The UK Supreme Court has ruled that an unrecognised and unregistrable foreign judgment for a debt or definite sum of money can constitute a “debt” for the purposes of the Insolvency Act 1986. The decision came in the case of Servis-Terminal LLC, a company in liquidation in the Russian Federation, which successfully appealed against a Court of Appeal ruling that had denied the status of a Russian judgment debt as a qualifying debt for bankruptcy proceedings in England.

The original bankruptcy petition was based on an unpaid judgment debt of 2 billion rubles stemming from a May 24, 2019 judgment by the Arbitrazh Court of Yaroslavl Oblast in Russia. The debtor, Valeriy Ernestovich Drelle, challenged the creditor’s claim on several grounds, but the Supreme Court’s judgment focused solely on whether the foreign judgment debt met the legal definition of a “debt” under UK insolvency law. Other issues were referred back to the Court of Appeal.

The court, with leading judgments from Lords Briggs and Hamblen and unanimous agreement from the panel, reaffirmed the common law doctrine that the obligation to pay a sum determined by a final and conclusive foreign judgment arises immediately upon that judgment, irrespective of whether it has been formally recognised or registered in English courts. Although foreign judgments have no direct enforceability in England and Wales—that is, they cannot be executed directly—they can have indirect operation through the creditor’s right to initiate an action on the judgment.

This means that foreign judgments create a private legal obligation to pay, enforceable via English courts, rather than relying on the underlying facts of the foreign case. The court further clarified that unrecognised foreign judgments may be used both offensively and defensively (“as a sword and a shield”) in English legal proceedings. The judgment distinguished this from the “revenue rule” or Dicey rule 20, which bars enforcement of penal or public law claims by foreign states, emphasizing that the present case involved private rights enforceable by private parties.

Regarding the Insolvency Act 1986, the court noted that the statute does not narrowly define “debt” in section 267 but requires a debtor to be unable or unlikely to pay a qualifying debt to justify a bankruptcy petition. At common law, a debt encompasses any legal obligation to pay a sum of money, whether arising from contract, statute, or judgment. The court found no reason why this broad understanding should exclude obligations arising from unrecognised foreign judgments.

The ruling also addressed the procedural context. Although some foreign judgments are subject to a registration process under the Foreign Judgments (Reciprocal Enforcement) Act 1933, unregistrable and unrecognised foreign judgments still give rise to enforceable debts under the common law and insolvency legislation. The registration process was described as having substantial procedural advantages but was not a prerequisite to establishing the existence of a debt for insolvency purposes.

By restoring the lower court’s decision, the Supreme Court overturned the Court of Appeal’s finding and ruled that the debt arising from an unrecognised foreign judgment qualifies as a debt under section 267 of the Insolvency Act. This sets a significant precedent on the treatment of foreign judgment debts in UK insolvency proceedings, clarifying that such debts can support bankruptcy petitions even in the absence of formal recognition or registration in English courts.