Recognition of foreign bankruptcy (Collatory Case)

In Re Shahzad [2026] EWHC 1039 (Ch) ('Shahzad'), ICCJ Agnello KC heard an (unsuccessful) application, by Mr Shahzad, for an order, setting aside an earlier (31.1.25) Court order[1] which recognised Mr Shahzad’s Danish bankruptcy, as a foreign main proceeding, pursuant to the Cross-Border Insolvency Regulations 2006 ('CBIR') (paragraph 1)(the 'Recognition Order') (the 'Set Aside Application'). Mr Shadzad's Set Aside Application was based on: the public policy ground - that, the Recognition Order was an impermissible enforcement of Danish tax liabilities (paragraph 1). The Danish trustee ('Trustee'), the respondent to the Set Aside Application, opposed the Set Aside Application. 

Under the heading 'Legal principles', the Judge said, at paragraphs 4 to 14:

'The legal principles governing applications for the recognition of foreign insolvency proceedings are agreed between the parties. [Counsel for Mr Shahzad] makes specific submissions on the facts of this case in relation to what the Applicant submits is the enforcement of foreign revenue laws, but no issue is raised in relation to the legal principles themselves.

... the CBIR incorporates into the law of England and Wales and of Scotland the provisions of the UNCITRAL Model Law on Cross-Border Insolvency (the Model Law).

The purpose of the Model Law has been described as “to assist States to equip their insolvency laws with a modern, harmonized and fair framework to address more effectively instances of cross-border insolvency” (Re OJSC International Bank of Azerbaijan [2019] BCC 452 at [34]).

As set out in Article 17 of the CBIR, the court is obliged to recognise a foreign insolvency proceeding where the requirements of Article 17 of the CBIR are satisfied, subject to Article 6. Article 17 provides:

‘Subject to article 6, a foreign proceeding shall be recognised if-

(a) it is a foreign proceeding within the meaning of sub-paragraph (i) of article 2;

(b) the foreign representative applying for recognition is a person or body within the meaning of sub-paragraph (j) of article 2;

(c) the application meets the requirements of paragraphs 2 and 3 of article 15; and

(d) the application has been submitted to the court referred to in article 4.’

Recognition under Article 17 requires that the foreign insolvency meets the definition of “foreign proceeding”. This term is defined by Article 2(i):

‘a collective judicial or administrative proceeding in a foreign State, including an interim proceeding, pursuant to a law relating to insolvency in which proceeding the assets and affairs of the debtor are subject to control or supervision by a foreign court, for the purpose of reorganisation or liquidation’

The court has to be satisfied before making a recognition order that the foreign proceeding is: (i) a collective proceeding; (ii) pursuant to a law relating to insolvency; (iii) subject to control or supervision by a foreign court; and (iv) for the purpose of reorganisation or liquidation.

The other requirements of Article 17 require the Court to be satisfied that the foreign representative applying for recognition is a person or body within the meaning of Article 2(j), and that the requirements set out in Article 15(2) and (3) are met as well as the application having been made to the court referred to in article 4.

If the Court is satisfied that the requirements set out in Article 17 are established, then the Court will make a recognition order.

The issue raised by the Applicant relates to article 6 which states:-

‘Nothing in this Law prevents the court from refusing to take an action governed by this Law if the action would be manifestly contrary to the public policy of Great Britain or any part of it’

The public policy exception is restricted by the statutory provisions in the CBIR itself. In Kireeva v Bedhamova [2025] AC 812 the Supreme Court considered an application made under common law to exercise its general ‘just and convenient’ discretion to appoint a receiver over immovable property located in Great Britain. At common law, a foreign court has no jurisdiction to make orders in respect of land situated in England and Wales. The Supreme Court refused to grant the order sought based on the public policy underlying the immovables rule, but expressly stated that no such public policy issue arises in relation to cases under the CBIR. At paragraph 60, the Supreme Court stated:-

‘60. The words "all or part of the debtor's assets located in Great Britain" are not qualified in any way and are plainly wide enough to include interests in land. There is nothing in the context of the UNCITRAL Model Law or of the CBIR, or in the Guide to its Enactment and Interpretation published by UNCITRAL, that would suggest an implicit qualification by reference to the immovables rule.

