Sanctions in Insolvency: The Continuing Importance of Careful Analysis

Sanctions continue to be an important area for consideration, with insolvency practitioners properly exercising due caution when dealing with designated persons and/or property. Since the outbreak of the war in Ukraine, numerous sanctions measures have been introduced and expanded by jurisdictions around the world in respect of Russia. These can create complications in insolvency proceedings where creditors, assets or stakeholders are directly or indirectly subject to sanctions. A breach of these sanctions may give rise to significant civil or criminal penalties, as well as operational disruption and reputational damage. A number of recent judgments have considered the interaction between sanctions and insolvency law. Recently, the High Court of England and Wales considered the issue in Denali Corp-FZCO v Manson & Ors [2026] EWHC 2287 (Ch).

Background

Petropavlovsk Plc (the “Company”) is a company registered in England, which previously traded in the mining of gold in Russia. The sanctions introduced in 2022 meant that the Company was no longer able to continue trading. The Company had a lending facility with JSC Gazprombank before this was assigned to Atlas JSC (“Atlas”). The Company entered administration in England in July 2022. As the Company’s mining business was its primary asset, the administrators sought and obtained the High Court’s approval for the sale of the Company’s assets to Atlas under a share sale deed, for total consideration of US$619 million. The consideration comprised a number of elements including cash and a credit bid against the debt owed by the Company to Atlas. Within the share sale, there were two funds created: an Administration Fund (circa US$20 million) and a Contingency Fund (circa US$6 million). The Administration Fund was created to deal with the costs of the administration and the Company’s liabilities (where the cash consideration was insufficient) and the Contingency Fund was created to meet the costs of any action threatened and/or taken against the administrators (or subsequent liquidators). Any surplus remaining in either fund would be payable to Atlas. As part of a separate transaction, Atlas assigned its rights to participate in any distributions arising from the liquidation to Denali Corp-FZCO (“Denali”), a Dubai-registered entity. The assignment formed part of a wider settlement concerning a loss-making gold sale contract between Denali and an Atlas subsidiary and was conditional upon the (now) liquidators consenting to such assignment.  While the liquidators were considering this, Atlas was designated under UK sanctions legislation. The liquidators, therefore, withheld their consent pending clarification as to whether providing it would constitute a breach of the applicable sanctions restrictions.

Proceedings

Denali subsequently applied to the High Court for a direction that the liquidators give the required consent (Denali Corp-FZCO v Manson & Ors (Re Petropavlovsk Plc (in liquidation)) [2026] EWHC 2287 (Ch)). The central issue was whether the rights being assigned constituted "funds" or "economic resources" for the purposes of the sanctions regime:

• “Funds” are subject to a broad prohibition on dealing; whereas
• “Economic resources” are subject to restrictions concerning their exchange or use in return for funds, goods or services.

The liquidators adopted a neutral position and indicated that they would provide consent to the assignment if the High Court determined that doing so would not constitute a breach of the applicable sanctions legislation.

Decision

HHJ Johns KC held that the liquidators could provide consent to the assignment, as Atlas' right to participate in the liquidation estate was unquantified and its value would only be known once the liquidation had concluded. Because the entitlement was contingent and unquantified, it was characterised as an "economic resource" rather than "funds". The Court also held that the liquidators’ consent would not constitute “dealing with” the economic resource, as it did not involve the exchange or use of the relevant rights and would not place Atlas in a better position or provide it with any new value. In reaching his decision, HHJ Johns KC noted the Court of Appeal’s decision in PJSC National Bank Trust v Mints [2023] EWCA Civ 1132, which drew a distinction between fixed monetary entitlements and claims whose value depended on future contingencies. Although these decisions concern the UK sanctions regime, their emphasis on the precise legal characterisation of rights and the effect of a proposed action is relevant to practitioners dealing with sanctions issues in cross-border insolvency matters.

Key takeaways

The key points for insolvency practitioners are:

• The application of sanctions restrictions may turn on the precise legal nature of the right or asset involved;
• Where a transaction involves a designated person, whether an officeholder’s actions constitute prohibited “dealing” will depend on the nature and effect of the particular action; and
• The distinction drawn in Mints between fixed monetary entitlements and contingent rights remains important when considering the application of asset-freezing restrictions in an insolvency context.

At R&H Restructuring, we regularly encounter sanctions-related issues across a range of appointments. Where assets, creditors or stakeholders are subject to sanctions measures or asset-freezing restrictions, careful analysis at an early stage can be critical. Our team has experience in navigating the relevant regulatory requirements and, where necessary, obtaining appropriate licences to protect and realise value for insolvency estates.

If you would like to discuss any of the matters raised in this article, please get in touch.

Denali Corp - FZCO v Manson & Ors [2026] EWHC 2287 (Ch) (04 September 2026)

Related services: Court Appointed Liquidations | Advisory

Related contacts: