A creditor can present a bankruptcy petition on an unrecognised and unregistrable foreign judgment in England without prior recognition.
Summary
The Supreme Court held that once a foreign court makes a final judgment ordering someone to pay money, that judgment creates a debt. That debt can be used as the basis for a bankruptcy petition, irrespective of whether an English court has recognised it, or whether the judgment is covered by a statutory registration scheme.
Background
Mr Drelle was Director General of Servis-Terminal, a Russian company. In December 2011, Servis-Terminal lent two billion Russian rubles (£18,017,738) to another company, which failed to repay it when it collapsed.
Servis-Terminal entered bankruptcy in Russia in 2017. The trustee in bankruptcy brought proceedings against Mr Drelle claiming that he had acted unreasonably and in bad faith, and had caused loss to Servis-Terminal. In May 2019 a Russian court ordered Mr Drelle to pay RUB 2 billion. Three Russian courts dismissed his appeals.
By late 2020, Mr Drelle had moved to London. In October 2020, Servis-Terminal served a statutory demand on Mr Drelle and presented a bankruptcy petition against him, based on the Russian judgment debt. Servis-Terminal had not brought a fresh claim against Mr Drelle in the English courts and so the Russian judgment had not yet been recognised in England.
The court's decision
The Supreme Court held that a foreign judgment which has been neither registered nor recognised in England is still a 'debt' for the purposes of section 267 of the Insolvency Act 1986.
The court held that, under common law, a final foreign money judgment, made by a court with competent jurisdiction, creates a legal obligation to pay from the moment judgment is entered. It does not matter that the judgment has not been formally recognised.
The court held that this legal obligation to pay meets the definition of ‘debt’ within Section 267 of the Insolvency Act 1986, which states that ‘a creditor's petition must be in respect of one or more debts owed by the debtor’.
The Supreme Court confirmed that where a judgment is registrable under the Foreign Judgments (Reciprocal Enforcement) Act 1933, the creditor must register it before petitioning. However, that rule has no bearing on judgments that are not registrable.
Comments
Clients can no longer argue that a statutory demand based on an unregistrable foreign judgment should be set aside because no English court has recognised it. Creditors no longer need to obtain recognition of a foreign judgment before commencing bankruptcy proceedings on the basis of that judgment.
The Supreme Court did not decide whether Mr Drelle's debt is genuinely disputed. The Court of Appeal will now decide that.