor to the creditors. Or another example is claims arisen under public law, it can be case concerning taxes. Also payment and settlement systems shall be also excluded from the scope of lex fori concursus, together with labor contracts, conditions on termination of transactions and rights of ownership. And the explanation for such exclusion is the principle of protection of the weaker party.
So we come to conclusion, that lex for concursus can not be the only connecting factor in the insolvency case, because it is also unable to resolve problems concerning the effects of foreign bankruptcy proceedings. A conflict law of country of the court should determine the law applicable to such relations.
It is obvious that the multiplicity of conflict law regulating cross-border insolvency appeared because of complexity of these legal relations. And as it was mentioned before, there is a tendency in modern world to protect local interests and rights of creditors, because there is no point for the creditor to fill in the claim to the foreign court, where he would not have any priority.
It is noted in the Report of Working Group V (Insolvency Law) of UNCITRAL regulations of 2009 Report of working group V (Insolvency law) on the work of its thirty-fifth session (Vienna, 17-21 November 2008). Available at https: //documents-dds-ny. un.org/doc/UNDOC/GEN/V08/585/80/PDF/V0858580. pdf? Open Element, that sometimes difficulties arise because of choice of law, which can be applied to the issues of validity and validity of rights on such assets or legal force of such claims and others. It is also specified, that lex fori concursus shall be applied to such cases, but they note, that there are a number of exceptions, as well as every state has its own scope and justification. So the negative moment is an uncertainty and unpredictability for the parties involved in proceedings on cross-border insolvency. And another problem is that a lot of countries still do not have any conflict rule, directly related to the issues of cross-border insolvency.
The way out of the situation described above is conclusion of the agreement between the parties with specification of the law applicable to their relations. There are few approaches to choice of such applicable law. It is even possible to conclude several agreements, and the preliminary agreement may content an intention of the parties to conclude next agreement.
There is another international legal act regulating issues of conflict law in terms of insolvency proceedings. It is Hague Convention on the law applicable to certain rights on securities held with the intermediary (2005) Hague Securities Convention of 5 July 2006. Available at https: //assets. hcch.net/docs/3afb8418-7eb7-4a0c-af85-c4f35995bb8a. pdf. This Convention distinguishes the law of Convention (lex causae) and applicable law on insolvency (lex concursus) in the context of insolvency proceedings.
The valid rights registered in accordance with the Convention and appeared prior to the insolvency proceedings, shall be binding within the insolvency. However, such rights are not excluded from the scope of the general insolvency rules, such as priority of claims and others.
The terms of this Convention are also applied to all matters relating to the events that took place before commencement of the insolvency proceedings (direct selling or granting of a security interest). The court or the insolvency administrator can not deny to recognize the applicable law just because this right was not established or registered in accordance with lex concursus.
Part 3. Legal regulation of the recognition and enforcement of foreign judgments on the cross-border insolvency cases in the Russian
Federation
§1. Legal grounds for recognition and enforcement of foreign judgments on the cross-border insolvency cases in the Russian Federation
Regulation of the relations in the field of cross-border insolvency should be based on the consolidation of rules concerning not only relationship between the debtor and the creditor, but also the rules governing relationship between Arbitrazh courts and judicial bodies of foreign states and with arbitration managers and representatives of foreign managers in insolvency cases.
Relations arisen from insolvency proceedings do not find an exhaustive and comprehensive regulation in the legislation of the Russian Federation.
Recognition and enforcement of foreign judgments can be made on the basis of principle of reciprocity and international politeness, as recognized principles of the international law. According to article 15 of the Constitution of the Russian Federation international principles are part of its legal system.
Issues on recognition of foreign judgments have been already arisen by the soviet scientists. Professor Yablochkov T. M. defines relations, connected with the cross-border insolvency, as исключением among those which shall be recognized by the states "de plano" Yablochkov T. N. International private law and international civil process. 2004. P. 578 and the reason is public interest.
