The Immovables Rule: Exceptions And Implications For Foreign Insolvency Office Holders – Guidance From Recent Cases

Synopsis

Two recent decisions of the Supreme Court in Kireeva v Bedzhamov¹ ('Kireeva') and the High Court in Almeqham v Al-Sanea & Ors² ('Almeqham') provide guidance for foreign insolvency office holders dealing with property in England and Wales. First, Kireeva confirmed the primacy of the immovables rule, which restricts the ability of foreign insolvency office holders to deal with land and immovable property in England and Wales unless one of two statutory exceptions apply. Foreign office holders seeking to deal with immovable property in England and Wales must rely on either the Cross-Border Insolvency Regulations 2006 (the 'CBIR') or section 426 of the Insolvency Act 1986 ('IA 1986'). A foreign office holder can likely also seek to bring an application under the transaction avoidance provisions of the IA 1986, including section 423, to circumvent the immovables rule. The decision in Almeqham begins to explore the scope of these exceptions and provides practical guidance as to how they may be utilised.

The immovables rule under the common law

The immovables rule is a principle of private international law found in many common law jurisdictions. Questions regarding rights to and interests in land and other immovable property are governed by the law of the country in which the property is situated, and jurisdiction to decide those questions belongs to the courts of that country. Therefore, while foreign insolvency office holders may be recognised under English common law, where immovable property is situated within England and Wales, the English courts will not recognise or give effect to laws or judicial decisions of other countries which purport to determine rights to or interests in that immovable property.

Kireeva

The Supreme Court in Kireeva confirmed 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 and Wales. 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.

Kireeva concerned the bankruptcy estate of Mr Bedzhamov, a Russian citizen who left Russia in 2015 and now lives in London. In 2015 he acquired an interest in a London property. Mr Bedzhamov was declared bankrupt by the Arbitrazh Court in Moscow in July 2018. Ms Kireeva was appointed as financial manager with responsibility for realising the debtor's assets (a position equivalent to that of trustee in bankruptcy in English law). Whilst her appointment was recognised at common law, the Supreme Court refused to assist her at common law in obtaining or disposing of the property (e.g. by appointing a receiver over the bankrupt's immovable property in England and Wales).³

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 including by appointing a receiver with a power of sale over immovable property in England and Wales.

Exceptions to the immovables rule

As noted above, there are two statutory exceptions to the immovables rule.

(i) The CBIR

The CBIR is the statutory regime which gives effect in England and Wales to the UNCITRAL Model Law on Cross-Border Insolvency. The CBIR applies if a debtor has their centre of main interests (COMI) or an establishment in the jurisdiction in which the proceedings were opened (regardless of whether the UNCITRAL Model Law has also been adopted in that jurisdiction). In those circumstances, a foreign insolvency office holder can obtain recognition of foreign insolvency proceedings by the English courts under articles 15 and 17 of the CBIR. Recognition has a number of effects, including:

1. allowing a foreign office holder to participate in a proceeding regarding the debtor under British insolvency law (article 12);
2. giving a foreign office holder standing to apply to Court under the various transaction avoidance provisions under the IA 1986, such as section 423 (article 23);
3. allowing the foreign office holder to intervene in any proceedings in which a debtor is a party as long as the requirements under English law are met (article 24);
4. an automatic stay and suspension of proceedings concerning the debtor's assets, rights, obligations or liabilities and execution against the debtor's assets (in the same way as if the debtor had been adjudged bankrupt or been subject to a winding up order under the IA 1986) (article 20); and
5. enabling the foreign office holder to apply to the Court to seek certain additional relief from the Court, including an order entrusting the administration, realisation or distribution of all or part of the debtor's assets located in Great Britain to the foreign office holder (article 21).

The Supreme Court in Kireeva considered obiter that the CBIR established a statutory exception to the immovables rule, commenting at [61] that 'it is the clear effect of the CBIR that the immovables rule does not apply to foreign bankruptcies recognised under the CBIR'. However, it was common ground in Kireeva that the CBIR exception did not apply because the bankrupt had shifted his COMI to England and Wales before the Russian bankruptcy order was made.⁴

(ii) Section 426 IA 1986

Section 426 of the IA 1986 makes provision for courts in the United Kingdom to give assistance in relation to insolvency proceedings opened in certain other countries.⁵ Section 426(4) provides that:

'[t]he courts having jurisdiction in relation to insolvency law in any part of the United Kingdom shall assist the courts having the corresponding jurisdiction in any other part of the United Kingdom or in any relevant country or territory.'

