Modified Universalism Within the UK: Discretion to Apply Scots Insolvency Law to Northern Irish Assets Under s 426 Insolvency Act 1986

Case: MacLennan v Walkington [2025] NICA 47

Court: Court of Appeal in Northern Ireland (McCloskey LJ, Colton J, Kinney J)

Date: 23 September 2025

Introduction

This appeal arose from cross-border insolvency proceedings spanning Scotland and Northern Ireland. In 2017, the Stranraer Sheriff Court made an order of sequestration against Beatrice Walkington and her late husband, vesting their assets in the Scottish trustee in bankruptcy, Mr Thomas Campbell MacLennan. One of those assets was a residential property at 23 Movilla Road, Newtownards, County Down, where Mrs Walkington resides.

In 2022, the trustee initiated proceedings in the High Court of Justice in Northern Ireland (Chancery Division) seeking leave under article 310(2)(a)(i) of the Insolvency (Northern Ireland) Order 1989 to evict the respondents from the premises, with a view to realising the asset for creditors. A central controversy soon emerged: whether the case should be governed by Northern Irish insolvency law (including the three-year family home “re-vesting” mechanism in article 256A) or by Scots insolvency law under the Bankruptcy (Scotland) Act 2016, from which the trustee’s appointment and powers derived.

On 8 April 2025, the Chancery Court made an order declaring that Scots law would be applied at the substantive hearing, invoking section 426 of the Insolvency Act 1986. When leave to appeal that choice-of-law order was refused below, Mrs Walkington applied to the Court of Appeal for leave. The appeal thus squarely presented a choice-of-law issue within United Kingdom cross-border insolvency, alongside the procedural question whether such an order is appealable without leave.

The Court of Appeal dismissed the application for leave to appeal, affirming the High Court’s order. In doing so, it clarified the scope of judicial discretion under section 426 of the Insolvency Act 1986, the private international law framework applicable to intra-UK insolvency assistance, and the appellate standards governing interlocutory, discretionary choice-of-law rulings.

Summary of the Judgment

• The Court confirmed that the High Court in Northern Ireland had jurisdiction under section 426 of the Insolvency Act 1986 to assist the Scottish court in the sequestration by applying either the insolvency law of Scotland or Northern Ireland to “comparable matters,” exercising a statutory discretion.
• By virtue of section 426(6), the trustee’s claim to property situated in Northern Ireland operates as a “request” for assistance from the Scottish court, activating section 426(5)’s choice-of-law power.
• The High Court’s decision to apply Scots law was an exercise of discretion. An appeal from such an interlocutory decision requires leave and will be interfered with only if the judge erred in principle or reached a conclusion that was plainly wrong.
• No arguable error of law or abuse of discretion was shown. The Chancery judge’s decision fell well within the permissible range of responses to the section 426 choice-of-law question, particularly in light of modified universalism and the cross-border character of the insolvency.
• Because the order was a “staging post” and the substantive eviction application remains to be determined, the Court underscored that a final order will be appealable as of right, further supporting refusal of leave at this stage.

Analysis

The Statutory Framework

The judgment turns on section 426 of the Insolvency Act 1986, which provides a UK-wide framework for inter-jurisdictional assistance in insolvency. Three features are critical:

• Section 426(4): UK courts “shall assist” courts in other parts of the UK (and certain overseas territories) in insolvency matters.
• Section 426(5): Upon a request, the assisting court has authority to apply “the insolvency law which is applicable by either court in relation to comparable matters,” and must have regard to the rules of private international law.
• Section 426(6): A trustee’s claim to property situated in another part of the UK is treated as if the court of the other part had made a request for assistance under section 426(4) — thereby triggering section 426(5)’s choice-of-law power.

The trustee’s originating application for leave to evict under article 310(2)(a)(i) of the Insolvency (Northern Ireland) Order 1989 was thus procedurally capable of invoking section 426(5), enabling the High Court to decide to apply Scots insolvency law to the question of realisation of the Northern Irish property.

Two other statutory provisions frame the procedural posture:

• Judicature (Northern Ireland) Act 1978, section 35(2)(g): Interlocutory orders require leave to appeal to the Court of Appeal.
• Insolvency (Northern Ireland) Order 1989, article 256A: the “three-year rule” concerning the re-vesting of a bankrupt’s family home (raised by the respondent), illustrating why the choice-of-law question was outcome-significant.

The Court also noted, in the background, the EU Insolvency Regulation’s harmonisation attempt and that the UNCITRAL Model Law on Cross-Border Insolvency has not been adopted into UK domestic law, leaving section 426 as the primary domestic mechanism for intra-UK cross-border insolvency cooperation.