Article 1 of the Federal Law "On insolvency (bankruptcy)" establishes the conditions of participation of foreign creditors, as well as the recognition of foreign judgments and it is exhaustive. According to paragraph 6 article 1 of the Federal Law "On insolvency (bankruptcy)" all issues on recognition and enforcement of judicial decisions on the territory of the Russian Federation are regulated by the international treaties. In case of absence of such international treaties the legislator offers to apply the principle of reciprocity. Hence the conclusion, that in case of absence of special regulation of these relations, the legislator presumes application of the principle of conventional exequatur. But it would be better to apply a broad interpretation of this article in part of an object of recognition, because it can not be limited only by the decisions of foreign courts. Traditionally the following of recognition exist: the decision on commencement of insolvency proceedings; list of certain judgments on insolvency proceedings; and acts related to the powers of the administrator. However, national law can recognize other judicial acts as well, for example, acts related to a foreign register of creditors' claims. When there is a property of the foreign company (or its representative) on the territory of the Russian Federation, and there is a foreign insolvency judgment in respect of this company, and this property is included into the competitive weight of the debtor, then the collection of this property will be made in accordance with the international treaty; but if there is no any treaties it shall be made on the basis of the reciprocity principle.
Paragraph 4 of article 1 of the Federal Law "On insolvency (bankruptcy) ” establishes a provision stating that the rules of international treaties have a primary importance then the norms of national legislation.
So to sum up, nowadays there are two ways of recognition of the foreign judgments on insolvency in the Russian Federation: first - in accordance with the international treaty, where the Russian Federation is a party to it and second - on the basis of reciprocity.
The reason why there is a need for the conclusion of international treaties is modern environment and development of international economic relations, when the national legislation cannot effectively regulate the relations arising in connection with cross-border insolvency. The difficulties primarily arise from collision of legal norms of different states that prevent the realization of the principle of universality, which is responsible for recognition of foreign bankruptcies.
Currently Russia does not have any treaty on recognition and enforcement of foreign judgments in insolvency proceedings. Although in 1997 there was held a scientific and practical seminar, the main topic of which was the preparation of a model law on bankruptcy for the CIS countries. As a result of this seminar, there was developed a model bill, which was approved by a majority of the participants. V. Stepanov offers two options for regulation of these relations between the CIS countries: first - adoption of a model law and second - an international treaty. V. Stepanov Insolvency (bankruptcy) in Russia, France, England, Germany, 1999 The idea of creating of a unified law regulating the issues related to cross-border insolvency, at least on the territory of the CIS countries, would greatly simplify the regulation of these relations.
In case of application of reciprocity principle, we do not have any legal definition of it, but the Federal Arbitrazh Court of the North Western District, in its judgment of 28 August 2008, stated that "the reciprocity principle is understood as a possibility of enforcement of a foreign court judgment on a bankruptcy case in the Russian Federation provided that the analogous judgments of Russian Arbitrazh court delivered on the basis of the Federal Law No.127 - FZ are recognized in such foreign states" http: //kad. arbitr.ru/Card/67070454-7875-4b35-9fd0-1252f4bc4ac9.
The draft of the Federal Law "On amending of the Federal law "On insolvency (bankruptcy)", developed by the Ministry of Economic Development of the Russian Federation, provides exclusion of the reciprocity principle from the preliminary conditions of recognition of foreign bankruptcies, leaving only as necessary - the existence of an international treaty. But this proposal has both positive and negative sides. The positive thing is the fact that this amendment will eliminate the reciprocity principle from the activity of the Russian judicial bodies. But on the other hand, it is still impossible in Russia to recognize a foreign bankruptcy, if there is no international treaty, and in this situation the existence of reciprocity principle leads to a more affordable procedure of recognition of foreign judicial acts.
