Supreme Court allows bankruptcy petition to be founded on unrecognised and unregistrable foreign judgment

In a judgment handed down earlier this week, the Supreme Court has held that an unrecognised and unregistrable foreign judgment may form the basis of a bankruptcy petition under s.267 of the Insolvency Act 1986: Valeriy Ernestovich Drelle v Servis-Terminal LLC (In Liquidation in the Russian Federation) [2026] UKSC 29. The decision overturns the Court of Appeal's January 2025 ruling, which had reached the opposite conclusion. 

The decision means that foreign judgment creditors holding judgments from jurisdictions outside the UK's statutory enforcement regimes (such as Russia, the United States and China) are no longer required first to bring a common law action on the judgment in England before issuing a statutory demand and presenting a bankruptcy petition. The Supreme Court confirmed that a foreign judgment gives rise, at common law, to an obligation to pay the sum awarded. That obligation arises when the final and conclusive judgment is given — it does not depend on recognition.

Several practical consequences follow from the judgment.  First, while a foreign judgment cannot be enforced in England and Wales using the same tools as for an English judgment, such as a charging order or a third party debt order, at least one mechanism of enforcement is available: the creditor may issue a statutory demand and petition for bankruptcy. This provides a powerful tool for creditors to secure payment of foreign judgment debts, particularly as there is authority that bankruptcy proceedings on a foreign judgment do not engage the Limitation Act 1980 as they are not “an action on a judgment” (Re A Company [2024] EWHC 1070 (Ch)).

Second, judgments from jurisdictions capable of enforcement via registration under the Foreign Judgments (Reciprocal Enforcement) Act 1933 remain governed by existing case law by which such judgments must first be registered (within 6 years of hand down) before bankruptcy proceedings can be initiated.  This means that creditors holding unregistrable judgments arguably enjoy more favourable treatment in an insolvency context than those holding judgments that fall within the 1933 Act regime. 

Third, the Supreme Court’s decision removes the anomaly that a creditor could petition for bankruptcy on the basis of a foreign, undisputed debt for a liquidated sum without a judgment, but could not commence a bankruptcy petition on the basis of a foreign judgment until the judgment had been recognised at common law. 

The decision does not specifically address whether a winding up petition against a company, as opposed to a bankruptcy petition against an individual, can be presented on the basis of an unrecognised and unregistered foreign judgment. However, it seems likely that the same reasoning would apply to the extent necessary in the corporate context.

The respondent invited the Supreme Court to uphold the Court of Appeal's decision on the ground that that the bankruptcy order ought not to have been made because the Russian judgment debt was disputed on bona fide and substantial grounds. The Court of Appeal gave permission to appeal on this point but did not address it. The Supreme Court remitted the issue to that court for determination.

Background

As explained in our post on the Court of Appeal decision here, the appellant, Servis-Terminal LLC ("ST"), is a Russian company in bankruptcy acting by its trustee-in-bankruptcy, Mr Sergey Lisin. The respondent, Mr Valeriy Drelle, was ST's former Director General and a shareholder.

In 2018, ST issued proceedings against Mr Drelle in the Arbitrazh Court of Yaroslavl Region, claiming he had acted unreasonably and in bad faith by causing ST to advance a loan of RUB 2 billion to a third party that was never repaid. The court found in ST's favour and ordered Mr Drelle to pay RUB 2 billion. His subsequent appeals through the Russian court system were all unsuccessful.

In October 2020, ST served a statutory demand on Mr Drelle, who had settled in London, and shortly thereafter presented a bankruptcy petition. Mr Drelle applied to set aside the statutory demand, contending that the Russian judgment debt was disputed on bona fide and substantial grounds by reason of alleged bias, breach of natural justice and fraud. 

ICC Judge Burton found that the judgment debt was not disputed on such grounds and made a bankruptcy order in March 2023. Richards J dismissed Mr Drelle's appeal, rejecting the argument (raised for the first time on appeal) that the Russian judgment could not found a petition because it had not been recognised in England. The Court of Appeal allowed Mr Drelle's further appeal solely on that recognition ground, without addressing the remaining grounds. ST appealed to the Supreme Court.

Decision

The judgment was given by Lord Briggs and Lord Hamblen, with whom Lord Sales, Lord Stephens and Lord Doherty agreed.

