OFSI Licences Cannot Override Insolvency Rights: Sanctions Permission Is Not Authority to Redistribute Assets

1. Introduction

This judgment clarifies an important boundary between financial sanctions and insolvency law. An Office of Financial Sanctions Implementation (“OFSI”) licence can permit conduct that sanctions would otherwise prohibit. It cannot, however, supply authority to disregard insolvency legislation, extinguish a creditor’s underlying rights, or dictate how the Insolvency Court must resolve a dispute.

The dispute concerned PJSC VTB Bank (“the Bank”), a designated Russian bank, and its majority-owned UK subsidiary, VTB Capital PLC (in administration) (“the Subsidiary”). The Bank challenged an amendment to the Subsidiary’s sanctions licence which sought to facilitate distributions to unsanctioned creditors while requiring deductions from amounts paid or reserved for the Bank.

The Court of Appeal dismissed the challenge. Nevertheless, its interpretation substantially limited what the licence amendment could achieve. In particular, the court held that retaining assets within an administration to provide for a designated creditor’s possible entitlement does not itself make funds or economic resources available to that creditor.

The decision therefore combines support for the breadth and effectiveness of sanctions with a firm rejection of their use, through licensing, as a substitute for insolvency adjudication.

2. Background and Procedural History

Designation and administration

The Bank, Russia’s second-largest bank and majority-owned by the Russian Government, was designated on 24 February 2022 under the Russia (Sanctions) (EU Exit) Regulations 2019/855 (“the Russia Regulations”). Its ownership of the Subsidiary brought the Subsidiary within the practical operation of the asset restrictions.

Although the Subsidiary was considered balance-sheet solvent when the administration order was made, the sanctions prevented it from paying its debts as they fell due. It entered administration on 6 December 2022, after the necessary UK and US licences had been obtained. The statutory objective was to achieve a better result for creditors as a whole than an immediate winding-up, including through earlier payment.

The administration faced several interconnected difficulties:

• The Bank submitted a proof of debt exceeding £205 million.
• Substantial assets, estimated at approximately £180 million, were situated in Russia and could not practically be realised by the joint administrators.
• Other companies within the Bank’s group owed substantial sums to the Subsidiary: the “VTB Group Receivables”.
• The Bank pursued enforcement against the Subsidiary’s Russian assets.
• Although sanctions prevented distributions to sanctioned creditors, provision ordinarily had to be retained for their claims. Statutory interest could also become relevant if a surplus remained after payment of debts.

The unsuccessful scheme of arrangement

The joint administrators proposed a scheme under Part 26 of the Companies Act 2006. Its arrangements included accounting for the Bank’s Russian enforcement, allocating the VTB Group Receivables to it in their existing form, and transferring sanctioned creditors’ distributions into a Holding Period Trust.

OFSI amended the General Licence in May 2024 to permit the trust mechanism. The Bank did not challenge that amendment. However, it voted against the scheme on 5 September 2024. Given the size of its claim, that opposition prevented the necessary creditor approval.

The January 2025 licence amendment

The administrators then sought a “sanctions solution”. OFSI declined their suggested restriction on the Bank’s voting, considering voting appropriately regulated by insolvency law. Instead, on 8 January 2025 it inserted paragraph 5.3A into the General Licence.

In substance, that paragraph required that funds or economic resources should not be made available to the Bank, including by making provision for later payment, without deducting:

• the value of Subsidiary assets against which the Bank had taken or was taking enforcement action; and
• the value of the VTB Group Receivables.

These values were to be converted into sterling at the exchange rates applicable on 6 December 2022. The amendment also restricted provision or payment for statutory interest during periods when distributions were withheld because of the deductions.

The administrators subsequently obtained creditor approval for a revised scheme by treating the Bank’s voting claim as reduced because of the amendment. However, the Insolvency Court had not sanctioned that scheme. A separate application for permission to distribute on the amendment’s basis—the Parallel Distribution Application—also remained unheard.

The Bank challenged OFSI’s decision under section 38 of the Sanctions and Anti-Money Laundering Act 2018 (“SAMLA”). Mrs Justice Collins Rice dismissed the challenge in [2025] EWHC 3359 Admin. The Court of Appeal upheld that outcome, while providing its own detailed explanation of the licence’s limited effect.