Among the domestic acts governing recognition and enforcement of foreign decisions on cross-border insolvency there is also the chapter 31 of the Arbitration procedural code. Article 242 of the Arbitration procedural code of the Russian Federation defines the circle of persons entitled to apply for the recognition of foreign judicial acts in the bankruptcy cases. The law stipulates that the party of the dispute, in whose favor the judgment was made, shall deliver the application for recognition and enforcement of a foreign judgment. In practice, there are situations, when according to the foreign judgment, the structure is recognized as a debtor, but this structure is not a legal entity or it is impossible to open bankruptcy procedures in relation to him according to the national law. In this case the legislator allows recognizing and enforcing of such foreign judgment in order to create conditions for access of foreign creditors to a corresponding part of bankruptcy estate.
The law also specifies that such statement shall be filed to the arbitration court of the subject of the Russian Federation at the place of location or residence of the debtor, and in the case of absence of such information - at the location of the debtor's property. The legislator imposes a list of requirements to the application on recognition and enforcement of the judgment of a foreign court, namely: written form, signature of the person in whose favor the decision is made or signature of his representative, requirements to the content of this application such as name of the court, located on the territory of the Russian Federation, as well as the name of the foreign court, name of the claimant, information about the foreign judgment and so on.
Then the judge shall consider this application on the recognition and enforcement of a foreign judgment solely within the period not exceeding one month from the date of receipt of this application by the arbitration court.
Grounds for refusing to recognize and enforce foreign court's judgment fully or in part are as follows:
the judgment has not entered into legal force in accordance with the law of the state;
the term for compulsory execution of the foreign judgment has expired and this term is not restored by the arbitration court.
At the opinion of some Russian legal practitioners, the regulation of relations connected with cross-border insolvency should be implemented through the special universal Federal law based on the UNCITRAL Model Law on Cross-border insolvency. This law is the basis for the harmonization of existing national laws governing cross-border insolvency. The goal of this law is not the establishment of a single act, but development of unified instruments in different national legal systems. But unfortunately this method of solving the problem of regulation of these relations is not sufficient, because this law does not take into the account the peculiarity of each national legislation, and provides only with general principles.
The interesting moment is that the Russian legislator made an attempt to create a separate law regulating cross-border insolvency. The draft of such law with all the comments and notes to it was published on the website of the Ministry of Economic Development of the Russian Federation on the 25th of April 2011. This draft was developed to resign a certain legal uncertainty in situations when the proceedings are initiated in one or more states against the debtor, who operates or has assets in multiple states. The draft was aimed at streamlining of relations in the sphere of insolvency complicated by a foreign element, this draft was also aimed to allow effective using of rehabilitation procedures in the bankruptcy cases and to extend national treatment to the foreign assets of Russian companies.
In this draft of the law the legislator abolishes the application of international treaties in relations on the recognition and enforcement of foreign judgments. Thus, the judgments of foreign courts bankruptcy cases are recognized on the basis of reciprocity that exists, unless other is proven. Consideration of cases on recognition and enforcement of foreign judicial acts falls within the competence of the Arbitrazh courts.
The provision of the Arbitration Procedural code of the Russian Federation and norms of the draft law shall be applied to the issues concerning the recognition and enforcement of foreign judgments, if the international treaty of the Russian Federation does not establish other approach to the consideration of these cases.
There are also mentioned the norms on regulating of the recognition of the main proceeding with the subsequent opening of the bankruptcy procedure on the territory of the Russian Federation and without the subsequent opening of the bankruptcy in the Russian Federation. Basically, it adheres to the same provisions, which are stipulated in the Arbitration Procedural Code of the Russian Federation.
The legal act expands the range of persons entitled to apply for recognition of an act of a foreign court, among them: administrator of a foreign bankruptcy proceeding, the debtor, the creditor and other interested persons. According to a general rule such application shall be filed at the place of residence of the debtor or at the place of location of his assets. The act sets out a wide range of documents, necessary to attach to such application. It also provides Arbitrazh Court with an opportunity to seek clarification from the authority, whose act is in the process of recognition, as well as to the persons participating in the case.
