In a significant decision for cross-border insolvency, the UK Supreme Court in Kireeva v Bedzhamov has confirmed that under the English common law, judicial assistance from the English Courts to foreign courts and foreign insolvency officeholders is subject to the “immovables rule”.

This means that, unless such courts and insolvency officeholders can avail themselves of assistance under section 426 of the Insolvency Act 1986 or the Cross-Border Insolvency Regulations 2006 (the “CBIR”), they will have no claim to a debtor’s immovable property (i.e. land and interests arising from land) located in England and Wales. 

Under the immovables rule, a foreign court has no jurisdiction to make orders in respect of land in England and Wales and the rights relating to such land are governed exclusively by the law of England and Wales. 

The decision in Kireeva v Bedzhamov confirms the parameters of the principle of modified universalism, which remains an important element of the common law as regards assistance in cross-border insolvencies, but is necessarily subject to jurisdictional limits.  Common law powers are subject to local law and local public policy and the immovables rule is a long-established rule of substantive law.

In this case, the English Courts were unable to provide assistance to a Russian trustee in bankruptcy by appointing a receiver with a power of sale over the debtor’s immovable property in London.

The key takeaways from the decision are:

• The immovables rule is not concerned solely with the vesting of title, but has the effect that at common law no recognition will be given to any provision of foreign law or any order of a foreign court which purports to affect rights to or interests in land located in England.
• In this case the common law did not recognise the debtor’s London property as being an asset within the scope of his bankruptcy in Russia.   It was therefore contrary to English law, and to the principle of modified universalism, for the English Court to appoint a receiver or give other assistance as regards to the property.  The Supreme Court also ruled:
  • The proceeds of a subsequent sale of the property remained subject to the immovables rule and would not fall within the Russian bankruptcy estate.
  • It was not open to the English Court to appoint a receiver of the rents and profits of the property, as a right to receive rent is an incident of immovable property.
• Judicial assistance in relation to land and rights arising from land in England and Wales can therefore only be sought by a foreign court or foreign insolvency officeholder under section 426 and the CBIR.  In this case:
  • The English Courts had no power under section 426 to provide assistance because Russia is not a relevant country or territory under the section (principally being Commonwealth countries).
  • The debtor did not have his COMI or an establishment in Russia, and so it was not open to the Russian trustee in bankruptcy to seek recognition or to obtain assistance under the CBIR.
• Any further modification of the immovables rule is for Parliament to determine. 

If you have any questions arising from this alert, please contact your usual Weil Restructuring contact.