English Supreme Court Refuses To Enforce U.S. Bankruptcy Avoidance Action Judgment

Summary

The recent judgment of the Supreme Court in the joined cases of Rubin and another v Eurofinance SA and others and New Cap Reinsurance Corporation (in liquidation) and another v A E Grant and others [2012] UKSC 46, issued on 24 October 2012, established that judgments avoiding pre-bankruptcy transactions ("avoidance judgments") made by non-EU foreign courts (including U.S. bankruptcy courts) have no special enforceability status in England and Wales compared to ordinary judgments.

In particular, the decision confirmed that if the U.S. Bankruptcy Court makes a default avoidance judgment against a person with no presence in the U.S. and who has not otherwise submitted to the jurisdiction of the U.S. Bankruptcy Court, that judgment would be unenforceable in England and Wales.

Rubin highlights the existence of certain jurisdictional limits in cross-border insolvency proceedings, and provides certainty to non-U.S. persons who are counterparties to a debtor in U.S. bankruptcy court proceedings.

English Legal Framework for Recognition of Foreign Insolvency Judgments

Rubin concerns the judgments made against the counterparties of a debtor who were not present in the U.S. and who had not submitted themselves to U.S. jurisdiction.

Under English common law, judgments made by a foreign court against a person would typically only be recognized if the defendant is within, or has submitted to, the jurisdiction of the foreign court. Judgments against persons with no presence in the foreign country and who have not agreed to, or participated in, the proceedings of that foreign court would therefore not be enforceable in England.

The critical issue in Rubin was whether the common law position described above should apply to avoidance judgments or if there should be additional circumstances in which the English Court could recognize these judgments, given their close connection to insolvency proceedings. In particular, the Court considered whether:

there should be a separate set of rules applicable to avoidance judgments under English common law, in accordance with the controversial decision by the English Privy Council in the Cambridge Gas/Navigator1case; and the UNCITRAL Model Law implemented by the Cross Border Insolvency Regulations 2006 (the "Model Law") enabled the English Court to recognize avoidance judgments made by a foreign court where the centre of main interests of the debtor fell within the jurisdiction of that foreign court. In the...