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Wriggle Room? What amounts to the “ordinary and proper course of business” exception in freezing orders

In the recent judgment in PJSC Commercial Bank PrivatBank v Kolomoisky, Justice Fancourt considered whether certain transactions were within the “ordinary and proper course of business” exception in a world-wide freezing order.

The claimant bank (PrivatBank) brought proceedings against several defendants including the First Defendant (Kolomoisky) who owned and controlled a large network of companies. PrivatBank claimed that in breach of Ukrainian law the defendants had misapplied the bank’s assets for their own benefit. A world-wide freezing order was made which contained exceptions and made specific provision for the trading and non-trading companies controlled by Kolomoisky.

The order provided that as far as non-trading companies were concerned, Kolomoisky was prohibited from procuring or disposing of assets up to the specified maximum sum but assets could be disposed of in the ordinary and proper course of business subject to prior notification.

PrivatBank challenged certain transactions involving non-trading companies (including companies registered in the BVI) and questioned whether they fell under the exception. The first concerned a loan and associated transactions that had been made by a company not controlled by Kolomoisky to A Co in order to acquire shares in another company. It was held that that at the time of the Order there was an established course of business activity which enabled A Co to discharge its obligations to the lender.

Although A Co was not a trading company, the Court held that “business” within the context of the Order was not to be equated solely with a trade or commercial undertaking. While business must have an ordinary course to fall within the exception, a non-trading company can (and in this case did) have a business. The business must have some commercial activity over and above merely corporate and regulatory arrangements and there must be some course of commercial activity. Though A Co had only a very limited corporate purpose it had entered into a series of bona fide and financially significant transactions over a period of time in advance of the Order.

Conversely, the Court held that legal fees paid for the benefit of B Co (a non-trading company which was, jointly with the Kolomoisky, pursuing an arbitration claim) by Kolomoisky did not fall within the exception as Kolomoisky was unable to establish that he had a business within the meaning of the Order. He had claimed that the business in question arose from his managing investments and assets through the network of companies. The Court held that the activities carried on by Kolomoisky did not amount to the kind of activity to which the exception is intended to apply.

 

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