The U.K. Supreme Court issued a potentially game-changing ruling last fall that may reverse
the trend toward universal acceptance
of insolvency proceedings.
On October 24, 2012, the U.K. Supreme
Court ruled on two foreign insolvency
proceedings and their enforceability
in the United Kingdom. In summary,
the court ruled that foreign insolvency
judgments could not be enforced in
the United Kingdom under common
law, primarily, if an English defendant
had not participated in a U.S. Chapter
11 or similar insolvency process, or
submitted to jurisdiction under the
Cross-Border Insolvency Regulations.
The effect of these rulings is a departure
from the recent trend toward cross-border insolvency cooperation.
The second case involved New Cap
Reinsurance Corporation, an Australian
firm that provided reinsurance to a
Lloyd’s syndicate. When New Cap
went into insolvency in Australia, the
liquidator obtained a judgment in
that country to recover preferential
payments made to the syndicate.
The syndicate did not appear in the
Australian proceedings, and a default
judgment was entered against it.
of Appeal’s decisions in Rubin and
New Cap. The court felt that there were
two main issues to be addressed:
( 1) Recognition and enforcement
of foreign judgments in
( 2) Whether enforcement can be
assisted by the provisions of the
Cross-Border Insolvency Regulations
The U.K.’s Court of Appeal agreed with
the Cambridge Gas decision, ruling
in the Rubin case that insolvency
proceedings were a special category.
The Supreme Court rejected the
Cambridge Gas ruling, stating that the
decision had been wrongly decided.
The court said the case should not
have been subject to the jurisdiction
of the U.S. Bankruptcy Court and that
this type of a decision was a reform
to the law that should be made by the
legislature rather than by the courts.
In 2006, the Privy Council in the United
Kingdom had ruled in Cambridge
Gas Transportation Corp. v. Official
Committee of Unsecured Creditors
of Navigator Holdings plc that a U.S.
Chapter 11 plan could be enforced in the
Isle of Man without any local ruling in
the United Kingdom. The defendant in
the case, a Cayman company, had not
participated in the Chapter 11 process.
The U.K. Court of Appeal held that
bankruptcy judgments were different
from judgments enforced against a
particular person, because bankruptcy
judgments provided mechanisms to
collect/enforce against property of
debtors for the benefit of creditors.
The court said that the Model Law on
Cross Border Insolvency, which was
adopted by United Nations Commission
on International Trade Law (UNCITRAL)
in 1997 and incorporated into English
law in the Cross-Border Insolvency
Regulations 2006, did not address the
enforcement of foreign judgments
against third parties. The Model Law
was developed to promote cooperation
between courts in connection with
insolvency proceedings pending
in various foreign jurisdictions.
stated that there
was no reason
to treat default
than any other
type of judgment.
The U.K. Supreme Court stated that there
was no reason to treat default judgments
pursuant to insolvency proceedings
any differently than any other type of
judgment. Therefore, the Supreme Court
disagreed with the Court of Appeal
and ruled that insolvency judgments
were not in a special category.
The two cases that were the subjects
of last fall’s U.K. Supreme Court
ruling were Rubin v. Eurofinance, a
U.S. Chapter 11 case, and New Cap
Reinsurance Corporation v. Grant,
an Australian insolvency case.
The Court of Appeal held that insolvency
judgments by foreign jurisdictions may
still be enforced in avoidance-type
litigation, whether or not the defendant
had been present at the proceedings
or had submitted to the jurisdiction.
Eurofinance S.A. created The Consumers
Trust, which sought protection in U.S.
Bankruptcy Court for the Southern
District of New York. Appointed by
the bankruptcy court to serve as the
representative to pursue recoveries in
the case, Rubin commenced adversary
proceedings in New York seeking to
recover fraudulent conveyances. The
defendants in this action were English
and were not New York residents. They
did not submit to the U.S. jurisdiction
and did not defend themselves in the
case. A default judgment was entered
against them by the Bankruptcy Court.
The Court of Appeal’s rationale was
to further the trend for the universal
application of insolvency decisions.
In its ruling in the New Cap case, the
Court of Appeal stood by the Rubin
decision, although it further ruled
that the syndicate had submitted to
jurisdiction by corresponding with the
liquidator’s attorneys and commenting
on the independent expert report.
Not only did the Supreme Court rule that
certain insolvency judgments would
not be treated differently, but it also
reaffirmed that insolvency proceedings
must meet the test pursuant to the
common law Rule 36 of Dicey, Morris &
Collins, Conflicts of Law (1896); that is,
the foreign plaintiff, having received a
judgment, must show that at least one
of the following applied to the debtor:
1 Was present in the foreign jurisdiction at the time proceedings
were commenced. The common law
U.K. Supreme Court
In October, the Supreme Court ruled
on both cases, overturning the Court