Supreme Court confirms foreign trustee in bankruptcy cannot deal with English property due to the "immovables rule"

The Supreme Court has upheld a Court of Appeal decision refusing to assist a Russian trustee in bankruptcy at common law by appointing the trustee as a receiver over the bankrupt's immovable property in England: Kireeva v Bedzhamov [2024] UKSC 39.

As discussed in our blog post on the Court of Appeal's decision (here), there is a long-established principle in the common law of England and Wales that any questions regarding rights and interests to land and other immovable property are governed by the law of the country within with the property is situated. The principle is commonly referred to as the "immovables rule".

The Supreme Court has upheld the primacy of the "immovables rule", and re-iterated that where a foreign bankruptcy is recognised at common law, the English courts cannot assist the foreign trustee to get in and dispose of the bankrupt's immovable property in England. Even if the relevant property forms part of the bankrupt's estate as a matter of the relevant foreign law, English law does not recognise the foreign trustee's powers over it.

The position contrasts with the statutory regimes under which the English courts may assist a foreign office holder, and which provide exceptions to the immovables rule – these did not apply in this case. Given the existence of those statutory regimes, the Supreme Court considered that it would not be appropriate to develop the law in relation to the "immovables rule". Any such development is properly a matter for Parliament. The common law principle of modified universalism is accordingly limited by reference to local law and local public policy.

One of those statutory regimes gives effect in England to the UNCITRAL Model Law, under the Cross-Border Insolvency Regulations 2006. While those Regulations would have permitted the court to recognise the trustee's right to deal with English property, it was common ground that they did not do so here because the bankrupt had shifted his centre of main interests (COMI) to England before the Russian bankruptcy order was made.

The position also contrasts with the approach taken in certain earlier authorities (including the frequently cited dictum of Lord Hoffmann in Cambridge Gas Transportation Corporation v Official Committee of Unsecured Creditors of Navigator Holdings Plc [2006] UKPC 26), on which the Supreme Court said that no weight can now be placed.

Background

Mr Bedzhamov is a Russian citizen who left Russia in 2015 and now lives in London. In 2015 he acquired an interest in a London property. He was declared bankrupt by the Arbitrazh Court in Moscow in July 2018. Ms Kireeva was appointed as financial manager with responsibility for realising Mr Bedzhamov's assets (a position equivalent to that of trustee in bankruptcy under English law).

In 2021, Ms Kireeva applied to the Chancery Division, seeking recognition at common law of the Russian bankruptcy order and her position as bankruptcy trustee. Ms Kireeva also applied for an order entrusting the London property to her, such that it could be pooled alongside Mr Bedzhamov's other assets in England for the benefit of his creditors.

Snowden J (as he then was) granted an order formally recognising the Russian bankruptcy order and Ms Kireeva's appointment as bankruptcy trustee. However, he refused to grant an order in relation to the London property (for example, appointing a receiver over it empowered to sell the property and remit the proceeds to the bankruptcy estate) on the basis of the immovables rule, which meant that English law did not recognise Ms Kireeva as having any claim to the property on behalf of the estate. There was therefore no legal basis on which the court could provide assistance to Ms Kireeva in obtaining or disposing of the property.

The Court of Appeal dismissed (by majority) Ms Kireeva's appeal, finding that there was no basis to sidestep the immovables rule. Ms Kireeva was granted permission to appeal to the Supreme Court.

Decision

The Supreme Court unanimously dismissed the appeal, with the judgment delivered by Lord Lloyd-Jones and Lord Richards (Lord Reed, Lord Briggs and Lady Rose in agreement).

Statutory exceptions

There are statutory provisions through which an English court may provide assistance to foreign insolvency officeholders and which exclude the application of the immovables rule. However, it was common ground that these did not apply in the present case. They are:

• Section 426(4) of the Insolvency Act 1986, which provides that an English court with jurisdiction shall provide assistance to foreign courts located in "any other part of the United Kingdom or any relevant country or territory". However, the countries designated for this purpose are mostly Commonwealth states and British overseas territories, and do not include Russia.
• The Cross Border Insolvency Regulations 2006, which provide for the recognition of foreign insolvency proceedings and extensive relief for officeholders in relation to the same. However, such relief is only available where the debtor has their centre of main interests ("COMI") or an establishment in the country where the foreign representative has been appointed. In this instance, Mr Bedzhamov had neither his COMI nor an establishment in Russia at the time of the appointment.