3. Statutory Framework

Sanctions powers and purposes

SAMLA authorises sanctions regulations for specified purposes, including national security, international peace and security, and the resolution of armed conflict. Section 3 includes freezing designated persons’ funds and economic resources and preventing resources being made available to them or for their benefit.

Regulation 4 of the Russia Regulations identifies their purposes as encouraging Russia to cease destabilising Ukraine or threatening its territorial integrity, sovereignty or independence, and promoting Russian compensation for harm caused by the invasion.

The court distinguished between:

• Regulation 11: prohibiting dealing with funds or economic resources owned, held or controlled by a designated person; and
• Regulations 12–15: prohibiting funds or economic resources being made available, directly or indirectly, to or for the benefit of a designated person.

These prohibitions are deliberately broad, but their reach remains governed by their statutory language.

Licences and judicial review

Regulation 64 permits Treasury licences authorising acts that would otherwise breach sanctions. Regulation 66 allows conditions and provides for variation, suspension or revocation.

A licence therefore creates an exception to an existing prohibition. It does not create an independent power to override other law.

Under section 38(4) of SAMLA, the court applies judicial review principles when considering whether to set aside a licensing decision. These proceedings were consequently concerned with the lawfulness of OFSI’s decision, not a merits-based determination of the Bank’s insolvency entitlement.

4. Summary of the Judgment

The appeal was dismissed for two central reasons.

1. The amendment was permissive, not dispositive. It removed sanctions prohibitions from specified conduct but did not determine or extinguish the Bank’s rights under insolvency law.
2. The amendment’s properly understood purpose fell within the sanctions regime. OFSI could condition its relaxation of sanctions to support their effectiveness. That did not give it power to direct the outcome of insolvency disputes.

The court also held that making ordinary insolvency provision for the Bank’s possible entitlement did not amount to making funds or economic resources available to it. The wording in paragraph 5.3A purporting to prohibit such provision could therefore have no legal effect, apart from possibly indicating OFSI’s preferred “direction of travel” to the administrators.

The four grounds of appeal failed as follows:

5. Legal Reasoning

A. Permission under sanctions law is not authority under insolvency law

The decisive distinction appears in paragraphs 107–116 and the conclusions at paragraph 140. A licence answers whether specified conduct would breach sanctions. It does not answer whether that conduct complies with insolvency law.

The court endorsed the essential proposition:

“Decriminalisation is the only thing a licence can achieve.”

Accordingly, administrators contemplating a distribution must satisfy two separate legal requirements:

1. The distribution must not breach applicable sanctions, whether because no prohibition applies or because a licence authorises it.
2. The distribution must comply with insolvency law and any necessary court authorisation.

The administrators had argued that the amendment could deliver an outcome arguably unavailable under insolvency law. The court rejected that approach. Neither the administrators nor the Insolvency Court was obliged to implement the amendment’s envisaged arrangements.

This explains why the court could uphold the licensing decision while rejecting the claim that it supplied a complete “sanctions solution”. A licence may remove one legal obstacle without removing others.

B. Sanctions restrict payment without extinguishing the underlying insolvency entitlement

Creditors do not acquire ownership of a company’s assets merely because it enters administration. They acquire statutory rights to have those assets administered and distributed under the applicable insolvency framework.

For unsecured creditors, that generally entails a proportionate distribution after satisfaction of prior-ranking claims. Where some claims cannot yet be paid or remain disputed, Rule 14.39 of the Insolvency (England and Wales) Rules 2016 requires provision for undetermined claims and disputed proofs.

The court held that Regulations 11–15 do not themselves remove the Bank’s underlying creditor rights. They prevent prohibited dealings and payment while sanctions apply. In principle, the Bank retains its right to proper administration of the estate and to any proportionate entitlement that becomes payable after sanctions are lifted.

That does not establish that the Bank’s proof is valid in its asserted amount, nor guarantee a particular recovery. Its substantive insolvency entitlement remained disputed.

C. Retaining assets is not making funds available

The interpretation of provisioning was the judgment’s most specific substantive clarification.

