Rubin and Lan v Eurofinance SA

1 October 2010


Rubin and Lan v Eurofinance SA [2010] EWCA CIV895

Recent extension to the long-arm reach of insolvency law – by Richard Ritchie

This is an important case on judicial co-operation in cross-border insolvencies, particularly for common law jurisdictions.


D1 is a BVI company originally owed by D2. D1 set up The Consumers Trust, an English law trust, under which the beneficiaries were consumers who had participated in a promotions scheme in the U.S. and Canada operated by the Trust. The scheme was described by the Court of Appeal as a “scam”, which indicated where they considered the merits lay. Proceedings were commenced by the Attorney General of Missouri against the scheme and it was clear further suits were likely in other states. As a result, it was decided that the Trust should seek the protection of an insolvency regime.

Cs were appointed receivers in England of the Trust. They then caused the Trust to be placed in Chapter 11 in New York, where the Trust had its centre of main interests. One advantage of this was that under U.S. law the Trust would be treated as a separate legal entity. Under the Joint Plan in the Chapter 11 proceedings Cs were given exclusive power to bring proceedings against Ds and did so in New York relying, amongst others, on U.S. set aside and claw-back provisions broadly equivalent to sections 238 and 239 of the Insolvency Act 1986.

Ds were served with the proceedings but did not enter an appearance or submit to the jurisdiction of the New York court. Default and Summary Judgment was entered against Ds.

Cs applied to the English court under the Cross-Border Insolvency Regs 2006 (i) for recognition of the proceedings in New York as “a foreign main proceeding” and (ii) for enforcement of the U.S. judgment as a judgment of the English courts in accordance with CPR Part 70 and 73.

The issues

Two issues arose:

(a) should the New York proceedings including the action against Ds, referred to as “the Adversary Proceedings”, be recognised as foreign main proceedings under the UNCITRAL Model Law as set out in the 2006 Regs; and

(b) should the judgment of the New York court be enforced against Ds.

Issue (a)

At first sight the answer to this might appear obvious. The real question was not whether the Chapter 11 proceedings should be recognised but whether the Adversarial Proceedings should be recognised. The Adversarial Proceedings were separate proceedings under a different title number. The definition of “foreign proceedings” in the Model Law is
“.a collective judicial or administrative proceeding in a foreign State, including interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation”.

Upholding the trial judge, the Court of Appeal held that the Adversary Proceedings must be recognised as a foreign main proceeding. Whether this is correct is open to question. The definition of foreign main proceedings appears to point to the bankruptcy, liquidation or other procedure itself, and not to steps taken within it, as the foreign main proceedings. The question might more accurately be: once the court has recognised, in this case, the Chapter 11 proceedings as foreign main proceedings, how does it then react to proceedings taken within or as a subsidiary part of or adjunct to those main proceedings. In English law s.238 or 239 proceedings would normally be made as applications within the liquidation rather than as separate actions. The fact that they were taken as separate actions would not alter their character; but they would not appear to be “foreign proceedings”.

Issue (b)

This was the crux of the case. The reason that it appeared crucial was that although the Model Law permits a recognised foreign representative to make an application to the English court relying on the anti-avoidance provisions of the Insolvency Act, including s.238 and 239, this does not apply when the transactions in question took place before the 2006 Regs came into force (Article 23(9)). The 2006 Regs post-dated the transactions in question.

One issue, which the case did not explore, was whether the Model Law would permit Cs to bring an action in England against Ds relying on provisions of U.S. law. In the U.S., the Model Law, enacted in similar terms to the English version, has been held to permit a recognised foreign representative to bring proceedings in the U.S. based on foreign insolvency law (In the Matter of Condor Insurance Ltd 601 F. 3d 319). This has the merit of consistency, as the law of the main insolvency (lex concursus) is being applied to recover assets and the office-holder is not taking advantage of the law of the country, in which the claim is being brought, to achieve what may possibly be a different result than might have pertained under the law of the insolvency. Given that the Model Law is to be interpreted with regard to the need to promote uniformity in its application (Article 8), it is clearly arguable that the English courts should follow the U.S. lead.

