Key takeaways from “AVELLUM Disputes Day: Asset Recovery”

AVELLUM continues its tradition of hosting “AVELLUM Disputes Day”. This year it was held on 22 October 2024 and was dedicated to Asset Recovery.

Renowned speakers from Stephenson Harwood LLP, Appleby, Steptoe LLP, and AVELLUM covered disclosure orders in the UK and BVI, discovery procedures in the US, and criminal proceedings and open-source investigations as a way to collect evidence in Ukraine. In the bankruptcy section, speakers from Appleby, CRI Group, and AVELLUM as well as a Ukrainian Supreme Court judge and a Ukrainian insolvency practitioner discussed insolvency options in the BVI, powers of a liquidator in Cyprus, and tips for efficient bankruptcy proceedings in Ukraine.

Evidence collection: best instruments and jurisdictions

Oleksii Maslov, counsel at AVELLUM and moderator of this panel, emphasised the practical importance of efficient instruments to collect evidence in complex disputes.

Ros Prince, partner at Stephenson Harwood LLP, discussed the importance of freezing orders and other injunctions in obtaining information about assets. Drawing from her unrivalled experience, she highlighted practical applications of asset disclosures, especially in fraud cases. She also covered Norwich Pharmacal orders, which enable claimants to obtain information from innocent third parties “mixed up” in a wrongdoing. The consequences of non-compliance with these orders include, among other things, criminal charges for contempt of court.

Andrew Willins, partner and head of the Dispute Resolution Department at Appleby, shared his knowledge of evidence-gathering techniques within the BVI. He focused on critical legal tools such as Norwich Pharmacal orders, emphasizing differences in how these orders are granted in the BVI and the UK, and the procedures for obtaining evidence through international letters of request. Mr. Willins also addressed recent court decisions that provide more flexibility in obtaining freezing injunctions in common law jurisdictions.

Tom Watson, partner at Steptoe LLP, provided the overview of how the U.S. discovery procedures, particularly under Section 1782 of the U.S. Code, can assist foreign court proceedings, including those in Ukraine. Mr Watson highlighted the broad scope of discovery in the U.S., which includes document production and witness depositions. Mr Watson also discussed the practical considerations and procedural steps involved in filing for discovery. In addition, he mentioned that certain information may be also available via requests to the authorities under the Freedom of Information Act.

Andriy Fortunenko, partner at AVELLUM, presented an overview of the methods available for evidence gathering in Ukraine. Apart from more common ways to collect evidence, such as consulting extensive public governmental registries and databases, and sending attorney requests, Mr Fortunenko covered approaches that are more creative. He emphasised the importance of leveraging evidence from criminal proceedings, access to case materials, and the possibility to use such evidence in other proceedings.

Bankruptcy proceedings: dead end or remedy of last resort

The second panel, moderated by Vadim Medvedev, partner at AVELLUM, examined the mechanisms for asset recovery available in bankruptcy.

Serhiy Zhukov, judge of the Supreme Court (Ukraine), presented the evolving judicial practice concerning joint and several, and secondary (subsidiary) liability in bankruptcy cases. He emphasised that these forms of liability are powerful tools to ensure that creditor claims are satisfied and serve a preventive function, deterring actions that may lead to insolvency. Despite being effective, the application of these liabilities is relatively new. Mr Zhukov analysed vital resolutions of the Supreme Court, which aimed to unify the application of these forms of liability and address legislative gaps. He also provided insights into the criteria for applying such liabilities.

Oleksandr Karasiuk, an experienced insolvency practitioner, examined bankruptcy proceedings as an effective tool for recovering debts, focusing on two fundamental mechanisms: secondary (subsidiary) liability and the cancellation of fraudulent transactions. Mr Karasiuk explained that while fraudulent transactions are not explicitly defined in legislation, they are recognised through case law of the Supreme Court. He categorised fraudulent transactions under different legal frameworks, including those outlined in the Bankruptcy Code of Ukraine and general civil law principles. Mr Karasiuk also discussed the criteria for holding individuals responsible for driving a business into insolvency and the practical challenges involved in proving fraudulent behaviour.

Oleksandra Syerova, managing associate at AVELLUM, presented a detailed analysis of how creditors can effectively exercise their rights in bankruptcy proceedings to maximise recovery. She emphasised the importance of understanding the procedural rights of initiating, secured, and unsecured creditors and how these rights influence the outcome of insolvency cases. Mrs Syerova also discussed the role of creditors’ meetings and committees in decision-making processes. She highlighted the legal mechanisms available to ensure that creditors’ claims are secured. Additionally, Mrs Syerova explained the procedures for removing an insolvency administrator and how creditors can challenge the sale of the debtor’s assets.

Andrew Willins, partner at Appleby, shared his expertise on the role of bankruptcy proceedings in resolving disputes. He explored whether bankruptcy is a final option or a powerful remedy for creditors. Mr Willins outlined the critical benefits of initiating liquidation, such as halting ongoing litigation, recovering assets, and pursuing claims against insiders. Mr Willins also discussed the legal processes involved in bringing a winding-up application, explaining the importance of Sections 159 and 175 of the BVI Insolvency Act. He emphasised the value of statutory avoidance claims, such as preferences and undervalue transactions, as tools for liquidators to reclaim assets lost through fraudulent or insolvent trading.

Chris Iacovides, director at CRI Group, presented an in-depth overview of insolvency proceedings in Cyprus, focusing on the roles and powers of officeholders. He discussed the most common grounds for compulsory liquidation, including insolvency and just and equitable grounds. Mr Iacovides highlighted the significant powers granted to liquidators and trustees in bankruptcy, including investigating the debtor’s affairs, seeking Mareva injunctions, and initiating civil or criminal actions for misfeasance or fraudulent trading. He also explained the process of appointing a provisional liquidator to prevent asset dissipation and the court’s authority to appoint receivers.