Bankruptcy and Insolvency in UK Law

Judgments in rem and in personam are judicial determinations of the existence of rights: in the one case, rights over property and in the other, rights against a person. When a judgment in rem or in personam is recognised by a foreign court, it is accepted as establishing the right which it purports to have determined, without further inquiry into the grounds upon which it did so.

The purpose of bankruptcy proceedings, on the other hand, is not to determine or establish the existence of rights, but to provide a mechanism of collective execution against the property of the debtor by creditors whose rights are admitted or established.

The important point is that bankruptcy, whether personal or corporate, is a collective proceeding to enforce rights and not to establish them. But these again are incidental procedural matters and not central to the purpose of the proceedings.

The English common law has traditionally taken the view that fairness between creditors requires that, ideally, bankruptcy proceedings should have universal application. There should be a single bankruptcy in which all creditors are entitled and required to prove. No one should have an advantage because he happens to live in a jurisdiction where more of the assets or fewer of the creditors are situated.

Corporate insolvency is different in that, even in the case of moveables, there is no question of recognising a vesting of the company's assets in some other person. But the underlying principle of universality is of equal application and this is given effect by recognising the person who is empowered under the foreign bankruptcy law to act on behalf of the insolvent company as entitled to do so in England.

But the domestic court must at least be able to provide assistance by doing whatever it could have done in the case of a domestic insolvency. The purpose of recognition is to enable the foreign office holder or the creditors to avoid having to start parallel insolvency proceedings and to give them the remedies to which they would have been entitled if the equivalent proceedings had taken place in the domestic forum.

There is plainly an argument that the mere fact of a DRO (or bankruptcy) should make no difference to the normal approach of making a suspended possession order conditional on payment of the arrears by instalments (pursuant to HA 1988 s.9(3)) since the instalments will be fixed by reference to what the tenant can afford out of current income. On the other hand, the DRO regime (and bankruptcy) is designed to restrict the recovery of debt and, when the process is complete, to eliminate it.