Precedents Cited and Their Influence

• Patterson v Rathfriland Farmers’ Co-Operative Society Ltd [2025] NICA 20
  Cited for the proposition that the choice-of-law order was interlocutory, thus requiring leave to appeal under section 35(2)(g) of the 1978 Act. This set the gateway threshold for the appellant.
• Flynn v Chief Constable of PSNI [2018] NICA 3
  Established the elevated leave threshold where the impugned order is discretionary: the applicant must show an arguable case with a reasonable prospect of success that the judge was “plainly wrong.” This standard framed the Court of Appeal’s deference to the Chancery judge’s choice-of-law decision.
• Lord Browne of Madingley v Associated Newspapers [2007] EWCA Civ 295
  Cited for the general appellate approach to evaluative or balancing exercises: interference is warranted only if there is an error of principle or a conclusion outside the range reasonably open to the judge.
• Henderson v Foxworth Investments [2014] UKSC 41
  Reinforced the high threshold for appellate reversal of trial-level evaluative decisions, invoking the “cannot reasonably be explained or justified” formulation as a guidepost.
• Re Bank of Credit and Commerce International SA (No 9) [1994] 3 All ER 764; Hughes v Hannover AG [1997] 1 BCLC 497
  Confirmed the inherently discretionary nature of the assistance power in cross-border insolvency, laying the groundwork for recognising the breadth of the Chancery judge’s discretion under section 426.
• England v Smith [2001] Ch 419 (sub nom Re Southern Equities Corporation [2000] 2 BCLC 21)
  More closely aligned to the present case, affirming that under section 426 the assisting court may apply the insolvency law of the requesting jurisdiction or its own, in relation to comparable matters — a direct antecedent for the High Court’s choice to apply Scots law.
• McGrath v Riddell [2008] UKHL 21
  At the highest level, endorsed “modified universalism” as the central thread of English (and UK) cross-border insolvency law. Although that case focused on whether to remit assets rather than choice-of-law, the principle that courts should cooperate with the court of the principal insolvency proceeding, unless contrary to justice or public policy, strongly supported the High Court’s inclination to apply the law of sequestration.
• Al-Sabah v Grupo Torras [2005] UKPC 1
  The Privy Council drew parallels between section 122 of the Bankruptcy Act 1914 and section 426 of the Insolvency Act 1986, acknowledging that private international law considerations may arise but do not inhibit the assisting court’s power to apply the insolvency law of either jurisdiction. This underpins the legitimacy of the High Court’s order and the Court of Appeal’s tolerance for its exercise of discretion.

The Court’s Legal Reasoning

The Court of Appeal treated this as a classic conflict-of-laws question within a cross-border UK insolvency. It emphasised the following steps:

1. Engagement of section 426: The Scottish sequestration and the trustee’s claim to Northern Irish land brought section 426(6) into play, deeming a “request” for assistance by the Scottish court.
2. Assisting function and choice-of-law discretion: Under section 426(5), the High Court had discretion to apply either Scots or Northern Irish insolvency law to comparable matters, subject to regard for private international law.
3. Private international law consideration: The Court acknowledged that guidance on the precise content of applicable private international law rules is sparse and that it did not have a reserved judgment from the Chancery judge setting out those considerations. Nonetheless, the general lodestar remains modified universalism with attention to justice and public policy.
4. Appellate posture: The choice-of-law order is interlocutory. Leave to appeal is required and, where the order reflects an exercise of discretion, the appellate court will only intervene when there is an arguable error of principle or a conclusion outside the reasonable ambit.
5. Outcome: The appellant advanced no vitiating factor, error of principle, or plainly wrong conclusion. Given the cross-border genesis of the bankruptcy in Scotland, applying Scots law was well within the Chancery judge’s discretion. The Court refused leave and affirmed the order.

Importantly, the Court characterised the choice-of-law order as a “staging post,” not a final determination of the trustee’s application for possession/eviction. The substantive merits remain for the High Court, whose eventual final order will be appealable as of right. This procedural context fortified the decision to refuse leave now.

Private International Law and Modified Universalism

Although the Court did not prescribe a definitive checklist, its reasoning and citations suggest that the following private international law considerations guide the section 426(5) discretion:

• Modified universalism: Co-operate with the court supervising the main insolvency proceeding so that assets are administered and distributed under a single system where possible.
• Connecting factors: The debtor’s domicile/residence, the situs of assets, the jurisdiction of the principal insolvency proceeding, the law under which the trustee is appointed and operates, and creditor expectations.
• Justice and public policy: Whether applying the foreign insolvency law would cause injustice or offend local public policy (e.g., enforcement of another state’s “public laws”).
• Avoidance of evasion/forum shopping: Whether the choice-of-law would facilitate improper evasion of legitimate protections or strategic re-domiciliation to defeat creditors or occupants.

On the facts, the Scottish origin of the bankruptcy and trustee’s powers provided a strong anchor for applying Scots law, absent any identified injustice or public policy concern. The respondent’s absolutist submission that Scots law “cannot and should not be used” in the Northern Ireland High Court was incompatible with section 426’s text and purpose.