In addition, the applicant is required to post a note about consideration of the application within 10 days from the moment of acceptance in order established by the federal law "On insolvency (bankruptcy)", and with the content prescribed by p.3 article 11 of the draft law "On cross border insolvency”. And judicial session on consideration may be held not earlier than 30 days from the date of acceptance of the application for consideration.
This act also contents an exhaustive list of grounds for refusal to recognize the act of a foreign state. Among them are the following: non-entry of the judicial act into legal force on the territory of the state where it was enacted; improper or untimely notice of the debtor or creditors about opening of foreign proceedings (of their participation could significantly affect the outcome of the case); the existence of irregularities in the procedure of composing and keeping of the register of creditor's requirements; the case relates to the exclusive competence of the Russian Federation, which is defined by an international treaty or a federal law; the foreign proceeding does not meet criteria of a foreign proceeding, specified in the draft of the law or the recognition of such act is would be contrary to the public order of the Russian Federation.
The court issues a decision stating a legal effect of such recognition by a result of the case of recognition of a foreign judgment. This decision has to be published within 10 days, and then it enters into legal force.
Unfortunately, the work and recognition of the draft described above was suspended and the timeframe was not indicated. Though, the law would play a great role on the way of development of cross border relations on the territory of Russia. Under the assumption of E. Mokhova, the reason for that may be the controversial nature of some mechanisms of regulation of cross-border insolvency and the poor knowledge of Russian doctrine as well as some concerns related to the status change of the property of foreign investors. E. V. Mokhova. Insolvency complicated by the foreign element: the challenges of Russian judicial practice// ATP "Consultant Plus”
Nowadays, the majority of Russian courts apply the doctrine of international comity. Under this doctrine the principle of international law (comity of nations) imposes an obligation on the Russian courts to take due regard of the acts of foreign nations and thus recognize and enforce foreign judgments even in the absence of a treaty between the country of the origin of the judgment and Russia. Due to the fact that the principles on international law have immediate effect in Russia (Art.15 Constitution of Russian Federation), this principle prevails over the specific provision of the Arbitral Procedural Code of the Russian Federation stating otherwise. Under the said principle, the Arbitrazh courts recognize the judgments of English, Dutch and German courts in the absence of the specific treaty between the Russian Federation and these countries.
Russian law is clear on the fact that only final judgments of the foreign courts are subject to recognition and enforcement in Russia. So Russian court may decline recognition of foreign judgment if the judgment has not become final (i. e., is not subject to appeal) under the law of the country of its origin (Art.244.1 APC).
For this reason, all other foreign court's acts - including injunctions, attachments and any types of interim measures - are not subject to recognition and enforcement in Russia and thus have no legal effect whatsoever. For this reason, any party to a foreign proceeding that needs to attach a defendant's assets in the Russian Federation must solicit the relevant interim measure from a Russian court (Art.90.3 APC).
Summarizing everything mentioned above: there are the following conditions of recognition and enforcement of foreign judgments: first of all, it has to be issued by the authorized judicial authority, which shall be proved by the document confirming an appropriate notice of the place and time of hearings. Secondly, the foreign judgment shall be rendered on the merits. Thirdly, a foreign judgment shall come into legal force. And, finally, it must be enforceable and final. It is also important to pay attention to the huge amount of judicial acts, which can be made by the court on cross-border insolvency cases. Many of these judgments are not final and do not consider the issue on the merits, but nevertheless, they do not lose value to the proceedings. As practice of the Russian courts shows, sometimes even so-called interim judgments of foreign courts are recognized.
The lawmakers shall seek cross-border cooperation with foreign insolvency proceedings and agree upon or join an international treaty on regulation of cross-border insolvency. As for today, our insolvency laws are not sufficient to provide proper functioning of the mechanism of recognition and enforcement of foreign judgments, which the whole situation quit unclear and unpredictable for foreign legal entities.
