Denali Corp v Manson: High Court rules Petropavlovsk liquidation rights are not sanctioned funds

The High Court has ruled that a Dubai company may receive consent from the liquidators of Petropavlovsk plc to take an assignment of contractual rights originally held by a Russian company now subject to UK sanctions, after finding those rights constitute an "economic resource" rather than a "fund" under the sanctions legislation.

HHJ Johns KC, sitting in the Business and Property Courts, was asked to determine whether the liquidators of Petropavlovsk, the London-listed gold miner that entered creditors' voluntary liquidation last year, could lawfully consent to an assignment from Atlas JSC, a Russian company designated under the Sanctions and Anti-Money Laundering Act 2018 since June 2025, to Denali Corp-FZCO, an unsanctioned Dubai company. The liquidators had withheld consent, required under the terms of a 2022 share sale deed between Petropavlovsk and Atlas, out of concern that granting it might breach the Russia (Sanctions) (EU Exit) Regulations 2019.

The rights in question arose from a 2022 deed under which Atlas acquired Petropavlovsk's assets for consideration including a cash sum, a "Term Loan Consideration" reflecting any surplus in the liquidation, and residual entitlements to an Administration Fund and a Contingency Fund. In April 2025, Atlas assigned those entitlements to Denali as consideration for terminating a separate, loss-making gold supply contract between the two companies, an arrangement necessitated, the judgement records, by Atlas's inability to make payments to Denali in non-Russian currency outside Russia.

The court's analysis turned first on identifying precisely what had been assigned. The liquidators had raised the possibility that the assignment effectively transferred the underlying Term Loan itself, which would have carried an already-declared dividend in the liquidation, a construction that would have heightened sanctions concerns. HHJ Johns rejected that reading, finding that the assignment concerned only the contractual entitlement to liquidation proceeds under the share sale deed, not the Term Loan, a conclusion reinforced by both the wording of the assignment documents and commercial common sense.

Having settled that question, the judge turned to whether those contractual rights amounted to an economic resource or a fund for the purposes of section 60 of the 2018 Act, a distinction carrying different consequences under regulation 11 of the 2019 Regulations. Applying the Court of Appeal's reasoning in PJSC National Bank Trust v Mints, which held that an uncertain claim for damages was an economic resource rather than a fund, HHJ Johns found the assigned rights shared the same defining uncertainty. The entitlement to any liquidation surplus depended on the claims of other creditors, the level of asset recovery, and the extent of fees and expenses, none of which could be quantified with certainty, while the residual interests in the Administration and Contingency Funds were similarly contingent and gave no present beneficial interest in any specific sum.

Because the rights were an economic resource, the applicable prohibition under regulation 11(5) was confined to exchanging or using those rights in return for funds, goods or services, something the mere giving of consent by the liquidators did not involve. The judge noted that Petropavlovsk was not a party to the assignment transaction itself and that consent would not put any assets into Atlas's hands, since Atlas had already received the full benefit of its arrangement with Denali.

HHJ Johns reached his conclusion without reluctance, observing that withholding consent would leave Atlas having received its bargain while Denali went without the consideration it was owed. The judge invited the parties to agree an order giving effect to the judgement.