Under the IA 1986, an English bankruptcy order embraces almost all the bankrupt's assets at the date of the order, including land and immovable property. The Supreme Court has confirmed obiter in Kireeva that section 426 enables (but, despite the use of the word 'shall', does not mandate, according to long established authority) an English Court to assist a court in a relevant country or territory (or indeed a foreign office holder) that has the corresponding jurisdiction in respect of the bankrupt's assets, including land or immovable property situated in England and Wales which falls within the bankrupt estate. The Supreme Court in Kireeva, further commented at [53] that 'the immovables rule does not apply where a request for assistance is made in relation to a bankruptcy proceeding in a relevant country or territory [under section 426]'. However, again it was common ground in Kireeva that this exception did not apply as Russia was not a 'relevant country or territory' for these purposes.

Almeqham

(i) The CBIR exception in practice

Whilst it was clear from Kireeva that the CBIR and section 426 of the IA 1986 established exceptions to the immovables rule, the scope of the CBIR exception (the section 426 exception having already been considered in the case law) was not explored by the Supreme Court (as above, the exception did not apply on the facts) and it appeared unclear how it would apply in practice. This was clarified by the High Court (Jonathan Hilliard KC sitting as a Deputy High Court judge) in Almeqham.

Almeqham concerned Mr Al-Sanea, the founder of the Saad Group which included Saad Trading, Contracting and Financial Services Co ('STC'). The Saudi Arabian courts found that Mr Al-Sanea had helped to orchestrate a multi-billion dollar fraudulent scheme for the benefit of Saudi conglomerate AHAB, which collapsed in 2009 with $9.2 billion in debt. Mr Almeqham was appointed as liquidation trustee of Mr Al-Sanea and STC in March 2022 by the Saudi Arabian courts, and in February 2024 the appointment was recognised in England and Wales under article 20 of the CBIR.

Following the recognition of his appointment, the liquidation trustee sought an order to administer and dispose of the debtor's English properties. Both the liquidation trustee and the defendants who claimed interests in the properties in England and Wales (the 'Offshore Defendants') submitted that the Supreme Court's obiter comments in Kireeva supported their submissions:

1. The liquidation trustee submitted that the recognition of a foreign insolvency representative under the CBIR was itself sufficient to exclude the application of the immovables rule, where the relevant foreign law provides for immovable property to be vested in the representative (as Saudi Arabian law did).
2. The Offshore Defendants argued that mere recognition under articles 15 and 17 was not sufficient and that an application for relief under article 21 of the CBIR (which the liquidation trustee had not made) was necessary for the exception to the immovables rule to apply so that the Court could order that the liquidation trustee had the right to realise any of the debtor's assets in England and Wales.

The High Court found in favour of the Offshore Defendants and held that the recognition of foreign insolvency proceedings under the CBIR did not, in and of itself, vest rights or interests in English land in a foreign insolvency office holder.⁶ An application for relief under article 21 of the CBIR was necessary in order to provide a statutory exception to the immovables rule, thereby allowing the English courts to grant a foreign trustee rights to deal with English property.

(ii) Section 423 of the IA 1986

Almeqham also considered another statutory mechanism under which the English Court may vest rights to English immovable property in a foreign insolvency office holder: section 423 of the IA 1986. This section concerns transactions defrauding creditors and allows the Court to set aside transactions entered into at an undervalue if their purpose was to put assets beyond the reach of creditors or to otherwise prejudice their interests. As noted above, a foreign insolvency office holder has standing to apply for an order under section 423 of the IA 1986 upon recognition of their appointment under the CBIR; they are not required to invoke article 21.

Such an order under section 423 was sought by the liquidation trustee in Almeqham, so that if granted title to the properties would vest in the liquidation trustee on the ground that transfers by Mr Saad and STC of the properties in England and Wales to the Offshore Defendants were made for the purposes of putting the properties beyond the reach of creditors. The Offshore Defendants challenged the Court's jurisdiction to make such an order, arguing that the liquidation trustee had not identified a suitable jurisdictional gateway, but appeared to accept that the liquidation trustee had standing to make such an application given the liquidation trustee's recognition. The Court ultimately found that the liquidation trustee had established a jurisdictional gateway and no determination was necessary as to standing.