§2. Practice and problems of recognition and enforcement of the legal judgments on the cross-border insolvency cases in the Russian Federation
As set out above, Russian court practice on the enforcement of foreign bankruptcy judgments is not extensive; we should expect to see more cases in this area, including cases that relate to the insolvency of individuals. As a result, there remain certain "gray areas" where more light yet needs to be shed by such future cases and possible changes in Russian bankruptcy law.
Analysis of a judicial practice of the Russian courts shows that principle of territoriality is more popular and it causes imbalance of public and private interests in favor of public ones, of course. The case of National Nuclear energy generating company "Energoatom” reflects the lack of unified legal regulation of insolvency of the same debtor. There were initiated proceedings against this company, but this judgment was not recognized by the Russian Federation and did not give rise to legal consequences.
According to the judicial practice, the courts apply personal law of the legal entity. As an example, we may take the case № 163/200 of 25/05/2005, where Russian company has filled the claim to the American debtor in connection with breach of the contract. The International Commercial Arbitration Court at Chamber of Commerce and Industry of the Russian Federation has received notifications of the insolvency administrator about the fact, that the defendant us under the insolvency proceeding and according to the American law all the proceedings against him shall be suspended. The ICAC has pointed out in its decision that all the issues concerning bankruptcy of the defendant shall be resolved in accordance with the law of the USA. So in this case the ICAC at CCI has applied the rules of Russian law according to the personal statute of a legal entity and the USA - prohibiting arbitration on disputes involving companies into bankruptcy, unless the special permission is received in further proceedings.
Another example is the case of the Company "Laurel Space & Communications Ltd. ”, when the foreign judgment on bankruptcy was not sufficient to satisfy claims of the plaintiff. This company has addressed to the Arbitrazh court of Moscow with the claim to CJSC "Globalstar - Space telecommunications” (hereinafter - CJSC "GlobalTel”) to recognize the refusal of the defendant to open a personal account in the register of its shareholders and to include 49% of the shares of CJSC "GlobalTel" as invalid, to enforce the defendant to withdraw 980 000 ordinary registered shares of the defendant from the account of the Company "Globalstar LP” and to transfer them to the account of the plaintiff. This claim was motivated by the fact that the Company "Globalstar LP” was declared bankrupt on the basis of the judgment of the US Court of Delaware, pursuant to which the successor of the company, in the form of 49% of the stake in CJSC "GlobalTel”, is company "Laurel Space & Communications Ltd”. The Courts of first and appeal instances have refused to the plaintiff to satisfy its demands, because in their opinion the judgment of the US Court is not enough to confirm ownership of the Company "Laurel Space & Communications Ltd" on the disputed property. In the opinion of the plaintiff, the judgment of the AS Bankruptcy Court of the Delaware State is the act of recognition of rights and it shall be recognized on the territory of the Russian Federation without any special proceedings, and the plaintiff is not required to commit additional actions to transfer of bankrupt company's shares and for identification of this property. The cassation court came to the conclusion that the claim of the plaintiff was groundless. However, according to the Court's opinion the decision of the US Court is recognized in the Russian Federation, but is not subject to special enforcement. The court of cassation also considered that this judgment is insufficient for transfer of ownership of shares of CJSC "GlobalTel" from the company "Globalstar LP” to the company "Laurel Space & Communications Ltd”.
Although there is a positive tendency of application of the universality principle in these legal relations. For example, the case of "Kalinka Trade APS”, where CJSC "Mayak" has filled in the claim against "Kalinka Trade APS" (Denmark) to Arbitrach Court of Saint Petersburg and Leningradsky region on recovery of debts and damages under a lease agreement. The Arbitrazh Court has left this claim without movement, because the defendant was declared bankrupt in accordance with the decision of Maritime and Commercial Court of Copenhagen. Arbitrazh court in this case disagreed with the application of Russian bankruptcy law to the defendant under the following reasons:
- The defendant is a legal entity established in the territory and under the laws of Denmark. In accordance with the Civil Code of the Russian Federation the personal law of the legal entity is the law of the country, where the legal entity is established. Therefore, the issues on establishment, reorganization, liquidation, succession and legal capacity of the legal entity shall be governed by the personal law of this legal entity;
- According to p.5 article 1 of the Federal Law "On insolvency (bankruptcy) ” the provisions of this law are applied to the relations with foreign persons only if they act as creditors;
Thus, the court came to a decision that only bankruptcy law of Denmark can be applied to "Kalinka Trade APS”.
Today, there is judicial practice, when the courts of the Russian Federation apply the principle of the reciprocity due to the lack of international treaties. One of the examples is the case of Kerstin Becker, who was an administrator in the bankruptcy case. The bankruptcy proceeding was opened in relation to the entrepreneur Harry Albrecht, and the attorney Kerstin Becker was appointed as the administrator in the bankruptcy case. So Kerstin Becker on behalf of Mr. Albrecht has addressed her claim to the Arbitrazh court of Saint-Petersburg and Leningradsky area. The purpose of the claim was, firstly, to make the decision of the first instance court on bankruptcy cases of Frankfurt-am-Main (Germany) recognized and enforced in Russia, and secondly to recognize the powers of bankruptcy administrator Kerstin Becker concerning the property located in the Russian Federation. The court has recognized the powers of the administrator Kerstin Becker, but refused to recognize and enforce the judgment on bankruptcy of the court of Frankfurt-am-Main. In the cassation claim Mr. Albrecht has listed the reasons, including the inconsistency of the above-mentioned judgment of Russian court, and asks the court to cancel it and to issue new judicial act. And the inconsistency of this judgment was as follows: the court, satisfying the claim of Kerstin Becker on recognition of her authority on the debtor's property, was contrary to its own decision about refusal of recognition of actions on the territory of the Russian Federation and the enforcement of the judgment of first instances issued by Frankfurt-am-Main court. The Russian court, refusing the claim, pointed to the fact that there is no any treaty on recognition and enforcement of bankruptcy judgments between the Russian Federation and Germany. The cassation court has agreed with that statement, but indicated, that according to p.6 article 1 of the Federal law "On insolvency (bankruptcy)", in case of absence of the international treaty between third state and the Russian Federation the bankruptcy judgments of such foreign courts can be recognized on the basis of reciprocity, unless otherwise provided by the Federal law. As it was mentioned before, under the principle of reciprocity, the court understands the possibility of enforcement of foreign court's judgment on insolvency (bankruptcy) on the territory of the Russian Federation, only in case if similar Russian judgments on insolvency are recognized on the territory of that foreign state. Thus, the appeal court came to conclusion that the arguments of the K. Becker were not verified and regarding the judgment of Frankfurt-am-Main court - it is necessary to hold a full study of all circumstances relevant to the case.
Another case, demonstrating the fact, that domestic approach to determination of international competence of cross-border insolvency cases is less flexible and does not allow to protect the interest of Russian creditors in our courts, is the case of JFC Group. This company was the subsidiary of JFC (BVI) Limited and acted with help of its subsidiaries in Russia, British Virgin Islands, Luxemburg and other countries. In 2011 JFC Group has faces some financial challenges, which led to insolvency of the companies, which were parts of the holding. The banks could not satisfy their claims with the property of JFC Group and applied to Mr. Kekhman as the guarantor under the loan agreements. In his turn, Mr. Kekhman has applied to English court and asked to recognize him as insolvent in accordance with English legislation. At the moment of application place of his living was England (he rented a room in London hotel), he had real estate in Russia, cars in Russia and France, and his debt to Russian creditors was more than 300 million pounds. English court has satisfied the claim of Mr. Kekhman in 2012 and appointed an insolvency administrator. In 2013 some Russian banks-creditors, tried to challenge the legality of the insolvency proceedings and stated the following reasons:
- insolvency cases of Russian persons are referred to the exclusive competence of Russian courts;
- personal law of Mr. Kekhman is Russian law (art.1196 CC RF), that is why English law can not be applied to it;
- absence in the Russian legislation of any provisions on insolvency of persons, who do not have status of individual entrepreneur, excludes an enforcement and recognition of the judgment on the basis of reciprocity principle.