Assistance at common law

Ms Kireeva submitted that the above statutory provisions did not amount to exceptions to the immovables rule, and the court could also assist a foreign trustee to get in and realise any interests of the bankrupt in land situated in England at common law. The statutory provisions were simply "gateways" to obtaining assistance, such assistance also being available under the common law.

In essence, the argument was that the immovables rule prevented the bankrupt's interest in English land automatically vesting in a foreign trustee, but did not prevent the English court recognising the trustee having authority over all the bankrupt's property, including the English land, and making orders to assist the trustee including by appointing a receiver to sell the property and remit the proceeds to the trustee.

Ms Kireeva, as she had in the Court of Appeal, cited the case of Re Kooperman [1928] WN 101 as support for the proposition that an English court is able to assist foreign officeholders in relation to property interests located in England. In Re Kooperman, a Belgian trustee in bankruptcy was appointed as receiver of leasehold interests in land in England, with counsel in that case recognising that an order of the Belgian Court could not affect immovable property, but arguing that nevertheless "the English Court will assist the foreign trustee in a proper case by appointing a receiver to the English property".

The Supreme Court in the present case categorically stated that "Kooperman is not an authority on which any weight can be placed". The application in Kooperman was unopposed and no reasoned judgment was provided by the judge. Further, while counsel in that case recognised that the Belgian bankruptcy order could not affect immovable property in England, there was no further discussion as to how the English court could nevertheless assist the Belgian officeholder to dispose of the leasehold interests. Re Kooperman was wrongly decided, and the Supreme Court was not referred to any other case where the English court had exercised a common law power of assistance over immovable property in England in favour of a foreign trustee in bankruptcy.

Modified universalism

Ms Kireeva alternatively relied on the principle of "modified universalism". As explained in the case of Cambridge Gas (referred to above), this is the principle that "the court has a common law power to assist foreign winding up proceedings so far as it properly can".

The Supreme Court recognised that modified universalism is "an important element of the common law as regards assistance in cross-border insolvencies". However, as had been held by the Court of Appeal, the court considered the principle to be of no assistance to Ms Kireeva. Modified universalism is necessarily subject to jurisdictional limits, and the court relied on Lord Sumption's judgment in Singularis Holdings Ltd v PricewaterhouseCoopers [2014] UKPC 36 where he stated that: "the principle of modified universalism is part of the common law, but it is necessary to bear in mind, first, that it is subject to local law and local public policy and, secondly, that the court can only ever act within the limits of its own statutory and common law powers.”

The court found that this was where Ms Kireeva's case fell down: the immovables rule is a long-standing rule of substantive law, and the court's common law powers of assistance do not permit it to provide assistance which is inconsistent with substantive law.

Alternative submissions

Ms Kireeva made two further alternative submissions which were given short shrift by the court.

First, Ms Kireeva argued that it was both permissible and appropriate for the court to appoint a receiver with a power of sale over the property, because upon the sale of the property the proceeds would amount to moveable property and so would fall outside the remit of the immovables rule.

The Supreme Court held that the simple answer to this submission was that the status of property as immovable or moveable is determined at the date of the bankruptcy order, and the proceeds of the sale of the property would therefore retain the status of "immovable" property.

Second, Ms Kireeva argued that it would be inconsistent for the court to allow a foreign trustee to be appointed receiver of the property's profits and rent – which, they submitted, the Court of Appeal had accepted as permissible – but not also to grant that receiver a power of sale.

The Supreme Court held that it would not be open to a court to appoint a receiver with the ability to collect rent from the property in question. A lease of land is immovable property, and the right to receive rent is one of the incidents of that immovable property. There was therefore no inconsistency.

A matter for Parliament

The Supreme Court concluded by stating that it was for Parliament and not the courts to determine whether, and if so how, there should be any modification to the immovables rule to enable the English courts to assist a foreign trustee in bankruptcy by appointing a receiver with a power of sale over immovable property in England and Wales.