Judgment Proof: The English Supreme Court Pushes Back On U.S. Bankruptcy Court Jurisdiction

In a case with truly global implications, the Supreme Court of England and Wales held earlier today (24th October 2012) that judgments of U.S. Bankruptcy Courts against foreign defendants who had not submitted to the Bankruptcy Court's jurisdiction were not enforceable in England and Wales in the case of Rubin v. Eurofinance SA.

Factual Background

The Consumer Trust (the "Debtor") was a trust created by Eurofinance S.A. ("Eurofinance") to hold money for beneficiaries of a sales promotion scheme in which merchants issued cashable vouchers to customers who purchased certain products. Although Eurofinance was a British Virgin Islands entity initially controlled by Adrian Roman, a British citizen, all of the merchants and consumers involved in the scheme were located in the U.S. and Canada.

The Debtor proved to be a financially profitable enterprise for Eurofinance (and, in turn, Mr. Roman) but was forced to file for chapter 11 bankruptcy protection after it reached a settlement in excess of $1.6 million with the Missouri Attorney General's Office for violation of consumer protection laws. Fearing that other states would soon follow Missouri's lead, Eurofinance applied to the English High Court of Justice to appoint certain representatives of the Debtor as receivers (the "Receivers") to file a chapter 11 case on behalf of the Debtor in the U.S. Bankruptcy Court Southern District of New York (the "Bankruptcy Court"). Following approval of the appointment by the High Court, the chapter 11 bankruptcy petition was filed on behalf of the Debtor in the Bankruptcy Court on December 5, 2005 (the "Bankruptcy Case").

Nearly two years after the Bankruptcy Case was filed, the Bankruptcy Court approved the Debtor's Plan of Reorganization which provided that, among other things, the Receivers and the Unsecured Creditor's Committee could pursue broadly defined "Causes of Action" against a number of potential defendants, including Mr. Roman. The same day it approved the Plan, the Bankruptcy Court also appointed the Receivers as foreign representatives on behalf of the Debtor to seek recognition of the case in Great Britain as a foreign main proceeding under the Cross-Border Insolvency Regulations 2006 (the "Regulations"), which gave effect to the UNCITRAL Model Law relating to cross-border insolvency, and which would, presumably, result in the enforcement of the Bankruptcy Court's judgments in England.

On December 3, 2007 the Receivers filed adversary...