These arguments were rejected by the English court according to the following reasons: in accordance with English law and several precedents, it has competence to initiate insolvency proceedings in respect of the person, who has been personally presented in England at the moment of filing of application to the Court. In this case, it is quite possible, that few insolvency proceedings can be initiated parallel in few different jurisdictions.
But the problem is that tendency of negative reciprocity still exists in the judicial practice of Russian courts. So the claimant shall prove execution of Russian judicial acts on the territory of particular foreign state.
But one of the most fresh and notorious example of the positive reciprocity appears in the Regulation of cassation of Federal Arbitrazh Court of Moscow district under the case №KG-A40/698-06-P of 22 February 2006 The Regulation of FAC of Moscow district dated 02. 03.2006, 22. 02.2006 №KG-A40/698-06-P on the case №A40-53839/05-8-388. The list of foreign banks - the creditors - has filled a claim on recognition and enforcement of decisions of the Supreme Court of Justice of England and Wales for the recovery from JSC "Oil company "YUKOS" in their favor of 475284466,67 US dollars. The claim is based on the judgment of the Supreme Court of Justice of England and Wales dated 17 June 2005, which states that it was recovered from the debtor in favor of the creditors the amount owed to them under the credit agreement dated 23 September 2003, as well as the interest. According to the court ruling of 28 September 2005 the Arbitrazh Court of Moscow has satisfied the claim on the recognition and enforcement of the said foreign judgment. The court ruling is motivated by the fact, that the judgment of the Supreme Court of England and Wales is subject to recognition and enforcement by the Arbitrazh Court of the Russian Federation in accordance with principle of reciprocity, which is a universally recognized principle of international law. And according to the Constitution of the Russian Federation, all universally recognized principles and norms of international law are an integral part of the legal system of the Russian Federation; there are also no grounds for refusing under article 244 of the Arbitrazh Procedural Code of the Russian Federation; there is an evidence in case materials that English law admits the possibility of enforcement of judgments of the Russian Federation, which also confirmed by the expert opinion of the Royal Advisor and the letter of the Supreme Court of England and Wales of 08.09.2005. On the 5th of December 2005 this ruling of the Court was cancelled, and the case was transferred for reconsideration in connection with violations of court procedural rules. Then, on the 21st of December 2005, the claim of the creditors was satisfied, and the judgment of the Supreme Court of England and Wales was recognized and enforced on the territory of the Russian Federation. The Court explained its position as follows: the Russian Federation and the United Kingdom of Great Britain and Northern Ireland are members of the Council of Europe and parties to the Convention "On the protection of human rights and fundamental freedoms” of 1950. And the Russian Federation ratified this Convention and the protocols thereto. Based on the decisions of the European Court of Human Rights concerning the interpretation and application of the Convention, the right to trial is regarding as covering of all stages of the proceedings and includes the stage of enforcement of court decisions, including decisions made abroad. The court has also referred to the Treaty between the Governments of the Russian Federation and the United Kingdom of Great Britain and Northern Ireland of 1992 on economic cooperation, according to which legal entities and individuals of each country are granted national treatment concerning access to the proceedings in all courts and administrative bodies on the territory of another country. However, the Court was guided by the principle of reciprocity and international comity. JSC "Oil Company "YUKOS" in their claim ask for cancellation of the Ruling, referring to wrong application of the provisions of the Convention of 1950 and Treaty of 1992, as well as non-application of article 241 of the Arbitrazh Procedural Code of the Russian Federation and discrepancies between conclusions contained in the Ruling and the actual circumstances of the case. But the arguments of the applicant about absence of the bases for recognition and enforcement of decisions of the Supreme Court of Justice of England and Wales was dismissed as unfounded.
