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First Come, First Served – Final Third Party Debt Order granted despite outstanding application to recognise foreign insolvency proceedings

Posted on 1 November 2023

This case relates to the principle that creditors with the benefit of a third-party debt order, are ostensibly in a better position than other unsecured creditors of an insolvent estate.

In OOO Nevskoe v UAB Baltijos Šalių Industrinio Perdirbimo Centras & Anor [2023] EWHC 15 (KB) the claimant creditor had obtained an interim Third Party Debt Order (TPDO) in England against the defendant Lithuanian company. At the time the interim TPDO was granted there were no insolvency proceedings on foot in England. However, between the interim TPDO being granted and the hearing to make the TPDO final, the Lithuanian court put the defendant into liquidation in Lithuania. The Lithuanian liquidators then issued an application for an order recognising the Lithuanian insolvency proceedings in the UK under The Cross-Border Insolvency Regulations 2006 (CBIR) (a Recognition Order). They did so largely in order to prevent the claimant from obtaining a final TPDO and thus stealing a march on other creditors.

The application to have the interim TPDO made final was heard in the Kings Bench Division the day before the application to have the Lithuanian liquidation recognised was to be heard in the insolvency courts. The Master hearing the application for the Final TPDO was aware of this, and heard from the Liquidators, who argued that the final TPDO should not be granted in these circumstances. However, the Master said "tough":  under the CBIR, the existence of foreign insolvency proceedings has no bearing on the English courts until such time as a Recognition Order is made. In the absence of a Recognition Order, the court has complete discretion as to whether to make an order such as the one sought in this case. When exercising such a discretion, the Master held, the English courts "leant, and still lean towards [the] 'first past the post' [principle]". In this case the claimant creditor was 'first past the post', and therefore entitled to a final TPDO. It did not matter that, as a result, this creditor would do better than they would have under the pari passu principle.

In reaching this decision, the judge noted that the outcome would have been very different pre-Brexit. Prior to the UK's departure from the EU, the Recast Insolvency Regulation (Regulation (EU) 2015/848) applied to the English courts. Under the Recast Insolvency Regulation, Member States automatically recognise main insolvency proceedings commenced in other Member States. As such, the English court would have been bound to give effect to the Lithuantian liquidation proceedings from the moment they were commenced in Lithuania.

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