61. Like section 426, it is the clear effect of the CBIR that the immovables rule does not apply to foreign bankruptcies recognised under the CBIR.’

The public policy exception relating to the enforcement of foreign revenue laws has been curtailed under the CBIR under Article 13, which states :-

‘1. Subject to paragraph 2 of this article, foreign creditors have the same rights regarding the commencement of, and participation in, a proceeding under British insolvency law as creditors in Great Britain.

2. Paragraph 1 of this article does not affect the ranking of claims in a proceeding under British insolvency law, except that the claim of a foreign creditor shall not be given a lower priority than that of general unsecured claims solely because the holder of such a claim is a foreign creditor.

3. A claim may not be challenged solely on the grounds that it is a claim by a foreign tax or social security authority but such a claim may be challenged—

(a) on the ground that it is in whole or in part a penalty, or

(b) on any other ground that a claim might be rejected in a proceeding under British insolvency law.’

Background

On 16.12.22, Mr Shahzad was declared bankrupt by a Danish Court (paragraph 15). The Danish Court appointed the Trustee (paragraph 15). The Trustee was administering the Danish bankrupt estate, in accordance with Danish bankruptcy law. The Trustee's evidence was that (as summarised by the Judge):

(1) '...pursuant to the Danish Bankruptcy Act, that the Danish bankruptcy is a collective of the CBIR.' (paragraph 15);

(2) he was appointed by the Danish Court, following the Danish Court considering the issue, including the Danish tax authority's ('DTA') recommendation for his appointment (paragraph 16)

(3) once appointed;

(a) a trustee's duty is to the Danish Court;

(b) the trustee '...is obliged to act in the best interests of all the creditors of the Danish Bankruptcy. Distributions under Danish bankruptcy law are on the basis of the pari passu principle.' (paragraph 16)

(4) in respect to Mr Shahzad's Danish bankruptcy, there is a list of creditors (paragraph 17). The list of creditors:

(a) aggregate of all proofs filed, is c.£3.8m;

(b) one of those creditors, is the DTA, who make a claim for c.£380,000 (so approximately less than 10% of the overall claims in the Danish bankrupt estate)

(c) '...include companies which are themselves in insolvency processes and the [DTA] has made claims in those insolvencies.' (paragraph 17) but that 'in all the other insolvency cases, save for one (Biler Roskildevej A/S, in bankruptcy) the [DTA] is a minority creditor.' (paragraph 17). It seems that each of these 3 different companies, which were listed as creditors in Mr Shahzad's Danish bankruptcy, were themselves in an insolvency process (with the Trustee, separately, appointed as office holder for them (paragraph 33)). And that, the DTA had put in a claim into each of those 3 companies insolvencies, for unpaid Danish tax. 

The application to set aside the Recognition Order, on public policy grounds

Set Aside Application 

On the Set Aside Application: 

(1) in light of Kireeva v Bedhamova [2025] AC 812 judgment, Mr Shahzad accepted that the immovables rule, does not apply to Mr Shahzad's Danish bankrupt (as it was a foreign bankruptcies recognised under the CBIR).

(2) Mr Shahzad referred to the well-known common law principle, set out in Dicey, Morris & Collins on The Conflict of Laws, that the courts of one country will not enforce the penal and revenue laws of another country, as follows:-

‘There is a well-established and almost universal principle that the courts of one country will not enforce the penal and revenue laws of another country. Although the theoretical basis for the Rule is a matter of some controversy, the best explanation, it is submitted, is that suggested by Lord Keith of Avonholm in Government of India v Taylor that enforcement of such claims is an extension of the sovereign power which imposed the taxes, and “an assertion of sovereign authority by one State within the territory of another, as distinct from a patrimonial claim by a foreign sovereign, is (treaty or convention apart) contrary to all concepts of independent sovereignties.”

