Overturning the Court of Appeal, the UK Supreme Court has ruled, in a groundbreaking new judgment, that an unregistered and unrecognised foreign judgment from Russia nonetheless can ground a UK bankruptcy petition as a “debt”..
Summary
In Valeriy Ernestovich Drelle v Servis-Terminal LLC [2026] UKSC 29, the Supreme Court of the United Kingdom held that a final and conclusive foreign judgment for a definite sum of money creates an immediate common law obligation to pay. That obligation is capable of constituting a “debt” within the meaning of section 267 of the Insolvency Act 1986, even where the judgment has not first been recognised in separate English proceedings.
The decision overturns the Court of Appeal of England and Wales on this issue and provides important clarification of the relationship between foreign judgments, the concept of “recognition”, and the scope of UK insolvency law and process.
Madison Legal acted for Servis-Terminal LLC, a Russian company in liquidation. It instructed Mark Phillips KC, Dr Riz Mokal and Clara Johnson, all barristers at South Square Chambers.
Core factual background
Servis-Terminal LLC obtained a judgment for RUB 2 billion against its former Director General, Valeriy Drelle, in the Russian courts. Following unsuccessful appeals by Drelle within Russia, Servis-Terminal served a statutory demand and presented a bankruptcy petition in England.
The Russian judgment had not been recognised through a common law action in England, nor was it capable of registration under the Foreign Judgments (Reciprocal Enforcement) Act 1933. The question was whether the judgment could nevertheless give rise to a debt capable of supporting a bankruptcy petition under section 267.
The obligation principle remains central
The Supreme Court’s reasoning rests on a longstanding principle of the common law. A final and conclusive foreign judgment for a definite sum of money creates a legal obligation on the judgment debtor to pay that sum. The Court reaffirmed that this “obligation principle” remains the juridical basis upon which English law gives effect to foreign money judgments.
Most significantly, the Court held that the obligation arises when the foreign judgment is given. It does not depend upon subsequent recognition proceedings in England. Recognition is a mechanism for enforcement and does not create the underlying obligation in the first place.
Direct Operation and Legal Effect
The Court rejected the proposition that an unrecognised foreign judgment has no legal effect in England.
A foreign judgment does not have the status of an English judgment and cannot be enforced through English execution procedures such as charging orders, third-party debt orders, or other execution mechanisms. In that sense, it has no “direct operation” in England.
However, that does not mean that the judgment is legally irrelevant. Its indirect effect is to create a common law obligation to pay the judgment sum. It is that obligation which may constitute a debt under English law.
A debt for the purposes of section 267
The Supreme Court approached the question from first principles.
Bankruptcy is not itself a scheme of enforcement but a separate legislative process for the collective realisation of an individual’s assets (see below). Entry into that process requires proof (amongst other things) of an outstanding “debt”.
The Insolvency Act does not provide a special definition of “debt” for these purposes. The ordinary common law meaning is a legal obligation to pay a sum of money. Since a final foreign money judgment gives rise to such an obligation, it falls naturally within that concept.
The Court found no basis for reading section 267 more narrowly. Accordingly, an obligation arising under an unrecognised foreign judgment is capable of constituting a petition debt.
Bankruptcy is not execution
This is the point at which, critically, the Supreme Court departed from the reasoning of the Court of Appeal. A strong panel of the Court of Appeal (Newey, Popplewell and Snowden LLJ) considered the traditional position that a foreign judgment has no direct operation in England and Wales which means that there can be no direct execution of the judgment here. In turn, it was said that a creditor’s reliance on the foreign judgment to press for a bankruptcy order “is still seeking enforcement” because such proceedings involve the “collective enforcement of the admitted or proved debts” (Newey LJ, para 39).
The Supreme Court, however, emphasised that bankruptcy is a collective insolvency process concerned with the administration and distribution of a debtor’s assets among creditors. It is not a method of “executing” nor, properly considered, even a method of “enforcing” a judgment and certainly not for the benefit of a single creditor. Indeed, it ordinarily prevents individual enforcement action. Whilst “loosely categorised” as a method of collective enforcement, bankruptcy proceedings are not primarily concerned with enforcement but with realisation and distribution of a debtor’s assets pursuant to a set of legislative principles and rules.
Accordingly, allowing a creditor to rely upon a debt created by a foreign judgment does not give that judgment the direct operation of an English judgment. The petition is founded on the obligation arising from the judgment rather than on execution of the judgment itself.
The 1933 Act does not displace the common law
The Court also rejected the argument that the Foreign Judgments (Reciprocal Enforcement) Act 1933 prevented reliance on an unrecognised judgment.
The 1933 Act establishes a statutory registration regime for judgments falling within its scope. However, the Russian judgment was not registrable under that regime. The Court held that the Act does not alter the common law treatment of unregistrable foreign judgments, which continues to apply independently.
Practical significance
The decision has important implications for cross-border insolvency proceedings.
- A creditor holding an unregistrable foreign money judgment may be able to serve a statutory demand and present a bankruptcy petition without first obtaining recognition in England.
- The arbitrary distinction between English debts and foreign debts as well as arbitral debts (which in certain cases had been accepted as giving rise to “debts”) and unrecognised foreign judgment debts has gone.
- There may be various difficulties, legal and practical, to securing recognition of a foreign judgment debt. Creditors may now proceed straight to utilisation of the insolvency process thereby strengthening the modified universality principle and the insolvency process more generally.
- The judgment will impact both personal and corporate insolvency, as the latter, too, relies (in most cases) on establishing that the company cannot pay its “debts” as they fall due.
- Recognition remains necessary if a creditor wishes to access English execution procedures, but it is not a prerequisite to the existence of the debt itself.
- The usual common law safeguards remain available in the context of recognition, including challenges based on jurisdiction, fraud, natural justice, and public policy.
- The decision does not remove the requirement that the debt be undisputed on bona fide and substantial grounds in insolvency.
Conclusion
The Supreme Court has drawn a clear distinction between recognition, execution, and the existence of a debt.
An unrecognised foreign judgment cannot be executed as though it were an English judgment. But it may nevertheless create an immediate common law obligation to pay, and that obligation is capable of constituting a debt under section 267 of the Insolvency Act 1986. A bankruptcy petition can therefore be founded upon it without prior recognition proceedings.
For practitioners dealing with cross-border insolvency and enforcement issues, Drelle is likely to become the leading authority on the relationship between foreign judgments, recognition, and petition debts.
Madison Legal continues to go from strength-to-strength in the area of international and domestic insolvency and commercial law. It extends its gratitude to the hard work of Counsel and for their excellent arguments.
A link to the decision is here: Valeriy Ernestovich Drelle (Respondent) v Servis-Terminal LLC (In Liquidation in the Russian Federation) (Appellant)