Making provision under Rule 14.39 means retaining sufficient assets within the insolvency estate to meet a possible future entitlement. It does not transfer those assets to the creditor, give the creditor an interest in them, or place them at its disposal.

HMT argued that provision might confer indirect advantages, such as improved accounting treatment or borrowing capacity. The court found that unpersuasive. Any accounting recognition would depend on the creditor’s assessment of the debtor’s solvency and the prospects of payment after sanctions ended. Provision itself gave the Bank nothing beyond preserving its existing insolvency position.

The court therefore held that paragraph 5.3A could not enlarge the underlying regulations by treating ordinary insolvency provisioning as prohibited “making available” of funds.

Importantly, this conclusion concerns retention of assets within the estate. It does not establish that transferring assets into a trust for a sanctioned beneficiary, or otherwise deploying assets for its benefit, is necessarily outside sanctions.

D. Why the provisioning words did not invalidate the whole amendment

The court concluded that the disputed wording had no operative legal effect of the kind asserted. It did not formally set aside the entire amendment or direct a distribution.

It also supplied an alternative analysis. Even if the provisioning condition were effective as a condition of sanctions permission, it would still not authorise an insolvency-law breach. It could only identify the circumstances in which conduct would be exempt from sanctions.

This alternative reasoning exposes a possible practical impasse: a proposed transaction might satisfy sanctions conditions yet remain impermissible under insolvency law. The answer would be an appropriate insolvency solution or reconsideration of the licence—not administrative displacement of creditor rights.

E. Broad sanctions purposes do not confer unlimited legal powers

The court accepted that sanctions may intentionally cause serious, enduring and even irreversible economic harm. An asset freeze can destroy business opportunities, erode value or precipitate insolvency.

It nevertheless distinguished those consequences from a licensing decision that itself extinguishes an existing legal entitlement.

HMT tested the point through a hypothetical company with two creditors, one sanctioned and one unsanctioned. It suggested that a licence could permit all assets to be distributed to the unsanctioned creditor, leaving nothing for the other.

The court rejected that proposition. Without an applicable insolvency-law justification, a licence could not authorise the administrators to disregard their obligation to provide for the sanctioned creditor. Sanctions permission alone would not make such a distribution legally valid.

The correct starting point was also important: without the relevant licence, the Subsidiary could not simply distribute its assets to everyone except the Bank. Its own assets were frozen. HMT’s suggestion that an unlicensed administration would necessarily run its course and leave nothing for the Bank therefore rested on an incorrect counterfactual.

F. Improper purpose and the significance of intended consequences

HMT argued that the Bank was attempting an impermissible challenge to the scope of OFSI’s powers under the guise of an improper-purpose argument. The Bank responded that a Padfield challenge is itself concerned with the lawful limits of statutory power.

The court did not resolve that classification dispute. It accepted that a decision-maker’s knowledge of an inevitable or likely consequence can support an inference that achieving it formed part of the decision’s purpose.

The Bank nevertheless failed because the amendment did not have the legal effect attributed to it. Supporting effective sanctions was legitimate; determining insolvency rights was not something the amendment accomplished.

The judgment should therefore not be read as saying that a broadly proper foreign-policy objective validates every means used to pursue it.

G. Article 6 and continuing judicial control

The Article 6 challenge depended on the amendment having predetermined a genuine dispute about the Bank’s civil rights. Once the court rejected that premise, the challenge could not succeed.

The Bank had access to judicial review under section 38 of SAMLA. Separately, the Insolvency Court retained jurisdiction to determine its substantive entitlement and any challenge to the proposed distributions.

The decision thus preserves two distinct forms of oversight: public-law review of the licensing decision and insolvency adjudication of creditor rights. It does not establish that judicial review will invariably cure every possible Article 6 defect in sanctions administration.

H. Irrationality and consultation

The exchange-rate and provisioning complaints likewise relied on the assumption that OFSI had conclusively determined the Bank’s insolvency treatment. It had not. The relevant insolvency rules and the Insolvency Court remained decisive.

On consultation, the court emphasised the particular circumstances. The amendment was permissive and did not finally determine anything against the Bank. Consulting every affected creditor would also have been wholly impracticable.

