"Can't touch this": the "immovables rule" shields UK property from foreign trustee in bankruptcy

The Supreme Court has confirmed that the "immovables rule" prevents a foreign trustee in bankruptcy from seeking to claim property in this jurisdiction for the benefit of the foreign bankruptcy estate under common law (in Kireeva v Bedzhamov [2024] UKSC 39).

What is the "Immovables Rule"?

The "immovables rule" is an established principle in many jurisdictions, which confirms that the rights to and interests in "immovable property" (such as land) are governed exclusively by the law of the country in which the property is located. The laws and judicial decisions of another jurisdiction are not recognised and will have no effect insofar as they purport to govern or decide issues of rights to or interests in that immovable property.

Kireeva v Bedzhamov [2024] UKSC 39

Ms Kireeva was the trustee in bankruptcy of Mr Bedzhamov, a Russian citizen who left Russia in 2015 but was nonetheless declared bankrupt by a Russian court in 2018. Mr Bedzhamov owned a property in London which, as a matter of Russian law, vested in the bankruptcy estate. Ms Kireeva applied to the English courts for recognition of her right to take control of the property under common law and to seek to appoint a receiver.

The Supreme Court upheld the decisions of the High Court and Court of Appeal to confirm that the immovables rule meant that the Russian court could not determine the rights and interests in immovable property in England. As such, the English court has no common law power to assist a foreign trustee in bankruptcy in relation to immovable property.

The Supreme Court also considered (but ultimately dismissed) the possibility of modifying the immovables rule in the context of cross-border insolvency proceedings, given that there are already two statutory exceptions to the rule which could otherwise assist, namely:

1. The Cross Border Insolvency Regulations 2006 (implementing the UNCITRAL Model Law) (CBIR), by which foreign insolvency officeholders can apply for recognition of their appointment in this jurisdiction; and
2. Section 426 of the Insolvency Act 1986, which enables foreign courts in certain jurisdictions to apply for assistance from English courts in relation to foreign insolvency proceedings.

If the trustee’s application came within the scope of either of the above exceptions, then the immovables rule would not have applied.

The Supreme Court declined to modify the immovables rules any further, determining that such a move would be “a substantial departure from the existing law and the principles of public policy to which it gives effect” and would require legislation.

Implications for foreign officeholders

In cross-border insolvency proceedings, attention should always be paid to assets outside the jurisdiction and how they can be realised. The Supreme Court has confirmed that the UK courts have no jurisdiction under common law to assist foreign insolvency office holders in relation to immovable property such as land or buildings. However, there are other avenues in this jurisdiction which should be explored.

In Kireeva, section 426 of the Insolvency Act 1986 could not assist because Russia is not a “relevant country” for the purpose of that section to enable the UK courts to grant relief. CBIR provides a straightforward and well-trodden path for recognition of cross-border insolvency proceedings, which is not limited in its application to particular countries. However, in this case, it was not possible for the trustee in bankruptcy to utilise this route to realise the London property, because the debtor’s centre of main interests was outside Russia (where the insolvency proceedings were commenced). Consequently, it was not possible for the debtor’s trustee in bankruptcy to apply for recognition or relief under CBIR. The statutory exceptions to the immovables do, therefore, need to be navigated with care with reference to the particular facts of their case.