Issue 1: The legal effect of an unrecognised foreign judgment at common law

At the heart of the Supreme Court’s decision was its affirmation of what it calls the "obligation principle" as the juridical basis for an action on a foreign judgment for a debt or definite sum of money: that such a judgment gives rise, at common law, to an obligation to pay the sum awarded at the moment that judgment becomes final and conclusive — without the need for any further step by the creditor, and without depending on recognition of that judgment by the English court.

The court traced the development of the principle through authorities dating back to the 1840s, noting it was most clearly stated in Williams v Jones (1845): "Where a court of competent jurisdiction has adjudicated a certain sum to be due from one person to another, a legal obligation arises to pay that sum." Blackburn J affirmed the principle in Godard v Gray (1870) and Schibsby v Westenholz (1870), confirming that "the true principle on which the judgments of foreign tribunals are enforced in England is … that the judgment of a court of competent jurisdiction over the defendant imposes a duty or obligation on the defendant to pay the sum for which judgment is given." The principle was reaffirmed in modern times by the House of Lords in Owens Bank v Bracco [1992] 2 AC 443, and cited with approval by the Supreme Court in Rubin v Eurofinance SA [2012] UKSC 46. The court in the present case regarded the principle as well established. The Court of Appeal had failed to address the principle and its judgment had been contrary to it.

The Court of Appeal had placed significant reliance on the statement in Rule 45 of leading textbook Dicey, Morris & Collins on the Conflict of Laws that a foreign judgment has "no direct operation" in England. The Supreme Court held that this simply means the foreign judgment has no status as a judgment in England, such that the processes of execution available in respect of an English judgment, including for example a third party debt order, a charging order or the appointment of a receiver under CPR 70, are not available. As Dicey's own commentary explains: a foreign judgment "cannot be immediately enforced by execution." Having no "direct operation" means nothing more than that.

The Supreme Court did, however, find that a foreign judgment may have indirect operation. Suing on a foreign judgment involves indirect reliance on it. What is sued upon is the common law obligation to pay the judgment sum. If that action succeeds, an English judgment is obtained against which processes of execution are then available. The Court of Appeal's approach, treating absence of direct operation as equivalent to an absence of any legal effect whatsoever, was a significant overreach of what Dicey actually says.

Issue 2: Construction of s.267

The Supreme Court held that the obligation arising from an unrecognised foreign judgment is a "debt" within s.267 and could therefore form the basis of a bankruptcy petition. It noted that under ss 267(2)(c) and 268 of the 1986 Act, the only requirement is that the relevant debt is one which the debtor appears unable to pay or has no reasonable prospect of paying. Inability to pay may be established by the debtor's failure to respond to a statutory demand, or execution of a judgment debt being returned unsatisfied. The latter can only refer to an English judgment (or registered foreign judgment) but there is no requirement that the statutory demand be based on a judgment debt. 

Reading across from the common law position at the time that the 1986 Act was enacted, the Supreme Court noted that a debt is a legal obligation to pay a sum of money to another person. It may arise under a contract, statute, judgment or otherwise, and plainly may arise under a judgment or other court order. It was a fair assumption that, in s.267, “debt” was being used in this wide general sense. The court could not envisage any reason why s.267 should have used "debt" in any narrower sense or why its purpose should not have extended to a legal obligation to pay a sum under an unrecognised foreign judgment. 

The Supreme Court also briefly addressed the submission (noted above) as to why the holder of an unregistrable and unrecognised judgment should be put at an advantage (so far as a bankruptcy petition is concerned) as compared to the holder of a foreign judgment that is registrable under the 1933 Act, since the latter could only commence bankruptcy proceedings once the judgment had been registered. The court concluded that, whatever changes the 1933 Act may have made to the enforceability of registrable but unregistered foreign judgments, it made no difference to how unregistrable and unrecognised foreign judgments were to be treated at common law. Additionally, the court noted that, under the scheme of bankruptcy legislation in force in 1933, an unrecognised foreign judgment could not be used as the basis of an alleged "act of bankruptcy". It was the 1986 Act which for the first time enabled reliance on the debt created by an unrecognised (but unregistrable) foreign judgment. The court also commented that a creditor with a registrable judgment is not worse off, in the aggregate, than one with an unregistrable judgment, since the registration process carries with it substantial procedural advantages over recognition proceedings.