The Bank accepted that its subsidiary argument about OFSI’s published stakeholder-engagement policy could not succeed independently of the procedural fairness complaint. The dismissal does not create a general exemption from consultation whenever OFSI varies a licence.

6. Precedents Cited and Their Influence

A. Statutory purpose and the limits of discretion

Padfield v. Minister of Agriculture, Fisheries & Food [1968] AC 997

This supplied the principle underlying the Bank’s improper-purpose challenge: statutory discretion must be used consistently with the purpose for which Parliament conferred it. The Bank alleged that OFSI had used a licensing power to defeat insolvency rights. The challenge failed because the amendment did not itself determine those rights and its permissible operation supported the sanctions regime.

R (BMA) v. General Medical Council [2025] EWHC 960 (Admin)

HMT relied on its two-stage formulation: identify the legislative purpose, then decide whether the discretion promoted rather than frustrated it. The citation framed HMT’s argument about the proper scope of a Padfield challenge, but the Court of Appeal did not need to resolve the parties’ disagreement over that scope.

R (Palestine Solidarity Campaign Ltd) v. Secretary of State for Housing, Communities and Local Government [2020] UKSC 16, [2020] 1 WLR 1774

The Bank cited this authority for the proposition that a Padfield inquiry concerns whether action is ultra vires. Its importance was methodological: it countered HMT’s attempt to separate improper purpose from the limits of statutory power. The court left that debate open.

B. The intended severity of sanctions

Shvidler v. Secretary of State for Foreign, Commonwealth and Development Affairs [2025] UKSC 30, [2026] AC 607

This was the leading authority on the breadth and severity of sanctions. The court relied particularly on the Supreme Court’s statements that sanctions may need to be “severe and open-ended” and that designation “has to hurt”. Those propositions supported OFSI’s ability to impose restrictive licensing conditions and rejected any assumption that lasting economic harm necessarily proves unlawfulness.

The authority did not, however, justify overriding insolvency legislation. Severity of effect and legal authority to extinguish rights remained separate questions.

Khan v. Secretary of State for Foreign, Commonwealth and Development Affairs [2025] EWCA Civ 41, [2025] 1 WLR 2009

The court cited its explanation that sanctions may impose unpalatable consequences on persons whose suffering is intended to influence the targeted state. The Bank’s Russian state ownership made that rationale particularly relevant.

UniCredit Bank GmbH v. Constitution Aircraft Leasing (Ireland) 3 Ltd [2026] UKSC 10

This was cited alongside the preceding authorities as supporting the broader sanctions philosophy. The judgment did not separately develop its facts or derive a distinct insolvency rule from it.

R (Fridman) v. HMT [2023] EWHC 2657 (Admin)

This similarly reinforced the proposition that financial sanctions may lawfully produce severe consequences. Its role was contextual support for the breadth of sanctions, not authority for administrative confiscation or alteration of insolvency priorities.

C. Access to justice and sanctioned litigants

PJSC National Bank Trust v. Mints [2023] EWCA Civ 1132, [2024] KB 559

This was central to the reasoning. It established that designation does not prevent a person bringing civil proceedings or obtaining judgment. Access to court includes adjudication, not merely the ability to start a claim.

The earlier court also rejected the contention that entering judgment itself amounts to making funds available or dealing with frozen resources. The present court used that reasoning to reject the claim that retaining an insolvency reserve necessarily confers a prohibited financial benefit.

The principle of legality provided further support: fundamental access-to-justice rights are not displaced without sufficiently clear legislative authority.

Taruta (BVIHC (Com) 2014/0062), 22 March 2022

This appeared within the passage quoted from PJSC National Bank Trust v. Mints, rejecting the treatment of litigants as legal “pariahs”. It was not independently analysed or used to establish an additional rule.

Re KRF Services (UK) Ltd [2024] EWHC 2978 (Ch), [2025] Bus LR 202

The Court of Appeal approved its application of PJSC National Bank Trust v. Mints: sanctions do not prevent an administration order concerning a sanctioned entity’s subsidiary.

