In Rubin v. Eurofinance, UK High Court Rejects Jurisdiction of US Bankruptcy Court

Earlier this week, the Supreme Court of England and Wales ruled that a United States Bankruptcy Court decision against an individual not subject to US court jurisdiction could not be enforced in the United Kingdom. From Skadden Arps:

“Traditionally, under English conflict of law rules, a foreign judgment may only be enforced in England at common law if the defendant was present in the foreign country when the proceedings were issued… This rule was departed from by the decision … in Cambridge Gas Transportation Corp. … [the] decision [which] formed the basis of the rulings in the Court of Appeal. The Supreme Court rejected this analysis, holding that Cambridge Gas had been wrongly decided and that such a development of the law should be made by the legislature rather than the courts.”

Three considerations:

1. Enforcing bankruptcy rulings against foreign parties will require a lot more work:

“In practical terms, insolvent estates (to which the EU Insolvency Regulation does not apply) may not simply be able to rely upon judgments obtained in their home jurisdiction, but may be compelled to launch other claims where their targets reside in order to achieve their goals.” (Skadden Arps)

2. The decision reduces risk for certain foreign companies doing business in the US:

“Investors and corporate entities choose jurisdictions with knowledge that they have mature insolvency regimes that will apply in the event of insolvency. The potential of being subject to a foreign insolvency process and its subsequent enforcement without submission to that jurisdiction or recourse to local procedure would have made for greater uncertainty and potential injustice.” (Harneys)

3. The ruling effectively creates a class of “judgment-proof” individuals and entities for US bankruptcy courts:

“[T]he English Supreme Court’s Rubin decision calls into question the power and ability of a U.S. Bankruptcy Court to fully and finally adjudicate a bankruptcy case where the parties do not submit to its jurisdiction. The English Supreme Court’s decision has rendered Mr. Roman, and other foreign third parties, effectively judgment-proof from U.S. bankruptcy court avoidance actions.” (Reed Smith)

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