The Supreme Court held that English common law will not help a trustee appointed in a foreign bankruptcy to take or sell land in England belonging to the bankrupt. Rights in land situated here are governed only by English law — the immovables rule — and that rule is not limited to preventing an automatic transfer of legal title. Because neither statutory regime that does allow such assistance applied, the Russian trustee’s appeal was dismissed.
The issue
A Russian court appointed Ms Kireeva as financial manager of Mr Bedzhamov’s bankruptcy. She sought recognition of the bankruptcy and assistance in realising his leasehold interest in a London property. Recognition and assistance raised distinct questions.
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The property and the Russian bankruptcy
Mr Bedzhamov held a lease of the London property with about 20 years to run. He also had an agreement for a new 129-year lease, conditional on redevelopment. The trustee sought access to that property for the creditors.
Separate English litigation concerned alleged fraud. A freezing order had been made, and the bankrupt’s solicitors held a charge over the property for their costs. Ms Kireeva also sought to set aside that charge.
In February 2021 she applied for common-law recognition of the Russian order and her appointment, for assistance in relation to the property, and to set aside the solicitors’ charge.
What the courts below decided
Snowden J recognised the Russian bankruptcy and Ms Kireeva’s appointment. Mr Bedzhamov had not been domiciled in Russia when the bankruptcy application was made or the order pronounced, but he had submitted to the Arbitrazh Court’s jurisdiction. His other objections failed before the judge, including an allegation that the guarantee underlying the VTB judgment had been forged. The Court of Appeal allowed an appeal on that forgery ground alone and sent it back. Falk J later held that forgery had not been established. Recognition was no longer disputed in the Supreme Court.
Snowden J refused assistance in relation to the land. A majority of the Court of Appeal agreed. The appeal concerned whether a receiver could nevertheless be appointed to realise the land for the foreign estate and whether the solicitors’ charge could be displaced.
The immovables rule
Under the immovables rule, the law of the place where land is situated governs rights to it. Recognition of a foreign bankruptcy does not of itself give the foreign trustee rights to English land. A leasehold interest in English land falls within the rule even though English domestic law treats a leasehold as personal property for some purposes.
The division between movable and immovable property is used so that different legal systems have a common basis for these questions. It does not simply copy English categories of real and personal property. A lease is immovable even though English domestic law treats it as personal property. Rights over or in relation to land generally take their character from the land, including beneficial and equitable interests.
Why the statutes did not help
Parliament has provided routes to assistance in defined cases, including section 426 of the Insolvency Act 1986 and the Cross-Border Insolvency Regulations 2006. Russia was not a designated jurisdiction under section 426. It was common ground that neither statutory route applied to this bankruptcy.
No assistance at common law
Ms Kireeva argued that the statutes were only gateways, and that the same help was available at common law. On her case the immovables rule stopped only an automatic vesting of legal title. English law, she said, still recognised her Russian-law duty and right to get in all the bankrupt’s property, including land in England, and could appoint a receiver with power to sell and remit the proceeds for distribution under Russian bankruptcy law.
Appointing a receiver would enable the trustee to obtain the substance of an interest which English law did not recognise. The common law could not use a procedural remedy to achieve indirectly the result precluded by the immovables rule.
Earlier authority on common-law assistance did not establish a general power to realise local land for a foreign trustee. The Court declined to extend the law in that way.
Selling the property would not turn the proceeds into movable assets of the bankruptcy. For this purpose, property is characterised as at the date of the foreign bankruptcy order, the date from which the trustee’s claimed title derives. The proceeds of a later sale remain subject to the immovables rule. Nor, in a case such as this, could the court appoint a receiver of the rents and profits of land in England, except for such identified income, if any, as was properly characterised as movable and was received under rights that already existed as assets at that date. A right to receive rent is an incident of the lease and is itself immovable.
Any further change is for Parliament
The result could leave the property available to the bankrupt or to local creditors rather than for collective distribution abroad. Changing the rule would affect property rights and the statutory conditions Parliament had chosen for assistance. The Court considered that any further exception was a matter for legislation.
Verdict: The Supreme Court unanimously dismissed the appeal. The trustee could not use common-law assistance to obtain or realise the English land, and the associated challenge to the solicitors’ charge also failed. Recognition of the Russian bankruptcy itself was no longer in dispute.
