Is a Foreign Judgment Debt Sufficient Grounds for Bringing a Bankruptcy Petition within England and Wales?

The case is of potential importance to UK businesses that conduct business outside of the UK.  

Background 

Servis-Terminal served a statutory demand and subsequently presented a Bankruptcy petition against Drelle in the jurisdiction of England and Wales in 2020. The debt arose as a result of a judgment obtained against Drelle in a Russian Court in 2019. (“The Russian Judgment”). The debt was for RUB 2 billion, which in sterling, amounted to around £22 million. Drelle had sought to appeal the judgment debt to superior courts in Russia but to no avail, and his application for permission to appeal to the Russian Court was refused. He had therefore exhausted any possible avenues to dispute the debt as owing.  

The Russian Judgment 

The Russian judgment was not registerable under the Foreign Judgments (Reciprocal Enforcement) Act, nor did the petitioner take proceedings in the English courts under Part 7 of the CPR to specify the Russian judgment as a cause of action and seek an English judgment.  

Instead, Servis Terminal proceeded directly to petition for bankruptcy on the basis that the Russian judgment resulted in a debt within section 267 of the Insolvency Act 1986 (see below). 

The judge at first instance adjudged Drelle as bankrupt following the presentation of the petition. Drelle then appealed to the High Court. The issues before the appeal Court were: 

1. Had the judge at first instance been correct to conclude that the bankruptcy petition was validly presented under s267 where the debt had not been registered nor recognised by an English Court; and  
2. Had the judge at first instance erred in not concluding that the judgment debt was disputed on any genuine and substantial grounds.  

The Courts decision 

To consider the appeal, the Court was required to analyse Section 267 of the Insolvency Act 1986 which sets out the following criteria that the creditor must establish:  

267 Grounds of creditor’s petition. 

(1) A creditor’s petition must be in respect of one or more debts owed by the debtor, and the petitioning creditor or each of the petitioning creditors must be a person to whom the debt or (as the case may be) at least one of the debts is owed. 

(2) a creditor’s petition may be presented to the court in respect of a debt or debts only if, at the time the petition is presented — 

1. the amount of the debt, or the aggregate amount of the debts, is equal to or exceeds the bankruptcy level, 
2. the debt, or each of the debts, is for a liquidated sum payable to the petitioning creditor, or one or more of the petitioning creditors, either immediately or at some certain, future time, and is unsecured, 
3. the debt, or each of the debts, is a debt which the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay, and 
4. there is no outstanding application to set aside a statutory demand served (under section 268 below) in respect of the debt or any of the debts.

The court found that the Judgment was unsecured and was for a liquidated sum in excess of the bankruptcy level of £5,000. There was no suggestion before the Court that Drelle could discharge the debt. Drelle’s appeal was dismissed, and it was concluded that Servis Terminal could bring a bankruptcy petition by reference to the Russian Judgment. Part of the Court’s reasoning was a reliance on the principle that a foreign judgment which is final and conclusive on the merits and not impeachable under other specific principles (for example, fraud or being contrary to public policy) is conclusive as to its subject matter. 

Thoughts 

The Court’s determination provides important clarification that a foreign judgment might be capable of giving rise to a debt which can form the basis of a bankruptcy petition (even if not registered or recognised by the English and Welsh Courts). The same principle would likely apply to winding up petitions. As such, any business that finds itself on the receiving end of such a judgment should seek advice promptly and should not assume that it is safe from a winding up petition.  

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