English court allows bankruptcy petition to proceed based on unrecognised foreign judgment

Quick read

The English High Court has considered, on appeal, whether a foreign judgment constitutes a "debt" for the purposes of a bankruptcy petition.

Background

A bankruptcy petition served by Servis-Terminal LLC (ST) was based on a Russian court judgment obtained against Drelle, a former director of ST. The judgment had been upheld following appeals to superior courts in Russia.

There was no evidence that Drelle would be able to pay the judgment debt which was considerably more than the bankruptcy threshold.

Appeal

Drelle argued that an unrecognised foreign judgment could not constitute a "debt" and ST’s failure to take recognition proceedings meant that it was precluded from using the judgment “as a sword” in the English courts.

The judge disagreed and held that an inability to enforce a claim doesn’t prevent it from constituting a "debt".

Referring to Bishopsgate Investment Management Limited v Maxwell, the Court noted that a debt did not need to result from a final order or judgment of an English court “[A] trade debt is in principle capable of founding a bankruptcy petition even though, until judgment is obtained on that debt, it will not be possible to ‘enforce’ it".

Key takeaway

This decision confirms that a foreign judgment debt may constitute a "debt" for the purposes of a bankruptcy petition and although not covered in the judgment, it would appear likely that the same would apply to winding up petitions.