Drelle: what does the Supreme Court's recent judgment really mean for cross-border insolvency and asset recovery strategy?

The decision – a re-cap

The Supreme Court held that creditors possessing foreign judgment debts not recognised or registered in England and Wales may nevertheless rely on these to present a bankruptcy petition under s267 of the Insolvency Act 1986. This is because, at common law, such a judgment gives rise to an immediate legal obligation to pay the judgment debt, which is an obligation existing independently of any English recognition proceedings and is itself a 'debt' for the purposes presenting a bankruptcy petition. 

In overturning the Court of Appeal's decision, the Supreme Court considered that the Court of Appeal had placed too much emphasis on the notion that a foreign judgment has no 'direct operation' in England – that is it cannot be enforced by English execution processes as if it were an English judgment. Whilst that is the case, it does not mean a judgment has no legal effect.

Drelle is really a case about insolvency leverage, not foreign judgments

The Supreme Court's repeatedly distinguished between enforcing a foreign judgment, on the one hand, and relying upon a debt that arises from it, on the other. 

However, for practitioners, the significance is less doctrinal than strategic: a creditor may be able to deploy insolvency remedies sooner than previously thought. Insolvency proceedings become a first response, rather than a post-recognition follow-on. In that sense, Drelle removes what had become an important procedural buffer for debtors.

Office-holders may be the real beneficiaries

Whilst the decision is a 'creditor rights' case and is undoubtably 'pro-creditor', the originating facts tell a different story: an office-holder (a Russian trustee-in-bankruptcy of a Russian company) pursuing its director (who had left Russia and settled in London) on the basis of a substantial foreign judgment relating to a breach of director's duties / misfeasance-style claim.

Many offshore judgments arise from these and other claims, including unlawful distributions, voidable transaction and fraud claims. Drelle potentially gives foreign office-holders another route to exert pressure on directors and recipients who have moved internationally.

A shift in settlement dynamics?

Recognition proceedings often form the initial battleground in a longer running dispute. 

In potentially accelerating the point at which insolvency pressure can be applied, settlement leverage may be materially increased. Whether this translates into earlier settlements remains to be seen, but practitioners may wish to reassess when commercial negotiations are first opened and how recognition risk is factored into settlement strategy.

Funding and insurance

Recognition proceedings involve an initial costs outlay and adverse costs exposure. 

Where this first step can be removed, claim economics may improve and there may be more appetite in the funding and insurance marketplace.

What does the future hold for offshore liquidation petitions?

Whilst the Supreme Court's decision concerned bankruptcy rather than winding up, its reasoning was based on the foreign judgment establishing the existence of a 'debt' rather than any unique feature to personal insolvency. This reasoning maps naturally onto winding up petitions, which equally depend on the existence of a debt. In the case of A Company, Re [2024] EWHC 1070 (Ch), the High Court held that a final unregistered, unrecognised foreign judgment (in that case Lebanese) could form the basis of a winding up petition. The judgment cited the court of first instance's decision in Drelle and determined that the reasoning was applicable as between winding up and bankruptcy. The core proposition in Re A Company was the same as that endorsed by the Supreme Court in Drelle.

The most interesting developments may emerge not in England, where the immediate issue has largely been resolved, but in offshore jurisdictions still grappling with the interaction between insolvency and private international law.

If receptive, common law jurisdiction deploy the Supreme Court's reasoning in liquidation applications, foreign office-holders may be able to pursue significantly more direct recovery strategies in archetypal cases involving an insolvency company in one jurisdiction, judgments obtained in a second, assets located in a third, and directors or recipients resident in a fourth.

The BVI perspective and the decision in JJW Hotels & Resorts Holding Inc v Rhodes

In JWW Hotels the joint liquidators of a Guernsey company served a BVI statutory demand on a BVI company based on unpaid costs orders in Guernsey.

Heard before the Supreme Court's decision in Drelle, the BVI Commercial Court set the statutory demand aside, following the Court of Appeal's decision in Drelle. The court's reasoning included its view that a foreign judgment should not be used to bypass the separate recognition process and that insolvency proceedings should not be used as a means of circumventing the debtor's right to challenge recognition or enforcement of the foreign judgment – premises that were subsequently called into question by the Supreme Court.

Drelle therefore leaves several open questions: does JJW Hotel remain good law in the BVI? Is its reasoning diminished by its principal English authority having been overturned? Would a future BVI court now conclude that an unrecognised foreign judgment can support insolvency proceedings? If not, how can JJW Hotels and Drelle be reconciled?