On 26 November 2024, Mr Andrew Twigger KC (sitting as a Deputy High Court Judge) handed down judgment in Re KRF Services (UK) Ltd [2024] EWHC 2978 in which he made an administration order under para. 12 of Schedule B1 to the Insolvency Act 1986 against a company deemed to be subject to sanctions under The Russia (Sanctions) (EU Exit) Regulations 2019 (‘Sanctions Regulations’).

Having found that the jurisdictional thresholds for making an administration order were met under para. 11 Schedule B1 the Court considered whether it should exercise its discretion to make an administration order in light of the Sanctions Regulations. In a detailed judgment the Court considered the proper construction of regulations 11 to 15 and 19 and, whilst not binding on the Office of Financial Sanctions Implementation (‘OFSI’), was satisfied the appointment of administrators by the court did not, in principle, breach those provisions.

Having carefully considered the decisions of the High Court in Re Sberbank CIB (UK) Ltd [2022] EWHC 1059 (Ch), Re VTB Capital Plc [2022] BCC 1049 and Re CargoLogicAir Ltd [2022] EWHC 3316 (Ch) the Court was further satisfied that it was appropriate to make an immediate order in the circumstances of this case upon undertakings by the proposed administrators to the effect that they would (1) pursue a licence application to OFSI; (2) not ‘deal with’ the ‘funds’ or ‘economic resources’ of the company within the meaning of regulation 11 unless and until a licence has been granted by OFSI; and (3) apply to court for further directions if no licence had been granted by a specified date.

Notably, the Court was fortified in its approach by the new Sanctions (EU Exit) (Miscellaneous Amendments) (No.2) Regulations 2024 due to come into force on 5 December 2024 giving OFSI an additional ‘insolvency’ ground on which to grant licences. On this new ground, a licence may be granted to enable anything to be done in connection with insolvency and restructuring proceedings relating to an insolvent person, provided that any payments made (directly or indirectly) to a designated person (or person connected under reg. 7) are credited to a frozen account. Insolvency and restructuring proceedings include the regimes in parts A1 to 6 of the Insolvency Act 1986 and therefore Administration.

Separately, the Court found that where a company has adopted the Model Articles without modification, a sole director has authority to make an administration application under Model Article 7(2) and that this prevails over Model Article 11(2), following Re Active Wear Ltd [2023] BCC 14 and distinguishing Re Fore Fitness Investment Holdings Ltd [2022] EWHC 191.

The Judgment is available here

Rebecca Page was instructed by BCL Solicitors LLP