Sanctions imposed in response to the Ukraine war have resulted in a busy time for insolvency practitioners. However, as a High Court ruling underlined, they need to tread carefully to avoid the risk of themselves breaching the sanctions regime.
The case involved an English holding company that owned numerous gold mining and exploration assets in Russia. Neither the company nor its Russian subsidiaries were subject to sanctions, but their imposition had a devastating impact on its business to the point where it was unable to pay its debts as they fell due.
Administrators were appointed and launched emergency proceedings under the Insolvency Act 1986, seeking a direction giving liberty to proceed with a sale of almost all the company’s assets for a sum in excess of $600 million. They had, on legal advice, reached a settled view that the sale would not give rise to any breach of sanctions. They nevertheless appreciated that there was a risk in that regard.
Ruling on the matter, the Court noted that the administrators were acutely conscious of the responsibilities that went with their position as officers of the Court and that the Court will not permit its officers to act in a way which would clearly be dishonourable or improper. Their concern in that respect was one of the principal reasons why they had sought a judicial direction before proceeding with the transaction.
Having heard no argument from the Office of Financial Sanctions Implementation, the Court was not prepared to grant a formal declaration that the sale would not fall foul of sanctions. It found, however, that it was unnecessary to make such a declaration before granting the administrators the direction sought.
It had no hesitation in finding that there was nothing dishonourable in the proposed transaction. On the contrary, the administrators wished to discharge their duties by entering into a transaction that they considered would be in the interests of the company’s creditors, including HM Revenue and Customs who were estimated to be owed between £10.6 million and £14.8 million in VAT.
They had taken the sanctions seriously and considered their implications carefully in the light of expert advice. With the company’s financial position swiftly deteriorating, they had reached a rational view that the transaction was the best course to take in the interests of all stakeholders. In granting the relief sought, the Court was satisfied that there was little apparent practical risk that the proposed sale would breach sanctions. Such a risk had not been entirely eliminated, but it was not such as to make it inappropriate for the administrators to enter into the transaction.