(3) Mr Shahzad contended that '...the Danish tax authority is the dominant creditor in relation to the substance of the bankruptcy proceedings and that it is its interests which are being pursued' (paragraph 23), but notably, Mr Shahzad did not challenge the Trustee's position that the list of creditors contained numerous creditors with no connection to the DTA (paragraph 23). 

(4) Mr Shahzad referred to 2 authorities, (a) Peter Buchanan Ltd v McVey [1954] IR 89, an Irish case ('Buchanan'); and (b) QRS1 ApS v Frandsen [1999] 1 WLR 2169 ('QRS1'):

(a) in Buchanan, a Scottish company was put into liquidation by the (UK) Revenue (a foreign tax authority). The liquidator was appointed at the Revenue's instance. It seems (though this is not at all clear) that the liquidator sought recognition of the Scottish liquidation, in Ireland. The Irish Court took the view, that the sole purpose of the (foreign) liquidation was to recover assets to satisfy the Revenue debt. In this regard, the Irish Cout said: 'when it appears to the court that the whole object of the suit is to collect tax for a foreign revenue, and that this will be the sole result of a decision in favour of the plaintiff, then a court is entitled to reject the claim.' (Shahzad, paragraph 26)

(b) in QRS1, some companies were in liquidation:

(i) The relevant tax authority was the sole creditor of the companies.

(ii) The companies were claimants in a private civil action in England, claiming restitution/loss, the loss being 'non-payment of revenue liabilities of a foreign state.'

In QRS1, the Court of Appeal had, at 1275C, said:

‘All that said, I for my part would wish to emphasise the relative narrowness of rule 3 of Dicey & Morris in so far as it applies to this particular kind of indirect enforcement. As Lord Mackay of Clashfern said in Williams and Humbert Ltd. v. W. & H. Trade Marks (Jersey) Ltd. [1986] A.C. 368, 440:

"From the decision in the Buchanan case [1955] A.C. 516 counsel for the appellants sought to derive a general principle that even when an action is raised at the instance of a legal person distinct from the foreign government and even where the cause of action relied upon does not depend to any extent on the foreign law in question nevertheless if the action is brought at the instigation of the foreign government and the proceeds of the action would be applied by the foreign government for the purposes of a penal revenue or other public law of the foreign state relief cannot be given. It has to be observed that in the Buchanan case the action was being pursued by a person whose title as liquidator of the company depended on his having been appointed by a petition to the court in Scotland on behalf of the Inland Revenue, that the ground of action was that the transactions being attacked in the proceedings in Dublin were ultra vires and dishonest because there existed at the time that they were effected in Scotland a claim by the Inland Revenue which the transactions were designed to defeat, and that if no such claim existed the defendant would have been entitled to retain the subject matter of the claim. Most important there was an outstanding revenue claim in Scotland against the company which the whole proceeds of the action apart from the expenses of the action and the liquidation would be used to meet. No other interest was involved. That this was regarded as of critical importance appears from what was said in the decision on appeal by Maguire C.J., at p. 533. Having regard to the questions before this House in Government of India v. Taylor [1955] A.C. 491 1 consider that it cannot be said that any approval was given by the House to the decision in the Buchanan case except to the extent that it held that there is a rule of law which precludes a state from suing in another state for taxes due under the law of the first state. No countenance was given in Government of India v. Taylor, in Rossano's case [1963] 2 Q.B. 352 nor in Brokaw v. Seatrain U.K. Ltd. [1971] 2 Q.B. 476 to the suggestion that an action in this country could be properly described as the indirect enforcement of a penal or revenue unsatisfied. The existence of such unsatisfied claim to the satisfaction of which the proceeds of the action will be applied appears to me to be an essential feature of the principle enunciated in the Buchanan case [1955] A.C. 516 for refusing to allow the action to succeed."

I can readily understand Lord Mackay's insistence on the narrowness of the Buchanan decision and his approach certainly appears consistent with the view of the editors of Cheshire and North, Private International Law, 12th ed. (1992), p.116: "It is questionable whether the general ban on indirect enforcement is not too rigid." They do not, however, criticise the Buchanan case [1955] A.C. 516 and, as I repeat, the present case is indistinguishable from the Buchanan case: both are to be regarded as cases where the liquidator, as nominee for a foreign state, in substance is seeking a remedy designed to give extraterritorial effect to foreign revenue law. In my judgment, such claims plainly fall within the compass of revenue matters as that expression would be understood by all member states for the purposes of article 1 of the Convention.’

