Landmark decision on creditors using unrecognised foreign judgments as basis of bankruptcy petitions

In Servis-Terminal LLC v Drelle [2025] EWCA Civ 62, the Court of Appeal found that an unrecognised foreign judgment cannot serve as the basis for presenting a bankruptcy petition.

The decision has important implications for creditors seeking to enforce foreign judgments against debtors in England & Wales. Foreign judgments must go through a formal process to be recognised by an English court before they can found bankruptcy petitions. Although not discussed in the Court of Appeal’s decision, the same advice will likely apply to creditors using foreign judgments as the basis for presenting a winding up petition.

Background

The case involves a bankruptcy petition against Mr Drelle that was presented by Servis-Terminal LLC (the “Company”). Mr Drelle was the subject of a statutory demand. The statutory demand in question was based on a judgment of the Russian courts which held that Mr Drelle was liable to pay RUB 2 billion in damages on the basis that Mr Drelle had not acted in good faith in his capacity as a director of the Company. Mr Drelle failed to comply with the statutory demand and the Company subsequently filed a bankruptcy petition.

A bankruptcy order was made in the first instance by ICC Judge Burton on the basis that there was no genuine and substantial dispute regarding the debt. On appeal in the English High Court, Richards J upheld ICC Judge Burton’s decision holding that the foreign judgment still constituted a “debt” under section 267 of the Insolvency Act 1986. Mr Drelle subsequently took the matter to the Court of Appeal.

Decision

In the Court of Appeal, Mr Drelle successfully argued that (i) the foreign judgment did not constitute a payable debt under English law because it had not yet been recognised by an English court; and therefore (ii) the bankruptcy order should not have been made. The Court of Appeal dismissed the bankruptcy petition.

The decision reiterates the general principle under English law that foreign judgments do not automatically carry enforcement rights in England & Wales.

The Court of Appeal confirmed an unrecognised foreign judgment may be used as a “shield”, but not as a “sword”. An unrecognised foreign judgment may be acknowledged by the English courts when used defensively; for example, as conclusive of a particular issue in a dispute, or may presumably be used in defence of a bankruptcy petition (such as in support of a cross-claim). It cannot, however, be used offensively as a form of enforcement including for the purposes of presenting a bankruptcy petition.

By implementing a mandatory recognition process, the English courts impose a procedural step which provides debtors with better protection against enforcement of foreign judgments that were improperly or unfairly obtained (for example on grounds of fraud or procedural irregularity).

Key takeaways

The decision provides welcome clarity regarding the enforcement of foreign judgments and the interplay with English insolvency law.

1. An obligation to make payment pursuant to an unrecognised foreign judgment is not a debt recognised under English law. This includes for the purposes of presenting a bankruptcy petition under section 267 of the Insolvency Act 1986. Although not discussed in the judgment, the same likely applies to using unrecognised foreign judgments as the basis for presenting a winding up petition, given that both have similar statutory requirements.
2. In practice, absent a compelling counter-argument, most foreign judgments requiring the payment of money will be recognised by the English courts. Creditors will need to be aware of additional time and costs involved in obtaining recognition before taking further enforcement action in England & Wales. If the recognition application is contested (whether on valid or frivolous grounds), creditors may face a significant delay and incur significant costs before bankruptcy or liquidation proceedings can be presented. There is no suggestion in the decision that a petition would be stayed pending recognition; rather, the Court of Appeal indicated that any petition based on an unrecognised foreign judgment will be dismissed. Creditors should, therefore, consider whether there is any risk of misappropriation of assets and act swiftly (for example by appointing provisional liquidators, or invoking avoidance provisions under relevant insolvency legislation).
3. The Court of Appeal’s decision does not affect debts arising from arbitral awards. Arbitral awards will likely be treated differently because they are a matter of contract law and do not generally involve a foreign exercise of sovereign power. As such, creditors should seek legal advice to confirm whether an arbitral award can serve as the basis for presenting bankruptcy and winding-up petitions, even if the award has not been formally recognised by the English courts.

With thanks to Eleanor Clotworthy for her assistance in preparing this post.