High Court rules on bankruptcy distributions amidst Russian sanctions concerns

Background and Context

The High Court of Justice, Business and Property Courts of England and Wales, recently delivered a significant judgment concerning bankruptcy distributions amidst the backdrop of international sanctions. The case involved the trustees in bankruptcy of Nikolay Fetisov and Ilya Yurov, who sought court approval to distribute funds to PJSC National Bank Trust (NBT), a Russian bank, amidst concerns regarding the applicability of UK sanctions.

The Legal Framework

The case centred around the interpretation of the UK sanctions regime, particularly the Russia (Sanctions) (EU Exit) Regulations 2019, which were enacted following Brexit. These regulations impose financial sanctions, including prohibitions on making funds available to entities controlled by designated persons. The trustees were concerned that distributing funds to NBT might breach these regulations, given the political control exercised by President Putin over Russian entities.

Sanctions Concerns

NBT, although not a designated entity under UK sanctions, was subject to scrutiny due to its ties to the Russian state. The trustees sought clarity on whether distributing funds to NBT would contravene the sanctions regime, potentially exposing them to criminal liability. The court was tasked with determining whether NBT was controlled by a designated person, specifically President Putin, under the wide interpretation of 'control' in the regulations.

Court's Analysis and Decision

Deputy Insolvency and Companies Court Judge Parfitt examined the evidence and legal arguments presented. The court noted that NBT was not designated under UK sanctions and that the Office of Financial Sanctions Implementation (OFSI) had not treated NBT as subject to sanctions. The court also considered recent guidance from OFSI, which clarified that the UK government did not presume control over Russian entities by designated officials merely based on their political positions.

Implications of the Judgment

The court concluded that it was not reasonable to expect that President Putin or other designated individuals could control NBT's affairs in a manner that would trigger sanctions. Consequently, the court granted the trustees permission to distribute funds to NBT via its solicitors, Steptoe LLP, with specific directions to monitor any changes in the sanctions landscape.

Significance for Practitioners

This judgment provides crucial guidance for insolvency practitioners dealing with cross-border bankruptcies involving entities potentially subject to international sanctions. It underscores the importance of thorough due diligence and ongoing monitoring of sanctions developments to ensure compliance and mitigate legal risks.

Conclusion

The High Court's decision in this case highlights the complexities of navigating the intersection of insolvency law and international sanctions. It offers a pragmatic approach for trustees and legal professionals in managing distributions to creditors in politically sensitive contexts.

Learn More

For more information on insolvency and sanctions, see BeCivil's guide to UK Insolvency Law.