Bankruptcy trustee could have proprietary claim over frozen assets, court rules

Out-Law News | 08 Jun 2022 | 2:24 pm | 1 min. read

A bankruptcy trustee has an “arguable proprietary claim” over the potential proceeds from the sale of a Belgravia mansion by an individual subject to a freezing injunction, a court has ruled.

The English High Court said it was willing to entertain a proposal by former Russian Bobsleigh Federation president Georgy Bedzhamov that he could enter into a transaction with a third-party lender and developer to sell his Belgrave Square property, with the proceeds being used to pay outstanding legal fees and discharge a debt to another entity.

However, the court also found that it needed to proceed on the basis that Bedzhamov’s bankruptcy trustee had an arguable proprietary claim over the proceeds of the sale.

The judge said the sale could go ahead, but the proceeds could only be used to settle “reasonable sums” for legal advice and living expenses incurred up until February 2021, when the trustee applied to intervene in the English court proceedings concerning Bedzhamov.

The proceeds could not therefore be used to settle the debt over the entity, which the claimants allege is beneficially owned by Bedzhamov.

In 2019 the Court of Appeal had ruled in the same proceedings that the freezing order against Bedzhamov could be varied to allow him to maintain his standard of living. However, the recent decision, unlike the one in 2019, involved a proposed use of assets which were the subject of a proprietary claim. This is a critical distinction, according to civil fraud experts.

Civil fraud expert Andrew Barns-Graham of Pinsent Masons said: “This decision is welcome news for fraud victims and other claimants with proprietary claims. It illustrates that the English courts seek to preserve assets which are the subject of an arguable proprietary claim, even in cases where the proprietary claim has not been actively pursued yet and where no injunction has been sought which restrains any dealing with the relevant assets.”

“The use of proprietary assets to fund a defendant’s expenditure can be a sensitive subject for claimants in litigation, as it involves the defendant using assets which are, on the claimant’s case, the claimant’s own property. It is good to see the courts taking an expansive approach to protecting claimants against such expenditure, where it cannot be justified,” civil fraud expert Alan Sheeley of Pinsent Masons said.

Barns-Graham added: “Although the decision is encouraging news for claimants, they should also take note that the courts may still grant a defendant access to proprietary assets in cases where the potential injustice for the defendant of denying such access outweighs the potential injustice for the claimant of the assets being used.”