(3) Mr Shahzad sought to argue that the facts in Shahzad, were within the Buchanan approach. That 'The character and substance of the Danish bankruptcy proceedings is one of enforcement of the claims by the Danish tax authorities.' (paragraph 29) - pointing to both: (a) DTA's claim in the Shahzad Danish bankruptcy; and (b) DTA's claim in the 3 companies, which in turn, had a claim in the Shahzad Danish bankruptcy. 

(4) the Trustee resisted this approach. The Trustee contended that, the DTA is not the sole creditor in Shahzad Danish bankruptcy, and this was, in effect, crucial. That this distinguished this case on its facts from both Buchanan and QRSI (paragraph 30). That, in fact, the DTA was not even a majority creditor. As to the 3 companies, the DTA was not the sole creditor in any of them. Indeed, for 2 of the 3, the DTA was not even the majority creditor (paragraph 30)

When the question is posed: whether the substance of the right involves a matter of revenue and the enforcement of revenue liabilities, the answer should be no (paragraph 31). The Trustee is being funded by the DTA, but the Trustee is clear that he is acting under Danish insolvency law and in the interests of all the creditors (not acting at the direction of one creditor only)

Separately, that the Danish bankruptcy proceedings are collective insolvency proceedings. This means: (i) a collective proceeding; (ii) pursuant to a law relating to insolvency; (iii) subject to control or supervision by a foreign court; and (iv) for the purpose of reorganisation or liquidation. The Applicant has not challenged that evidence or the determination by the Court that those requirements have been met (paragraph 32)

Discussion and conclusion

Under the heading 'Discussion', the Judge said, at paragraphs 34 and 35:

'In my judgment, [counsel for the Trustee] is correct in his submissions relating to the issue of the treatment of the Danish proceedings and the [DTA's] position. The evidence demonstrates that the Danish proceedings are a collective insolvency proceeding in accordance with the CBIR. There is no challenge to that. There is also no challenge to the evidence as to the existence of other creditors in the bankruptcy estate. [Mr Shahzad] asserts that the [DTA] is the dominant creditor. This is not an assertion that the [DTA] is the sole creditor as was the case for the relevant tax authority in the two cases relied upon by [counsel for Mr Shahzad]. A dominant creditor is not one who can recover more than the other creditors in a collective insolvency proceeding. Any distribution is in accordance with the relevant insolvency process, which in Denmark is pari passu. Any distributions will be made to all creditors and not exclusively to the [DTA]. There is in reality no real legal meaning to being a dominant creditor. In so far as this is supposed to signify that the [DTA] is in some way able to dictate to the Trustee what he should do and what action he should take (or has done so in the past), there is no evidence of this being the position. The Danish bankruptcy is under the control and supervision of the Danish court. That is accepted by the [Mr Shahzad] in that there is no challenge to the Danish proceedings being a collective insolvency proceeding.

There is no evidence that the Trustee has acted at the direction of the [DTA] in its administration and conduct of the Danish bankruptcy. [Mr Shahzad's] submission in relation to the [DTA] being the dominant creditor is simply unsustainable. There is no evidence that in substance the Danish bankruptcy is in reality for the benefit of only the [DTA]. The evidence is clearly that there are other numerous creditors. Accordingly, the facts of this case are fundamentally different from the cases of Buchanan and QRSI. The evidence does not support in this case the argument that the substance of the Danish bankruptcy is for the sole benefit of the [DTA]. The passage set out above from QRSI is clear in relation to when the common law rule concerning the enforcement of foreign revenue law might apply to insolvency proceedings. In my judgment, the rule relating to the enforcement of the foreign revenue law is not applicable to the current case as on the evidence there is no direct or indirect enforcement of the relevant foreign law...' [bold added]

The application was dismissed (paragraph 36).

Collatory Case Series

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