HMT also relied on an observation that administrators might make funds available by “deploying” them. The court held that this observation did not support treating passive retention of assets for provisioning purposes as prohibited deployment.

D. Insolvency rights, restructuring and foreign recoveries

Re VTB Capital PLC [2022] EWHC 1106 (Ch), [2022] BCC 1049

This explained why the administration depended on sanctions licences from both OFSI and the relevant US authority. It also established the factual and procedural background: earlier creditor payment could constitute a better result than winding-up, but appointment without workable licences would have been pointless.

Re Sova Capital Ltd [2023] EWHC 452 (Ch), [2024] 1 All ER (Comm) 69

The court relied on this for the distinction between ownership of company assets and a creditor’s statutory right to their proper administration. That distinction identified the rights the Bank alleged were threatened.

Re AGPS Bondco plc [2024] EWCA Civ 24, [2025] 1 All ER (Comm) 26

This supported the discussion of restructuring plans and the statutory “no worse-off” protection under section 901G(3) of the Companies Act 2006. Its significance was that creditor rights are not immutable: insolvency and restructuring law contain mechanisms capable of modifying them, subject to their own safeguards. A sanctions licence is not an alternative to those mechanisms.

Cleaver v. Delta American Reinsurance Co [2001] UKPC 6, [2001] 2 AC 328

This supplied the explanation of the hotchpot principle. Broadly, a creditor receiving a foreign insolvency dividend must account for that recovery before sharing further in the domestic distribution. It framed the administrators’ attempt to account for the Bank’s Russian recoveries, but did not resolve the disputed application of the principle here.

Bloom v. Harms Offshore AHT "Tauris" GmbH & Co KG [2009] EWCA Civ 632, [2010] Ch 187

This established the English court’s jurisdiction to protect a company in administration from foreign execution. The Court of Appeal expressly recognised that it did not specifically determine the hotchpot rule. It supported the collective, cross-border character of administration without deciding the deductions disputed in this case.

E. The meaning of “making available”

LLC EuroChem North-West-2 v. Société Générale [2025] EWHC 1938 (Comm)

HMT cited this decision’s treatment of European authority to support a broad interpretation of making resources available. The Court of Appeal accepted the breadth of the statutory language but rejected its application to an ordinary insolvency reserve.

SH v. TG Case-168/17 (ECLI:EU:C:2019:36)

The quoted reasoning extended the prohibition to acts necessary under national law for a designated person to obtain full disposal of resources. That was materially different from retaining assets in an estate without giving the creditor any disposal power.

The quoted passage also referred to Möllendorf and Möllendorf-Niehuus, C-117/06, EU:C:2007:596; E and F, C-550/09, EU:C:2010:382; and Afrasiabi and Others, C-72/11, EU:C:2011:874. These were supporting authorities within the European reasoning, not separately analysed decisions establishing that insolvency provisioning is prohibited.

DNO Yemen AS v. Petrolin Trading Limited Case C-842/24

The Bank drew attention to this CJEU decision after judgment had been reserved. It suggested that making funds available requires a power or means of disposal. The Court of Appeal’s conclusion remained focused on the nature of provisioning: none of the authorities established that retaining estate assets gave the Bank such access or benefit.

F. Procedural fairness and rationality

Bank Mellat v. HM Treasury (No 2) [2013] UKSC 39; [2014] AC 700

This supplied the consultation framework. Persons foreseeably affected detrimentally should ordinarily have an opportunity to make representations, subject to statutory context and circumstances making that opportunity impossible, impractical or pointless.

The court applied that qualification here. Its reasoning depended on the licence’s non-determinative character and the impracticability of consulting all affected creditors.

R (KP) v. SSFCDA [2025] EWHC 370 (Admin)

The first-instance judge used this authority to distinguish process rationality from outcome rationality. The Court of Appeal recorded no challenge to that statement of principle. Its own answer concentrated on the amendment’s legal effect: it did not conclusively prescribe the insolvency treatment alleged to be irrational.

