UK Supreme Court gives green light to winding-up petitions based on unrecognised foreign judgments

Overturning the Court of Appeal’s decision, the Supreme Court in Drelle v Servis-Terminal [2026] UKSC 29 held that unrecognised and unregistrable foreign judgments for a definite sum of money give rise to a ‘debt’ within the meaning of section 267 of the English Insolvency Act 1986 and, therefore, can be used as the basis for a statutory demand and subsequent winding-up petition.

Why does this matter?

The English Court of Appeal’s 2025 decision in Drelle cast doubt on the practice of presenting statutory demands and winding up petitions based on unrecognised foreign judgments.  The English Court of Appeal had adopted a restrictive approach and held that an unregistered or unrecognised foreign judgment had no direct operation in England and did not constitute a ‘debt’ sufficient to ground the presentation of a winding-up petition.

This had cast doubt on the approach in offshore jurisdictions such as the Cayman Islands and BVI.  However, as the Supreme Court’s decision in Drelle will be highly persuasive in both the courts of the Cayman Islands and BVI, it is expected to permit the presentation of winding up petitions based on unrecognised foreign judgments in both jurisdictions.

Background

The litigation in Drelle followed the collapse of a Russian bank, Russian Credit Bank, which led to the bankruptcy of Servis-Terminal LLC (ST). ST’s trustee-in-bankruptcy brought proceedings in the Russian Courts and obtained a judgment against the company’s former Director General, Mr Valeriy Drelle. Without seeking its recognition in England, ST served a statutory demand and subsequently petitioned for bankruptcy of Mr Drelle based on that judgment. Mr Drelle applied to set aside the statutory demand and opposed the making of the bankruptcy order.

The English High Court held that the debt claimed in the petition was not subject to a genuine and substantial dispute and made a bankruptcy order against Mr Drelle. However, the English Court of Appeal allowed an appeal by Mr Drelle and held that a foreign judgment has no legal effect in England and Wales until it is recognised.

ST appealed to the UK Supreme Court. The two key issues before the UK Supreme Court were:

1. At common law, what is the legal effect of an unrecognised foreign judgment for a debt or definite sum of money?
2. Does an unrecognised foreign judgment give rise to a ‘debt’ within the meaning of section 267 of the English Insolvency Act 1986, such that a petition could be presented in reliance upon it?

Decision

In its unanimous decision, the UK Supreme Court allowed the appeal.

The Supreme Court held that the legal effect of an unrecognised foreign judgment for a debt or definite sum of money is that it gives rise to an obligation to pay the sum for which the judgment has been given, pursuant to the so-called ‘obligation principle’. The Court clarified that the obligation to pay arises at the time when the final and conclusive judgment is given and it does not depend on recognition by the English courts.

Whilst the Court of Appeal had placed weight on the principle that foreign judgments do not have ‘direct operation’ in England (i.e. the judgment debtor cannot, for example, obtain a charging order or other method of execution without prior recognition of the foreign judgment), the Supreme Court found that foreign judgments may have ‘indirect operation’.

The UK Supreme Court disagreed with the conclusions reached by the Court of Appeal that unrecognised foreign judgments can only be used as a ‘shield’ rather than a ‘sword’ and that commencing insolvency proceedings on their basis constitutes an impermissible exercise of foreign sovereign power. The Supreme Court rejected the analogy with the ‘revenue rule’ based on which the courts of one country do not enforce the penal and revenue laws of another country, and which precludes presentation of a bankruptcy petition in respect of foreign tax liabilities.

In relation to the second issue, the UK Supreme Court held that the obligation to pay a sum of money under an unregistrable, unrecognised foreign judgment is a ‘debt’ within the meaning of section 267 of the English Insolvency Act 1986. The Supreme Court clarified that a ‘debt’ is ‘a legal obligation owed by one person to pay a sum of money to another person’ and it may arise under a contract, a deed, a covenant, a judgment, an order or anything else giving rise to the necessary legal obligation.

However, the above findings are subject to an important qualification: if a foreign judgment is capable of ‘registration’ through a statutory process for registration of judgments from certain countries (for example, under English Foreign Judgments (Reciprocal Enforcement) Act 1933), then that judgment cannot found a statutory demand or insolvency proceedings until it is registered.

As a unanimous, unequivocal decision from the highest English court, it is likely to be highly persuasive in other common law jurisdictions that have similar statutory insolvency regimes like the Cayman Islands and the BVI.

