Foreign currency debts in bankrupt deceased estate should be converted at date of death

Bankruptcy judge Mr Justice Richards said that to declare otherwise would have been "inconsistent with a fundamental feature of insolvency law, that there is to be a single date for the ascertainment of liabilities". The 1986 Insolvency Act states that debts should be "identified" as of the date of death of an individual who dies insolvent, but does not cover the "quantification" of those debts.

The Lockston Group, one of Berezovsky's creditors, had challenged administrators Grant Thornton on this point, arguing that converting the debts as of the date that an insolvency administration order (IAO) was granted over Berezovsky's estate would have been consistent with the bankruptcy of living individuals or corporate administrations. Lockston's claim against the estate would have increased by almost £5 million in value if the judge had accepted its case, due to the devaluation of the ruble against sterling between the date of Berezovsky's death and the date that the IAO was granted.

Mr Justice Richards said that it was "well established" law that debts should be valued at the same time as they were identified.

"If exceptionally in the case of IAOs it was intended to have separate dates for the identification and quantification of liabilities, express provision in clear terms would be made," he said. "Not only is there no such express provision, but the applicable provisions of [the Insolvency Act], and of the Insolvency Rules applied 'accordingly', are consistent with the usual approach."

"As regards the conversion of foreign currency debts into sterling for the purposes of proof, it follows from the analysis in the authorities ... that the conversion should also be as at the same date," he said.

If an individual dies insolvent, the way in which his estate is administered depends on whether a bankruptcy order has been made or a creditor's bankruptcy petition presented before the date of death. If so, the proceedings generally continue as if the debtor was still alive unless the court orders otherwise. If not, the estate may still be administered in bankruptcy if an IAO is granted by the court. If this happens, a number of the bankruptcy provisions in the Insolvency Act will still apply, albeit with some modifications governed by the 1986 Administration of Insolvent Estates of Deceased Persons Order.

The Order states that the same provisions "as may be in force for the time being under the law of bankruptcy" should apply to the respective rights of secured and unsecured creditors, and to the identification, valuation and prioritisation of debts and other payments. Other provisions of the Act "shall apply accordingly" bearing in mind "the modifications specified in [the Order] and any further such modifications as may be necessary to render them applicable to the estate of a deceased person".

The court heard that Berezovsky was a wealthy oligarch in post-Soviet Russia who died insolvent at his home in Berkshire on 23 March 2013. Nicholas Wood and Kevin Hellard of Grant Thornton were appointed as receivers of the estate the following month, and made general administrators of the estate in April 2014. By October 2014, when the IAO was granted, Berezovsky's estate was an estimated £40m in debt.

Lockston and another creditor, the Baltic International Bank (BIB), had challenged the appointment of the Grant Thornton administrators due to a disagreement over the point at which foreign currency debts should be converted into sterling and interest claims should run. These creditors' claims would have increased from £28.78m and £66.58m respectively to £33.18m and £121.88m if they were entitled to claim interest from the date of death to the date of the IAO. By contrast the claims of two other creditors, Aeroflot Russian Airlines and the government of Samara, would have decreased from £17m and £20.5m respectively to £9.37m and £11m if they were converted using the interest rate at the date of the IAO rather than the interest rate on the date Berezovsky died.

Mr Justice Richards said that the "coherent and consistent structure" for the payment of bankruptcy debts in England and Wales depended on "a common date and a common currency for the ascertainment and quantification of debts". In ordinary bankruptcy cases, this "common date" was the commencement of the bankruptcy, while in corporate insolvencies it was the date of liquidation or administration.

However, the judge said that the IAO procedure could not be compared to the commencement of an ordinary bankruptcy or corporate insolvency procedure, as argued by Lockston. This was because the Order made specific reference to the date of death of the deceased debtor in place of the commencement of the bankruptcy, he said.

"It follows both as a matter of basic principles of insolvency law and as a matter of the construction and application of [the Order] that the quantification of debts and liabilities is to be carried out as at the date of death," he said.

On the interest point, the "basic position" in ordinary insolvency cases was that interest was provable as a debt "only up to the date of commencement of the insolvency, being the date as at which all provable debts are identified and quantified", he said. The Order again fixed this date as the date of death of the debtor in cases such as the one in dispute, he said.