In Kireeva v Bedzhamov, the Supreme Court considered whether the court has the power to recognise a foreign bankruptcy at common law. The judgment looks at the effect of what is known as the "immovables rule" and whether the rule prevented a foreign trustee in bankruptcy from making claims to immovable property situated in England.
In a follow up to her article on the Court of Appeal judgment in the same case, Hannah Hooper provides an essential guide to the Supreme Court's decision and the implications for foreign insolvency procedures.
What are the key concepts considered in the judgment?
The "immovables rule"
This is a principle of private international law which provides, in this context, that immovable property which is situated in England is solely governed by English law.
The Supreme Court noted that it is the "special nature of land that has given rise to the immovables rule". While movable property is deemed to "go with the person" (and is therefore to be dealt with in accordance with the person's domicile), what is important in relation to immovable property is where the land is situated. This is a matter of public policy which prevents a foreign court from adjudicating on the title of property in England, or indeed the right to possession of it. Ultimately it is a principle which reflects public policy and promotes territorial sovereignty.
Modified universalism
Modified universalism is a common law principle which empowers the courts to assist in foreign insolvency proceedings. Lord Hoffmann famously described the principle as the "golden thread running through English cross-border insolvency law since the 18th century"[1]. It allows the English courts to recognise foreign insolvency proceedings, and to assist and cooperate with the foreign office holder, pursuant to a single distribution of assets to creditors.
Taken together the principles arguably represent a balance between a universalist approach, which promotes the harmonisations of cross-border insolvency proceedings, and the retention of territorial sovereignty and the ability of the English courts to control what happens to land in England.
What did the Supreme Court decide?
The judgment in Kireeva v Bedzhamov reinforces the importance and perhaps pre-eminence of the immovables rule. While the English court might assist in foreign insolvency proceedings, it may not take steps which are contrary to the immovables rule.
In this jurisdiction, when an individual is ordered bankrupt, all of their property (with limited exceptions) automatically vests in their trustee, who "steps into the shoes" of the bankrupt. Section 436 of the Insolvency Act 1986 defines "property" as including "land and every description of property wherever situated".
The position is similar under Russian insolvency law. As the trustee in bankruptcy, Ms Kireeva argued that, while there was no automatic vesting (in her) of the bankrupt's property in England, her rights and interests in the property warranted protection and assistance.
However, the Supreme Court said that the English common law did not recognise the English property as forming part of the bankruptcy in Russia. Crucially, it is not therefore for an English court "to take steps to deprive the Respondent of his interests in the Property in favour of the Appellant as trustee in the Russian bankruptcy."
The court emphasised that while modified universalism is an important element of the common law, it is subject to both local law and local public policy. The immovables rule is "a long-established rule of substantive law", and the court's common law powers of assistance "do not permit it to provide assistance which is inconsistent with rules of substantive law".
What are the key implications of the judgment?
The limits to modified universalism
In light of the judgment, trustees are likely to be reluctant to seek assistance from the English courts on the basis of modified universalism.
The court referred to previous judicial comment on the point, including Lord Sumption in Singularis who said that "the principle of modified universalism is part of the common law, but it is necessary to bear in mind, first, that it is subject to local law and local public policy and, secondly, that the court can only ever act within the limits of its own statutory and common law powers"[2]. The Supreme Court agreed, noting the "inevitable qualification" that common law powers are subject to local law and local public policy.
Further, the Supreme Court rejected the submission that the immovables rule is concerned only with legal title to immovable property, and that it does not have the effect of preventing the court from recognising and taking steps to give effect to a trustee's powers and duties under Russian law, in respect of immovable property situated in England. The court was clear that the powers and duties of the Russian trustee are not recognised in England.
Re Kooperman
Interestingly, the court took the view that the decision in Re Kooperman[3], relied on by Ms Kireeva, was wrong. In that case, Astbury J appointed the trustee in a Belgian bankruptcy as the receiver of leasehold interests in land in England. The Supreme Court noted that the application was unopposed and that no reasoned judgment was given, and even though the decision has "for many years been cited without criticism", it was not an authority on which weight could be placed.
Why is the judgment significant for foreign insolvency procedures?
The decision makes clear that where there is an inconsistency between modified universalism and the immovables rule, the latter will prevail.
It is significant that the court discussed, at some length, the two statutory exceptions to the immovables rule, even though they were of no application in the present case. A possible implication is that if one or other of the statutory exceptions had applied, the matter may have been decided differently.
Section 426 of the Insolvency Act 1986
Section 426 of the Insolvency Act 1986 includes provision for the UK courts to assist in relation to insolvency proceedings, in certain countries. Specifically, a court in the Channel Islands, the Isle of Man, or any country or territory designated by the Secretary of State - mostly Commonwealth countries - may request the UK court's assistance in insolvency proceedings. The UK court's assistance under this section can include a declaration recognising the rights of a foreign insolvency representative. In cooperating with such foreign courts, the UK court has a wide discretion.
The Cross Border Insolvency Regulations 2006
Under the CBIR, a foreign representative administering foreign insolvency proceedings can apply to the English courts for recognition of those proceedings. Foreign proceedings will be recognised if they take place in the state where the debtor has their "centre of its main interests" (COMI) (foreign main proceedings) or where the debtor has "an establishment" (foreign non-main proceedings). On recognition of foreign proceedings, and where it is necessary to protect the assets of debtors or interests of creditors, the court may grant appropriate relief.
Importantly, both statutory exceptions are subject to the court's discretion. Enforcement against immovable property is not therefore automatic, but an exercise of discretion.
In the present case, the bankrupt, Mr Bedzhamov had left Russia in 2015. He had not therefore had his COMI or an establishment in Russia at any material time, so it was not open to Ms Kireeva to seek assistance under the CBIR. As such, we don’t know whether the court would have exercised its discretion under CBIR, to assist the Russian trustee.
[1] Re HIH Casualty and General Insurance Ltd [2008] UKHL 21 (paragraph 30)
[2] Lord Sumption in Singularis Holdings Ltd v PricewaterhouseCoopers [2014] UKPC 36 (paragraph 19)
[3] (1928) 13 B&CR 49
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