The monthly round up from Ashfords LLP Insolvency Team is a great summary of recent international restructuring and insolvency law changes and updates. For more information, please contact Alan Bennett, Partner at Ashfords and Deputy Co-ordinator of the ADVOC Insolvency Practice Group -

Rubin v Eurofinance SA; New Cap Reinsurance Corp v Grant [2012] UKSC  46 

Supreme Court overturns Court of Appeal ruling on the enforceability of foreign courts' judgments in avoidance proceedings.

The Supreme Court has handed down its long-awaited judgment on Rubin v Eurofinance, overturning (by a majority of 4 to 1) an earlier Court of Appeal decision that had extended the application of the principle of universality of insolvency proceedings.

The core issue in the appeal was whether the English Court would make an exception to established principles of English law. Would the English Court recognise and enforce a judgment of a foreign court which set aside prior transactions when a debtor had not submitted to the jurisdiction of the foreign court? The question of enforcement through the UNCITRAL Model Law was also raised.

The facts of Rubin involve a sales promotion scheme operating in the US and Canada. The scheme was operated by The Consumers Trust ("TCT"), an English law trust settled by the defendant, Eurofinance.

The sales promotion was known as the Cashable Voucher Programme. Through it, purchasers of products or services could later reclaim up to 100% of the price of the voucher. The conditions for reclaiming the purchase price were, however, so onerous and difficult that very few purchasers were able to redeem their vouchers.
TCT's business ceased in 2005 when the Attorney General of Missouri brought proceedings under state consumer protection legislation. At this point TCT's trustees had approximately $10 million in the trust's bank accounts.

In the face of further proceedings being brought by other US States, E applied to the English High Court to have receivers appointed to TCT.

The receivers and trustees of TCT placed a voluntary petition for bankruptcy with the US Bankruptcy Court and a liquidation plan was approved. Adversary proceedings were commenced against Eurofinance and its founders The defendants did not defend or participate in these proceedings and judgment was given by the US Bankruptcy Court in default of appearance.

The Supreme Court held that the US judgment made against the defendants in respect of fraudulent conveyances and transfers could not be enforced by the English Court. The defendant had not submitted to the jurisdiction of the US Bankruptcy Court. It is a long established principle of English common law that the English Court will not enforce the foreign court's judgment.

The Court of Appeal had held, in its earlier ruling on the case, that when a judgment by a Court in another jurisdiction concerned the setting aside of prior transactions (e.g. preferences or transactions at undervalue), such a judgment could be enforced by the English Court even if the judgment debtor had not submitted to the jurisdiction of that Court. In doing so the Court of Appeal made a controversial exception to English common law rules.

Under the existing principles  of common law and the Foreign Judgments (Reciprocal Enforcement) Act 1933, the English Courts only recognise foreign courts' jurisdiction to give a judgment against a person if that person:

1.Was present in the foreign country at the time of proceedings;

2. Was a claimant, or counter claimed, in  the foreign proceedings;

3.Submitted to the jurisdiction of the foreign court by voluntarily appearing in the proceedings; or

4.Agreed to submit to the foreign court's jurisdiction before commencement of proceedings.

Only if one or more of those conditions are met is a judgment capable of recognition and enforcement by the English Court.

The Court of Appeal had held that the English Court should adopt separate rules in the case of avoidance proceedings, where the judgments were central to the purposes of the insolvency proceedings or part of the mechanism of collective execution. Its reasoning was, amongst other things, that this development in English law was desirable because of the benefits of a universal approach to insolvency proceedings in which a single set of proceedings received worldwide recognition.

It had been anticipated that, had the Court of Appeal's decision had been confirmed by the Supreme Court, there would have been a substantial increase in the number of cross-border insolvency proceedings brought in the English Courts.

Instead, the Supreme Court "did not agree that, in the interests of the universality of bankruptcy and similar procedures, there should be a more liberal rule for judgments given in foreign insolvency proceedings for the avoidance of transactions."

The Court held that:

  • The Court of Appeal's decision in Rubin would effect not an incremental development of existing principles but a radical departure from substantially settled law;
  • The existing rules are limited in scope for the reason that there is no expectation of reciprocity on the part of foreign countries;
  • Expanding the principle would be detrimental to UK businesses without any corresponding benefit;
  • Adhering to the traditional rule is not likely to result in any serious injustice. Officeholders have several other avenues open to them;
  • An earlier authority followed by the Court of Appeal in reaching its decision, Cambridge Gas, had been wrongly decided by the Privy Council; and
  • The UNCITRAL Model Law is not designed for the reciprocal enforcement of judgments.

The decision makes it clear that there should not be a universalist approach to cross-border insolvency proceedings. The decision leaves officeholders having to bring multiple proceedings in different jurisdictions. Officeholders will now rely heavily on increased international cooperation in cross-border insolvencies.

Updates from around the World

England / Italy

Directories publisher Seat Pagine Gialle SpA has become the first Italian company to have a Scheme of Arrangement approved by the High Court of England and Wales. Although Seat’s COMI is in Italy, the Court held that it had jurisdiction to sanction the restructuring of Seat’s debt because the “sufficient connection” test had been satisfied.

Spain / France

Two of Spain's major investment firms, Alteco and MAG Import, have filed for bankruptcy, signalling the start of one of the biggest bankruptcy proceedings the country has ever seen. The bankruptcy proceedings were triggered after the firms’ creditors refused to refinance a €1.6 billion loan, leading to a default in repayments. The Alteco and MAG Import investment firms control 31% of French property company Gecina, throwing its future into doubt.