7. What Remained Undecided

The parties had not presented the proceedings as a forum for determining contested insolvency questions. The court therefore left unresolved:

• whether the Bank could be required to accept particular assets or receivables in their existing form;
• how hotchpot applies to recoveries made before an administration becomes a distributing administration;
• whether deductions can reflect enforcement action beyond actual recoveries;
• the proper exchange date for converting Russian recoveries into sterling;
• the validity of reducing the Bank’s voting claim in the revised scheme; and
• whether the revised scheme or proposed distributions should receive court approval.

These reservations matter. The judgment establishes that OFSI cannot decide those issues through licensing. It does not establish that the Bank’s preferred answers are correct.

The court’s suggested insolvency routes

In paragraphs 153–159, the court offered provisional observations rather than binding determinations. It saw force in considering whether hotchpot, or provision through Russian assets and the VTB Group Receivables, could achieve the administrators’ objective. A restructuring plan was another possible route identified in argument.

The court also observed that insolvency commonly uses commencement-date assessments and that sanctions-related delay may produce permanent economic loss. These comments could influence later argument about valuation and exchange dates, but they did not settle those questions.

A further licence amendment might also be desirable to prevent the existing provisioning wording from causing uncertainty.

8. Complex Concepts Simplified

Permissive licence

Permission to do something despite sanctions—not a command to do it, and not permission to break another law.

Making provision

Keeping sufficient assets in the insolvency estate for a claim that may later have to be paid. The creditor does not receive or control those assets merely because they are retained.

Pari passu

Creditors of equal rank generally share available assets proportionately, rather than one receiving preferential payment.

Hotchpot

A mechanism for bringing relevant recoveries elsewhere into account before a creditor receives more from the domestic estate, protecting equality of distribution.

Distribution in specie

Giving a creditor assets or receivables themselves instead of selling them and paying cash.

Scheme of arrangement and restructuring plan

Court-supervised mechanisms for altering creditor rights. A Part 26 scheme requires the necessary class approvals and court sanction. Part 26A provides a restructuring-plan mechanism that can, subject to statutory safeguards, bind a dissenting class.

Ultra vires and improper purpose

Acting beyond legal power, including using a statutory discretion for a purpose the legislation does not authorise.

Economic damage versus extinguishment of rights

A freeze may make an asset less valuable or cause a business to fail without legally cancelling the underlying debt. Those are different consequences requiring different legal analysis.

9. Impact and Practical Significance

For insolvency practitioners

The judgment requires separate analysis of sanctions compliance and insolvency authority. Administrators cannot rely on an OFSI licence as sufficient justification for reducing a proof, reallocating assets or departing from distribution requirements.

Where a proposed “sanctions solution” depends on changing substantive creditor treatment, the relevant insolvency or restructuring mechanism must independently support it.

For designated creditors

Designation does not make a creditor an outlaw or erase its right to adjudication. Nor does it necessarily prevent estate assets being retained to meet its possible claim.

Those protections do not entitle the creditor to payment contrary to sanctions, establish the validity of its proof, or prevent a lawful restructuring from altering its rights.

For OFSI and licence drafting

The decision supports broad discretion over whether and how to relax sanctions, while limiting what licensing language can accomplish. Conditions cannot expand the underlying prohibitions or become substantive insolvency rules.

Clear drafting should distinguish actual payments or transfers from the passive retention of estate assets. It should also avoid suggesting that sanctions permission determines creditor entitlement.

For future litigation

The case encourages disputes to be directed to the correct forum. Public-law proceedings can test OFSI’s powers, purposes and procedures. Insolvency proceedings must resolve proofs, priorities, valuation, foreign recoveries and restructuring safeguards.

The Bank’s formal defeat nevertheless produced a significant protective interpretation: the amendment did not accomplish the compulsory redistribution it feared. Equally, the administrators’ success in defending the licence did not establish that their proposed distribution was lawful.

10. Conclusion

The central rule is straightforward: an OFSI licence removes sanctions obstacles; it does not override insolvency law.

The Court of Appeal upheld the amendment because it was permissive and consistent with the sanctions regime’s purposes. At the same time, it confirmed that ordinary insolvency provisioning does not itself make funds available to a designated creditor and that substantive creditor disputes remain for the Insolvency Court.

The judgment preserves effective sanctions without converting administrative licensing into a power to determine or confiscate insolvency entitlements.