Practical Interface with Northern Irish and Scots Insolvency Law

The choice between article 256A of the Insolvency (Northern Ireland) Order 1989 and the family home provisions under the Bankruptcy (Scotland) Act 2016 can materially affect outcomes concerning a bankrupt’s home, including timelines for realisation and re-vesting. The trustee highlighted a merits question under Scottish law: whether the Movilla Road property was the “family home” as of 9 August 2017 (the day before sequestration), an issue poised to be determinative at the substantive hearing under the law chosen.

The judgment does not decide those merits. It confirms only that the Chancery Court may lawfully proceed under Scots insolvency law in deciding the eviction/realisation application.

Impact and Forward-Looking Implications

For cross-border insolvency practice within the UK

• Section 426 is the linchpin: Trustees appointed in one UK jurisdiction can seek assistance and application of their home insolvency law to assets located in another UK jurisdiction, without needing a formal letter of request — the trustee’s claim itself suffices under section 426(6).
• Deference to first-instance discretion: Choice-of-law orders under section 426(5) are discretionary and interlocutory. Appeals require leave and will face a high “plainly wrong” hurdle. Parties should focus on persuading the Chancery court in the first instance and ensure a clear record on private international law considerations.
• Modified universalism affirmed: Expect courts to prefer the law of the main insolvency forum unless justice or public policy counsels otherwise. This facilitates a single system of distribution and coherent administration.
• Local protective regimes may not control: Debtors or occupants seeking sanctuary in local insolvency protections (such as article 256A re-vesting) may find those displaced where section 426 directs application of the foreign (intra-UK) law of the appointing court.

For litigants and advisors

• Frame the section 426(5) analysis: Put before the court the key connecting factors, any justice/public policy concerns, and the practical consequences for creditors and occupants. Do not assume party “agreement” on applicable law binds the court; the judge must exercise the statutory discretion.
• Build a reasoned record: Because appellate scrutiny is deferential, ensure submissions articulate the private international law factors and why one law should prevail. Invite the court to give brief, structured reasons.
• Plan appellate strategy realistically: Recognise that interlocutory choice-of-law orders will rarely be disturbed on leave applications. The more effective vehicle for appellate review will typically be an appeal as of right from the final order.

Complex Concepts Simplified

• Interlocutory order: A provisional, procedural, or mid-stream ruling that does not finally determine the proceedings. Unlike a final order, it typically requires leave to appeal.
• Section 426 “request”: While courts can send formal requests for assistance, section 426(6) treats a trustee’s claim to property in another UK jurisdiction as if a request had been made, unlocking the assistance and choice-of-law powers.
• Modified universalism: A guiding principle in cross-border insolvency: courts seek to support the main insolvency proceeding so assets are administered and distributed under one system, unless doing so would be unjust or contrary to public policy.
• Choice of law vs jurisdiction: Jurisdiction asks “which court can hear the case?” Choice of law asks “which legal system’s rules govern the issue?” Here, jurisdiction was not in doubt; the dispute was about which insolvency law to apply.
• Article 256A (NI) re-vesting: A Northern Irish rule that, broadly, can cause a bankrupt’s interest in a family home to re-vest after three years unless the trustee takes defined steps — a protection that may be inapplicable if Scots law is applied under section 426(5).
• “Plainly wrong” standard: When reviewing discretionary interlocutory decisions, an appellate court will interfere only if the judge erred in principle or reached a conclusion outside the reasonable range open to them.

Conclusion

MacLennan v Walkington confirms and systematises a key aspect of intra-UK cross-border insolvency: under section 426 of the Insolvency Act 1986, the Northern Ireland High Court may, in its discretion, apply the insolvency law of the jurisdiction from which the bankruptcy derives (here, Scotland) to assets located in Northern Ireland. That discretion is to be exercised with regard to private international law, guided by modified universalism and constrained by considerations of justice and public policy.

The Court of Appeal’s refusal of leave underscores two practical realities. First, choice-of-law determinations under section 426(5) are interlocutory and will attract appellate deference; absent a misdirection or a plainly wrong conclusion, they will stand. Second, such orders are staging posts: the substantive merits (here, the trustee’s application to realise the family home) remain for adjudication, and any final order will be appealable as of right.

The decision therefore offers clear guidance for future cross-border insolvency cases within the UK. Trustees can confidently invoke section 426 to align the administration of out-of-jurisdiction assets with the law of the principal proceeding. Debtors and occupants must tailor their arguments to the section 426 framework, engaging with private international law factors rather than asserting categorical resistance to the application of another UK jurisdiction’s law. In short, MacLennan v Walkington reinforces modified universalism as the operational norm and calibrates the appellate posture for reviewing such interim, discretionary choice-of-law rulings.