Under the EC Regulation it is expressly provided that the lex concursus in general governs the insolvency: Article 4(2)(m) specifically provides that (subject to Article 13) the law of the State of the opening of the proceedings determines the rules relating to voidness, voidability or unenforceability of legal acts detrimental to all the creditors. Because of Article 25(1) of the Regulation, had the facts involved an EC Member State (apart from Denmark) instead of the U.S., it does not seem there would have been any problem enforcing the judgment given in the Adversary Proceedings.

The Court of Appeal was exercised by the fact that, although the Model Law contains provisions permitting the recognising court to grant relief, it does not in terms make provision for enforcement. They concluded, relying (among others) on high level, and for these purposes rather Delphic, utterances by Lord Hoffmann in Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holding plc [2007] 1 AC 508 and HIH Casualty and General Insurance Ltd [2008] 1 W.L.R. 852, in which he was in the minority, that at common law the English court could exercise its powers to enforce the judgment in the Adversary Proceedings. The essence of their reasoning was that the normal conflicts rules about enforcing judgments in rem or in personam do not apply to insolvency proceedings. The claims in the Adversary Proceedings were insolvency proceedings because, although aimed at particular persons, they were part of the recovery of the assets of the insolvent for the collective benefit of the creditors and could only be brought by the relevant office-holders. The situation would probably have been different if the claims had been ordinary debt or contract claims which could have been brought by the Trust prior to the Chapter 11. At common law the court was entitled to enforce or give effect to foreign bankruptcy or insolvency proceedings, therefore the court could give effect to the judgments in the Adversary Proceedings.


It is somewhat ironic that after Parliament has enacted provisions to allow the courts to co-operate with foreign insolvencies, the courts are now apparently discovering that they had the power to do so at common law, and possibly to a greater degree than allowed under for example the Model Law, all the time. The court has always had the ability to act in aid and give effect to a foreign insolvency at common law and this includes matters which form an integral part of the reorganisation or liquidation of the insolvent’s affairs, such as a scheme of arrangement made pursuant to it (Cambridge Gas).

However, the court’s powers have limits. The majority in HIH were not prepared to accept that the court could exercise powers at common law to remit assets from a subsidiary English insolvency to a foreign main insolvency, where distribution would take place on different principles, but relied instead on express statutory power (s.426 Insolvency Act). The Court of Appeal in Consumers’ Trust considered that anti avoidance provisions were a sufficiently integral part of the insolvency regime to allow the court to enforce the Adversary Proceedings judgment directly at common law. It can also be said in support of that view that where the courts of the lex concursus, have decided they have jurisdiction over the defendant in question and, applying that insolvency law, have given judgment against him, it clearly promotes consistency and harmony for courts of other jurisdictions to give effect to such judgments.

The Court of Appeal appeared to consider that this approach would not extend to ordinary claims to recover assets, which were not based on provisions peculiar to insolvency law. In one sense there is no difference between such a claim and a claw-back claim based on insolvency law. Both are actions against particular persons and based on their individual involvement or association with the insolvent. Is there really any reason why such insolvency law claims should be given special status simply because they are part of or for the benefit of a collective regime? In essence, most insolvency regimes are simply a form of statutory trust. No special status is afforded to claims by ordinary trustees to recover trust assets, so why should insolvency claims against particular persons be any different? There can be said to be a fundamental difference between the insolvency regime itself, which deals with how assets once collected are to be divided amongst the creditors, to which the principles of universality and cross-border recognition apply, and the process of collecting in those assets, to which the principles of ordinary litigation and ordinary principles of recognition should apply.

Permission to appeal is currently being sought from the Supreme Court. There must be a good chance that permission will be granted and the Court of Appeal’s judgment may not be the last word on the subject.

MARCUS STAFF of XXIV 24 Old Buildings represented Ds both at first instance and in the Court of Appeal.

Legal update prepared by Richard Ritchie.

October 2010