Britain’s top court decided for the first time that U.S. bankruptcy rulings against debtor companies that don’t appear in court to defend themselves can’t be recognized in the U.K.
Allowing so-called default judgments from the U.S. and other countries to be recognized in Britain would be a “radical departure” from current law and detrimental to domestic business, the U.K. Supreme Court ruled today in London.
The ruling is a setback for Irving Picard, the trustee for jailed con man Bernard L. Madoff’s firm. While he wasn’t a party in the case, he filed court papers promoting the recognition of U.S. judgments in Britain as he seeks to enforce three New York rulings totaling $1.25 billion in courts in Gibraltar and the Cayman Islands, which are influenced by U.K. law.
“This judgment will make large cross-border insolvencies more difficult,” said Nick Herrod, a lawyer with Allen & Overy LLP in London, who isn’t involved in the case. “It’s disappointing because it’s pushing against the tide” of recent cases that were “building quite a bit of momentum.”
Amanda Remus, a Picard spokeswoman, declined to comment.
The U.K. Supreme Court case involves a $10 million default judgment in New York against Eurofinance SA, a bankrupt sales-promotion company based in the British Virgin Islands. A trustee for Eurofinance had sought to enforce a New York judgment in England, where the people associated with the company live.
The ruling “benefits businesses or individuals in the U.K. who might otherwise be obliged to attend litigation proceedings in the U.S., or indeed anywhere else in the world, that arise in a bankruptcy,” said Patrick Elliot, a lawyer with Brown Rudnick LLP in London, who represented Eurofinance.
All three of Picard’s cases were adjourned to await today’s ruling, according to the judgment. The Supreme Court said it didn’t make any findings in relation to the Madoff cases, and the entities sued by Picard also filed court papers to make their arguments.
In the Gibraltar cases, Picard seeks to enforce a $180 million judgment against Vizcaya Partners Ltd., based in the British Virgin Islands, and a $67 million judgment against Asphalia Fund Ltd., based in the Cayman Islands. He also seeks to enforce a default judgment of more than $1 billion against Harley International (Cayman) Ltd. in a Cayman Islands court.
Picard’s cases relate to “preferential payments” made to companies during the 90-day period before Madoff’s Ponzi scheme was revealed in 2008. Such payments can be recovered for the benefit of creditors under U.S. law. Madoff is serving a 150-year prison sentence after pleading guilty to fraud.