Almeqham raises interesting questions as to how section 423 and the immovables rule interact, which were not relevant and/or argued in that case but may be resolved in future cases. For example:

1. In Almeqham, the liquidation trustee sought an order from the court which would vest title to the English properties in him. Can a court in fact make such an order vesting the relevant immovable property in a foreign insolvency office holder if an application under section 423 is successful? Section 423(2) IA 1986 provides that under section 423 the court may make such order as it thinks fit for '(a) restoring the position to what it would have been if the transaction had not been entered into, and (b) protecting the interests of persons who are victims of the transaction'. If the position were to be restored to what it would have been had the transaction not been entered into, the relevant immovable property that is the subject of the section 423 application would have been owned by the bankrupt and, upon his bankruptcy, would have formed part of the bankruptcy estate. While it may be arguable that the court should not, therefore, make an order vesting the relevant immovable property in the foreign insolvency officeholder themselves, but in the bankrupt (and thereby the bankruptcy estate), in many laws that is an immaterial distinction since property falling within the bankruptcy estate vests by operation of law in the trustee (at least, in a personal bankruptcy rather than corporate insolvency context). Assume, however, that the court took literally the need to restore the position to what it would have been. Had the bankrupt never attempted to dispose of the property in a manner which would defraud creditors, the foreign insolvency office holder would have been prevented from dealing with the relevant immovable property that formed part of the bankruptcy estate as a result of the immovables rule, absent a further order from the court under either the CBIR or section 426 IA 1986. Should the fact that the insolvency office holder has successfully obtained relief under section 423 to vest the property in him allow the office holder to bypass the immovables rule? If so, it is difficult to see what policy objective is served by putting that office holder in a better position than the office holder of a bankrupt who has not sought to divest of property so as to infringe section 423. However, that appears to be the effect of the statutory provisions. A foreign insolvency office holder recognised under the CBIR has (broadly) the same rights (including the right to relief) as an English office holder would have, which would include the right to seek an order vesting property in them under section 423. That is particularly so where section 425 (1)(a) permits the court granting relief in respect of section 423 to 'require any property transferred as part of the transaction to be vested in any person' (emphasis added), which must include a foreign insolvency office holder.
2. In Almeqham, the liquidation trustee had standing to bring an application under section 423 via recognition under the CBIR. However, the question arises as to whether recognition of the appointment of a foreign insolvency office holder at common law would be sufficient (or forthcoming) to allow a foreign insolvency office holder to bring an application under section 423. Section 424 IA 1986 sets out those who may apply for an order under section 423. It does not expressly include foreign insolvency office holders. As above, article 23 of the CBIR specifically enables a foreign insolvency officeholder to bring an application under section 423, but it is not clear that the common law can provide a foreign insolvency office holder with similar standing. Schmitt v Deichmann⁷ ('Schmitt') suggests that the court can grant recognition at common law to a foreign insolvency office holder seeking to make an application under section 423 (providing the foreign insolvency office holder with standing), but this was decided before the Supreme Court's landmark decision in Rubin v Eurofinance⁸ which restricted the principles of modern universalism. It will be for a future case to determine whether Schmitt remains good law.

Conclusion

In light of the decisions in Kireeva and Almeqham, foreign insolvency office holders wishing to deal with a debtor's immovable property in England and Wales will be prevented from doing so, as a general rule, by the immovables rule. Such foreign insolvency office holders will need to seek to bring themselves within the exceptions to the immovables rule under either the CBIR or section 426 of the IA 1986. In respect of the CBIR, foreign office holders should be aware that more than mere recognition is required in order for the immovables rule to be disapplied: office holders will require not only recognition of their appointment by the English Court, but also an order permitting them to administer and realise English property under article 21. However, foreign office holders should also bear in mind the important rights that they are granted upon recognition (if they can meet the test for recognition under the CBIR). These include standing to make an application under the various transaction avoidance provisions under the IA 1986, including section 423. In circumstances where a debtor has attempted to put assets beyond the reach of creditors, section 423 may provide an alternative means of circumventing the immovables rule to seek to administer, realise or deal with property in England and Wales for a foreign insolvency office holder.

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Footnote

1. Kireeva v Bedzhamov [2024] UKSC 39.

2. Almeqham v Al-Sanea & Ors [2025] EWHC 322 (Ch).

3. Kireeva v Bedzhamov [2024] UKSC 39 at [102].

4. Kireeva v Bedzhamov [2024] UKSC 39 at [23].

5. The designated countries are mostly set out in the Co-operation of Insolvency Courts (Designation of Relevant Countries and Territories) Order 1986. They are mainly Commonwealth countries or former British colonies, as well as the Republic of Ireland.

6. Almeqham v Al-Sanea & Ors [2025] EWHC 322 (Ch) at [49].

7. Schmitt v Deichmann [2012] EWHC 62 (Ch).

8. Rubin and another v Eurofinance SA and others and New Cap Reinsurance Corporation (in liquidation) and another v Grant and others [2012] UKSC 46.

Originally Published by Chase Cambria Publishing

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