Rubin v Eurofinance

The Court of Appeal held that Chapter 11 proceedings in the United States Bankruptcy Court, including the Adversary Proceedings brought to avoid antecedent transactions, were properly recognised as a foreign main proceeding under the UNCITRAL Model Law as enacted by the Cross-Border Insolvency Regulations 2006 (see Article 17). The court concluded that avoidance/avoidance-like claims (the US equivalents of sections 238 and 239 of the Insolvency Act 1986 and sections 547/548/550 of the US Bankruptcy Code) form an integral part of the collective bankruptcy mechanism rather than being merely incidental or ordinary claims against third parties.

As a consequence, the ordinary private international law rules that prevent enforcement of foreign judgments in personam where the defendant has not submitted to the foreign court (the rule reflected in Dicey, Morris & Collins and Adams v Cape) do not apply to judgments made within the collective insolvency regime. Applying principles of modified universalism and the reasoning in Cambridge Gas and HIH Insurance, the court held that the New York orders entered in the Adversary Proceedings are part of the bankruptcy proceedings and may be given effect in England; accordingly, the appeal to enforce the New York orders was allowed and the cross-appeal against recognition of the foreign main proceedings and foreign representatives was dismissed.

Background and parties. The Consumers Trust (TCT), a trust established by Eurofinance S.A. to operate a cashable voucher promotions scheme in the United States and Canada, entered Chapter 11 in New York. Joint receivers Rubin and Lan were appointed and authorised to act as the Chapter 11 representatives. Adversary Proceedings were brought in New York against Eurofinance, Adrian Roman and others for recovery of monies paid out of the trust fund under avoidance and unjust enrichment causes of action. Default and summary judgment was entered against the respondents in the sums now sought to be enforced in England.

Nature of the application. The applicants sought (i) recognition in England of the US Chapter 11 as a foreign main proceeding and recognition of Rubin and Lan as foreign representatives under the UNCITRAL Model Law as enacted by the Cross-Border Insolvency Regulations 2006, and (ii) enforcement in England of parts of the New York judgment (orders 3, 4 and 5).

Procedural posture. At first instance (Deputy Judge Strauss) the Chapter 11 proceedings and the foreign representatives were recognised but enforcement of the New York judgment was refused. The receivers appealed against dismissal of enforcement; the respondents cross-appealed the recognition orders. This judgment is the Court of Appeal’s decision on those appeals.

Issues framed by the court. (i) Whether the US Chapter 11 (including the Adversary Proceedings) should be recognised as a foreign main proceeding and whether the appellants should be recognised as foreign representatives under Article 17 and related provisions of the Model Law; (ii) whether the New York judgment (orders from the Adversary Proceedings) could be enforced in England as a judgment in personam, given that the respondents had not submitted to the jurisdiction in New York.

Court’s reasoning. The court analysed the Model Law, the Guide to its enactment, UNCITRAL materials and relevant authorities (notably Cambridge Gas and HIH Insurance). It concluded that avoidance proceedings brought by a bankruptcy office-holder to recover assets for the collective benefit of creditors are central to the collective bankruptcy mechanism and thus fall within the special category of insolvency proceedings in private international law. The ordinary common law rules for enforcement of foreign judgments in personam do not apply to such bankruptcy judgments. Applying modified universalism and considering the close equivalence between US avoidance provisions and UK insolvency avoidance provisions (sections 238/239), the court found that the Adversary Proceedings were integral to the Chapter 11 proceedings, that Article 17 was satisfied, and that the New York orders could be given effect in England. The court therefore allowed the appeal on enforcement and dismissed the cross-appeal against recognition.

Relief granted. The Court of Appeal allowed the appeal to enforce the relevant New York orders and dismissed the respondents’ cross-appeal against recognition of the foreign main proceedings and the appellants as foreign representatives. The court granted permission to appeal further only with hesitation and stayed execution on specified terms pending any further leave.

Appeal allowed and cross-appeal dismissed. The court held that the US Chapter 11 proceedings (including the Adversary Proceedings to avoid antecedent transactions) constituted a foreign main proceeding under the Model Law (Cross-Border Insolvency Regulations 2006) and that the joint receivers were properly recognised as foreign representatives. The court held that avoidance actions brought by the office-holder are integral to the collective bankruptcy mechanism and that the ordinary private international law rules preventing enforcement of a foreign judgment in personam where the defendant has not submitted do not apply to judgments made in the course of bankruptcy proceedings; accordingly the New York orders in the Adversary Proceedings could be given effect in England.

Appeal to the Court of Appeal from the Chancery Division (Deputy Judge Mr Nicholas Strauss Q.C.). At first instance (21 July 2009) the Deputy Judge recognised the US Chapter 11 as a foreign main proceeding but refused enforcement of the New York judgment; the receivers obtained permission to appeal. This judgment is reported as [2010] EWCA Civ 895.