UK Supreme Court: unrecognised foreign judgment gives rise to a bankruptcy petition

The Supreme Court has clarified the meaning of “debt” for the purposes of a bankruptcy petition, holding that an unrecognised foreign judgment may give rise to a sufficient legal obligation at common law.

On 27 July 2026, the UK Supreme Court handed down its judgment in Valeriy Ernestovich Drelle v Servis-Terminal LLC (In Liquidation in the Russian Federation) [2026] UKSC 29.

The Court held that a creditor may base a bankruptcy petition on the legal obligation arising from a foreign-money judgment, even where that judgment was not recognised or enforced in England. The judgment provides important clarification of both the common-law effect of foreign judgments and the meaning of “debt” under Section 267 of the Insolvency Act 1986.

Facts

The dispute concerned Mr Valeriy Drelle, a Russian national residing in London, and Servis-Terminal LLC (“ST”), a Russian company of which Mr Drelle had been a shareholder and CEO.

In 2011, ST lent RUB 2 billion (approximately GBP22 million) to Fort Steiton LLC (“FS”), a loan later assigned to Intercom Capital LLC (“IC”). The loan was supported by a personal guarantee from FS’s owner and IC’s controller, Anatoly Motylev. IC subsequently defaulted and ST was eventually declared bankrupt.

One of ST’s creditors, Gazprom Neft PJSC, brought proceedings against Mr Drelle in Russia. It alleged, among other things, that he had failed to adequately investigate FS’s solvency and Mr Motylev’s financial situation, and that the loan was sufficiently large to require shareholders’ approval.

On 24 May 2019, the Arbitrazh Court of Yaroslavl Oblast found Mr Drelle liable for ST’s losses (the “Russian Judgment”). His appeals, ultimately to the Russian Supreme Court, were unsuccessful.

Relying on the Russian Judgment, ST served Mr Drelle with a statutory demand on 9 October 2020 and subsequently presented a bankruptcy petition.

Following a bankruptcy order and appeals to the High Court and Court of Appeal, the dispute reached the Supreme Court.

The issues before the Supreme Court

 The central question was whether an unrecognised foreign judgment could constitute a “debt” sufficient to support a bankruptcy petition under the Insolvency Act 1986.

By “unrecognised” the Court meant that the foreign judgment had not been the subject of recognition proceedings in England.

The Court considered two principal questions:

1. What legal effect, if any, does an unrecognised foreign-money judgment have at common law?
2. Does the obligation arising from such a judgment constitute a “debt” within the meaning of Section 267 of the Insolvency Act 1986?

I. The common-law effect of an unrecognised foreign judgment

The Dicey rules

Three rules in Dicey, Morris & Collins on the Conflict of Laws (16th ed) formed an important part of the dispute.

Rule 45 provides that a foreign judgment has “no direct operation in England”, although it may be enforceable by claim or counterclaim at common law or under statute, or recognised as a defence or as conclusive of an issue in a claim.

Rule 46 provides, in broad terms, that a final and conclusive foreign judgment in personam, given by a court with jurisdiction and not otherwise impeachable, may be enforced by a claim or counterclaim, where it is for a debt or definite sum of money.

Rule 51 addresses the conclusiveness of a final foreign judgment as to matters adjudicated upon.

The parties’ positions

ST relied on the common-law “obligation principle”. It argued that a foreign judgment, although unrecognised, nevertheless gives rise to a legal obligation in England.

Mr Drelle argued that because an unrecognised foreign judgment has “no direct operation” in England it has no legal effect unless and until it is recognised by an English court.

The obligation principle

The Supreme Court accepted ST’s position.

In doing so, it examined the historical origins of the obligation principle, including Williams v Jones (1845) 13 M & W 628 and Godard v Gray (1870) LR 6 QB 139.

In Williams v Jones, Parke B explained the principle underlying an action on a judgment: where a court of competent jurisdiction determines that a certain sum is due from one person to another, a legal obligation to pay that sum arises, and an action of debt may be maintained upon it.

The same principle was subsequently endorsed by Blackburn J in Godard v Gray. Foreign judgments are therefore enforced at common law not because they automatically operate as English judgments, but because they give rise to an obligation which English law recognises.

“Direct operation”

The distinction between direct and indirect operation was central to the Supreme Court’s reasoning.

The Court of Appeal had placed considerable weight on Dicey’s statement that a foreign judgment has “no direct operation in England”. The Supreme Court agreed that an unrecognised foreign judgment does not have the status of an English judgment. But that does not mean that it has no legal effect at all.

As the Supreme Court explained at [61], where proceedings are brought upon a foreign-money judgment, the following shall be enforced: “the common law obligation to pay the judgment sum, and that obligation is founded upon the foreign judgment itself”.

Accordingly, the foreign judgment may have an indirect operation in England: it creates the obligation upon which the creditor relies, even though the foreign judgment itself has not been converted into an English judgment.

II. Does the obligation constitute a “debt” under Section 267?

The Supreme Court then considered whether the obligation arising from the Russian Judgment constituted a “debt” for the purposes of Section 267 of the Insolvency Act 1986.

The Court contrasted the current statutory regime with the Bankruptcy Act 1914. Under the earlier legislation, the relevant ground of bankruptcy was a judgment debt, which in practice required an English judgment or, subsequently, a registered foreign judgment capable of execution in England.

The 1986 Act adopted a different approach. What matters is the existence of a qualifying debt which the debtor is unable to pay: the debt need not itself be an English-judgment debt.

The Court also emphasised that the legislation should be construed against the background of the common law existing at the time it was enacted. As the Court observed at [80], “Speaking in general common-law terms, a debt is a legal obligation owed by one person to pay a sum of money to another person…”. That obligation may arise from a contract, deed, statute, judgment or another source capable of creating the necessary legal obligation.

The Court therefore saw no basis for construing “debt” in Section 267 more narrowly. At [83], it concluded that there was no reason why the statutory concept should exclude “a legal obligation to pay under an unrecognised foreign judgment”.

The inability to discharge such an obligation can therefore provide the basis for a bankruptcy petition.

Conclusion 

Drelle draws an important distinction between the recognition or enforcement of a foreign judgment and the legal obligation created by that judgment at common law.

An unrecognised foreign judgment has no direct operation in England and cannot simply be executed as though it were an English judgment. Nevertheless, where the foreign judgment satisfies the applicable common-law requirements, it may give rise to an obligation to pay. That obligation is itself capable of constituting a “debt” for the purposes of Sections 267 and 268 of the Insolvency Act 1986.

The decision therefore confirms that formal recognition of a foreign-money judgment is not necessarily a prerequisite to relying on the obligation created by that judgment in English insolvency proceedings. More broadly, it illustrates the continuing significance of the common-law obligation principle in determining the effect of foreign judgments in England.

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