GTLK Europe DAC v Companies Act 2014 (Approved)

Factual and Procedural Background

The Joint Liquidators of two companies incorporated in the State, hereinafter referred to as "the Companies," applied under section 631 of the Companies Act 2014 for directions and declarations concerning their powers over the Companies' assets. The Companies are part of a group engaged in international transport leasing, ultimately owned by a Joint Stock Company incorporated in the Russian Federation, which is subject to EU sanctions due to geopolitical events. The Companies became insolvent, leading a group of noteholders ("the Petitioners") to accelerate certain debt instruments and present petitions for winding up on grounds of insolvency and just and equitable considerations.

Petitions for examinership were also presented but dismissed by the High Court, which ordered the Companies to be wound up and appointed Joint Liquidators. The Joint Liquidators faced challenges due to EU sanctions, particularly the Asset Freeze Regulation, which presumed control of the Companies' assets by the sanctioned ultimate parent entity, thereby restricting the Liquidators' ability to manage the assets without individual authorizations from the Central Bank of Ireland ("the Central Bank").

The Joint Liquidators sought declarations that the presumption of control by the sanctioned parent is rebutted upon their appointment, that they alone control the Companies' assets, and that the Companies cease to be beneficial owners of those assets, holding them on trust for creditors. The Central Bank acknowledged that interpretation of the Regulation is a matter for the court and agreed with the fundamental legal propositions advanced by the Joint Liquidators. The court granted the requested declarations and made related orders on 11 July 2023.

Legal Issues Presented

1. Whether the presumption of control under Article 2 of Council Regulation EU No. 269/2014 by the ultimate sanctioned parent company over the Companies is rebutted upon the appointment of Joint Liquidators in winding up proceedings.
2. Whether, upon the appointment of Joint Liquidators, the Companies cease to be the beneficial owners of their assets and hold those assets on trust for creditors.
3. The extent of the powers of the Joint Liquidators over the Companies' assets in light of the EU Sanctions Regulations and the Companies Act 2014.
4. The appropriate treatment of surplus funds in the liquidation considering EU law and sanctions.

Arguments of the Parties

Joint Liquidators' Arguments

• The presumption of control by the sanctioned ultimate parent is rebutted by operation of insolvency law and the appointment of the Joint Liquidators.
• Upon liquidation, the Companies cease to be beneficial owners of their assets, which are held on statutory trust for creditors.
• Individual authorisations for each transaction under the Sanctions Regulations would impose an unreasonable administrative burden, causing delay and prejudice to creditors.
• The Joint Liquidators alone have authority to manage and realise the Companies' assets, including exercising voting rights in subsidiaries, without interference from the parent or directors.
• Any surplus funds should be held in a designated account and not released to the ultimate parent absent a court order compliant with EU law.

Central Bank of Ireland's Position

• The Central Bank is the national competent authority for administering financial sanctions but does not interpret the Sanctions Regulations; this is a judicial function.
• The Central Bank agrees with the legal analysis that upon winding up, shareholders lose control and the Companies cease to be beneficial owners of their assets.
• The Central Bank requires individual derogation applications for transactions that would otherwise breach sanctions but acknowledges the challenges faced by the Joint Liquidators.

Petitioners' Position

• The Petitioners supported the Joint Liquidators' application for declarations and directions.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Re: Salthill Properties Limited (In receivership) [2006] IESC 35	Use of court applications for efficient and speedy directions in insolvency; enabling liquidators and receivers to control company affairs and seek court advice.	The court relied on this to confirm the appropriateness of hearing substantive issues under s. 631 of the Companies Act 2014.
Re: Frederick Inns Limited [1994] 1 ILRM 387	Upon winding up, the company ceases to be beneficial owner of assets; directors lose power to dispose of assets; assets held on trust for creditors.	Supported the declaration that the Companies ceased to be beneficial owners of their assets upon liquidation.
Re: Lance Investments Limited (in liquidation) & Ors. [2018] IEHC 444	Recognition of the "statutory trust" arising on winding up; liquidator acts similarly to a trustee but legal title remains with company.	Used to explain the legal nature of the liquidators' role and the effect of insolvency on asset ownership.
Re: Mouldpro International Limited (in liquidation) [2018] IECA 88	Distinction between equitable trusts and statutory trusts; liquidator's duties and powers as trustee for creditors under insolvency law.	Clarified the statutory trust concept and limited beneficial interests of creditors, reinforcing the court's declarations.
Ayerst (Inspector of Taxes) v. C&K Construction Ltd. [1976] AC 167	Effect of winding up removes beneficial ownership from company; liquidator's function akin to trustee for creditors.	Supported the legal analysis of beneficial ownership and trust arising on insolvency.

Court's Reasoning and Analysis

The court began by affirming fundamental insolvency principles: upon winding up, shareholders lose control, and the company ceases to be beneficial owner of its assets, which are held on statutory trust for creditors. This legal framework is grounded in the Companies Act 2014 and supported by established case law.

The court examined the EU Sanctions Regulations, particularly the Asset Freeze Regulation, which imposes a presumption that entities controlled by a sanctioned parent are themselves subject to sanctions. However, the court found that this presumption is rebutted by the appointment of Joint Liquidators under Irish insolvency law, which divests the parent of control over the Companies' assets.

The court noted that only the Joint Liquidators have lawful authority to control and deal with the Companies' assets post-liquidation, and any purported actions by the parent or directors without the liquidators' consent would be void under the Companies Act.

Given the complexity and urgency of the liquidation, the court recognized the practical difficulties posed by requiring individual authorizations for each transaction under the Sanctions Regulations. It emphasized that the statutory regime and the court's orders provide a coherent legal basis for the Joint Liquidators to act without such impediments, subject to compliance with EU law.

The court also addressed the treatment of surplus funds, directing that such funds be held in a designated account and not made available to the ultimate parent without further court order, ensuring compliance with sanctions and creditor protections.

The Central Bank's acknowledgment that interpretation of the Sanctions Regulations is a judicial matter, coupled with its agreement on the fundamental legal propositions, reinforced the court's position.

Holding and Implications

The court granted the declarations sought by the Joint Liquidators, holding that:

• The presumption of control by the sanctioned ultimate parent under the Asset Freeze Regulation is rebutted upon the appointment of Joint Liquidators in insolvency proceedings.
• The assets of the Companies are under the exclusive control of the Joint Liquidators, who are the only persons entitled to deal with those assets.
• Upon appointment, the Companies cease to be beneficial owners of their assets, which are held on trust for creditors according to the statutory scheme.
• No distribution shall be made to the ultimate parent absent further court order compliant with EU law; surplus funds must be held in a designated account.

Implications of this decision include enabling the Joint Liquidators to manage and realise the Companies' assets without the need for individual authorisations for each transaction under the Sanctions Regulations, thereby facilitating an efficient winding up process. The ruling clarifies the interaction between insolvency law and EU sanctions, providing legal certainty for liquidators acting in similar contexts. The court did not set new precedent beyond applying established insolvency principles to the sanctions context but provided authoritative guidance on their interplay.