Impact in the Cayman Islands

The UK Supreme Court’s decision in Drelle provides further reassurance for creditors of Cayman Islands companies seeking to issue a statutory demand or commence insolvency proceedings on the basis of an unrecognised foreign judgment. Earlier Cayman Islands authorities, including In Re Lhasa Investments Ltd (1996 CILR N-3) and Re Guoan International Ltd [2021] CIGC (FSD) 153 had held that a petitioner was entitled to a winding-up order founded on an unrecognised foreign judgment.

The Court of Appeal’s decision in Drelle created some uncertainty because, if followed in the Cayman Islands, it would have called into question the ability of a creditor to rely on an unrecognised foreign judgment as a petition debt. The prudent course would have been for a creditor first to seek recognition and enforcement of the foreign judgment under ordinary common law principles before issuing a statutory demand. However, no subsequent Cayman Islands authority had fully considered the English Court of Appeal’s decision in Drelle.

The Supreme Court’s decision strongly supports the approach historically adopted by the courts of the Cayman Islands and confirms that an unrecognised foreign money judgment is capable of grounding insolvency proceedings.¹

What about foreign arbitral awards?

Unlike foreign judgments, the position in relation to foreign arbitral awards was already settled in the Cayman Islands and remains unchanged. Section 5 of the Foreign Arbitral Awards Enforcement Act (the FAAEA) provides that a Convention award (as defined in the FAAEA) is enforceable in the Cayman Islands, may be relied upon in legal proceedings, and that references to ‘enforcement’ include reliance on the award.  Accordingly, the Grand Court in China Hospitals Incorporated [2018 (2) CILR 335] and, more recently, Re SIN Capital (Cayman) Ltd [2025] CIGC (FSD) 18 granted winding-up orders founded on unpaid arbitral awards without requiring the award creditor first to obtain a Cayman Islands judgment recognising the award.

The practical effect of Drelle is to bring the treatment of ‘unregistrable’ foreign money judgments in line with that already applicable to foreign arbitral awards. The result is a more coherent and creditor-friendly framework for insolvency proceedings based on foreign judgment debts or arbitral awards.

Impact in the BVI

The UK Supreme Court’s decision in Drelle has the potential to reverse the current position in the BVI established by the recent decision JJW Hotels & Resorts Holding Inc v Rhodes & Another BVIHC (COM) 2025/0296.

In Rhodes, the applicant sought to set aside the statutory demand founded on the unrecognised Guernsey costs orders based on the English Court of Appeal’s decision in Drelle. The respondents argued that the recognition of a foreign judgment or arbitral award is not a prerequisite to the foundation of a statutory demand in the BVI, relying on the Privy Council decision in Traders Inc v Evrostroy Grupp LLC [2016] UKPC 15.

The BVI High Court found that the decisions in Drelle and Vendort were not inconsistent. Crucially, the BVI Court distinguished two situations: one involving a foreign judgment based on a ‘pre-existing debt’ (eg a contractual debt), which does not require prior recognition in the BVI before the statutory demand can be founded on it, and the other where it is the judgment itself that creates the debt, which the BVI High Court said does require prior recognition before the statutory demand can be founded on it.

The statutory demand in Rhodes was based on (unrecognised) Guernsey costs orders and no ‘pre-existing debt’, and accordingly the Court set the statutory demand aside.

Assuming that the BVI Courts follow the decision of the Supreme Court, it is not clear whether they will make the same distinction between ‘registrable’ and ‘unregistrable’ judgments. This is because the BVI has its own legislation, The Reciprocal Enforcement of Judgments Act 1922, which deals with registration of foreign judgments from certain countries.

Practical takeaways

In the Cayman Islands, creditors are likely to be able to issue statutory demands and seek winding up orders on the basis of ‘unregistrable’ foreign judgments without seeking prior recognition, in the same way as can be done for foreign arbitral awards.

In the BVI, it seems highly likely that the courts will follow the decision of the Supreme Court in Drelle and overrule the decision in Rhodes. However, until this is tested, it remains to be seen whether creditors consider the safest approach to be obtaining recognition where there is no pre-existing debt. Where a foreign judgment is capable of registration under The Reciprocal Enforcement of Judgments Act 1922, registration of the judgment before issuing a statutory demand may be required.