Another phenomenon appeared in the Russian legal sphere and initially came from foreign jurisdiction, in light of the regulations of bankruptcy of individuals, is situation when the debtor can choose the most preferred country for his bankruptcy. It is so-called "consumer insolvency tourism" - the relocation of over-indebted natural persons into a Member State granting a more favorable discharge regime from personal debt that the home country Walters A., Smith A. «Bankruptcy Tourism" Under the EC. Regulation on Insolvency Proceedings: A View from England and Wales // International Insolvency Review. 2009. Vol. 19. No 3. P. 181-208; Westbrook J. L. Bankruptcy Tourism and FNC // International Journal of Procedural Law. 2013. Vol. 3..
Summing up, it should be noted that the regulation of cross-border insolvency raises many difficulties in practice. These difficulties arise from differences in national legislations of the states. Thus, the solution for this problem is the creation and signing by the states of the international treaty, the goal of which is to simplify and make the insolvency procedures more open, and reaching of maximum satisfaction of creditors' requirements at the expense of the assets of the debtor. It would increase the level of mutual trust among the states and it would promote international trade in general. The Russian Federation would be able to create a favorable environment for foreign creditors in respect of investing into Russian and financial enterprises and institutions with help of such treaty.
Conclusion
Insolvency law in general plays an important role in business and predetermines economic growth now, when economy becomes more internationally oriented.
As we see, this institute still remains in a state of confusion for the whole world, but governments of the states and international organizations continue their work on the common system of recognition and enforcement of foreign insolvencies. Proper regulation of cross border insolvency is also necessary for effective functioning of the internal market, because it makes impossible for debtors and creditors to transfer assets from one state to another seeking a more favorable legal regulation.
We should admit that the issues concerning cross-border insolvency have an enormous financial importance. And the most attractive way to establish effective regulating scheme is to develop general legal acts, which could significantly simplify and objectively improve realization of the interests of the both debtors and creditors. Initially the development of conventions and treaties mean the unity and support from the other states, when other jurisdictions voluntarily submit their primary control over a list of procedural acts in the insolvency cases. And two main principles must be implemented into these legal act, those are: universality (main and secondary sets of proceedings) of bankruptcy and direct international jurisdiction.
In practice there are a lot of difficulties arisen on the way from this idea to reality. First of all, the states are not interested, because most of them prefer such legal regimes, when the state has a priority over other creditors or where the state could withdraw its share outside of the legal field of bankruptcy law. There is another obstacle on the way of development of the general, unified act; it is differences in national insolvency laws. In the absence of the agreed order, discrepancies between legal systems would lead to unequal situations. Economic realities justify giving preference to the main proceeding, open in the center of the debtor's interests. And it is clear, that the only good idea in this situation is to use universal approach. Other approaches cause ineffectiveness of whole insolvency process. At the present stage of development of these relations at the international level, there is also a lack of trust between the states, and the unwillingness to find a balance of interests in this respect.
From my point of view all the matters connected with a legal regulation of international insolvency shall be separated from the other kinds of judicial proceedings. And there is a vital need for the further movement forward in improvement and development of the legal basis in terms of the topic discussed. But we can observe the good trend nowadays: the legislation goes towards application of the universality principle.
And it is necessary to remember the following: "All insolvency processes seek to resolve the tension between the legal and economic structures of an organization”. E. B. Leonard, C. W. Besant Current issues in cross-border insolvency and reorganizations. 1994
To sum up, it is necessary to say, that international community looks to future developments with cautious optimism, and hope that the positive trend of the successful enforcement of such judgments will continue to evolve in Russia as well. In the world, where state allow their citizens and companies, existing under their laws, to have relationships and business activities, which transcend national borders, to own and transfer property between jurisdictions with relative ease, it becomes essential for such world to work on rules of private international law, which will ensure a balance with such cross-border activity.
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