Factual and Procedural Background
The Appellant was designated under the Russia (Sanctions) (EU Exit) Regulations 2019 following Russia’s invasion of Ukraine. The Interested Party, a UK company majority-owned by the Appellant, entered administration after the sanctions prevented it from continuing to trade. [1][2]
The Appellant was a major creditor of the Interested Party, with a proof of debt exceeding £205 million. The administrators sought a scheme of arrangement, but the Appellant voted against it. The administrators then requested an amendment to the existing sanctions licence to permit distributions to non-sanctioned creditors while imposing deductions relating to the Appellant’s enforcement recoveries and intra-group receivables. [3][4][5][6][7]
The licensing authority made the challenged Licence Amendment on 8 January 2025. The lower court dismissed the Appellant’s challenge under section 38 of the Sanctions and Anti-Money Laundering Act 2018. The Court of Appeal dismissed the appeal. [8][9][10][11]
Legal Issues Presented
- Whether the Licence Amendment was made for an improper purpose contrary to the Padfield principle. [12][13]
- Whether the Licence Amendment unlawfully interfered with the Appellant’s Article 6 right to have its insolvency rights determined by the Insolvency Court. [14][15]
- Whether the Licence Amendment was irrational or unreasonable, particularly regarding exchange rates and provision for the Appellant’s claim. [16][17][18]
- Whether procedural fairness required the Appellant to be consulted before the Licence Amendment was made. [19][20]
- Whether the Licence Amendment extinguished or materially altered the Appellant’s insolvency rights, and whether it exceeded the powers conferred by the sanctions legislation. [21][22][23][24]
Arguments of the Parties
Appellant’s Arguments
- The licensing authority acted for the improper purpose of prejudicing the Appellant’s creditor rights and effectively expropriating its insolvency claim, rather than merely freezing its assets. [13][17]
- The Licence Amendment predetermined issues that could lawfully be resolved only by the Insolvency Court and therefore infringed Article 6. [15]
- The use of historic exchange rates overvalued the deductions and the prohibition on making provision improperly reduced or extinguished the Appellant’s claim. [18]
- The Appellant was denied a fair opportunity to make representations before the Licence Amendment was made. [20]
First Respondent’s Arguments
- The Licence Amendment was permissive only: it decriminalised specified conduct but did not compel the administrators or the Insolvency Court to act in any particular way. [25][26][27][28]
- The broad purposes of the sanctions regime permitted measures intended to make sanctions effective and to increase pressure on Russia. [29][30]
Interested Party’s Position
- The administrators’ proposed “sanctions solution” was intended to address the Appellant’s enforcement action and permit distributions to non-sanctioned creditors. [6][7]
- The administrators contended that insolvency-law mechanisms, including the hotchpot rule or provision based on Russian assets and receivables, might provide a lawful solution, although those issues had not been fully argued. [31][32][33]
Table of Precedents Cited
| Precedent |
Rule or Principle Cited For |
Application by the Court |
| Re VTB Capital PLC [2022] EWHC 1106 (Ch), [2022] BCC 1049 | Background concerning the administration licensing arrangements. | Referred to in describing the earlier appointment process. [2] |
| Padfield v. Minister of Agriculture, Fisheries & Food [1968] AC 997 | A statutory discretion must be exercised to promote, not frustrate, its legislative purpose. | The court held that the licensing authority acted consistently with the sanctions purposes. [12][34][35] |
| Shvidler v. Secretary of State for Foreign, Commonwealth and Development Affairs [2025] UKSC 30, [2026] AC 607 | Sanctions may need to be severe and open-ended to be effective. | Supported the conclusion that sanctions may seriously prejudice designated persons. [21][36][37] |
| Bank Mellat v. HM Treasury (No 2) [2013] UKSC 39, [2014] AC 700 | Prior representations may be unnecessary where consultation is impossible, impractical or pointless. | The court held that consultation was not required in the circumstances. [38][39][40] |
| Khan v. Secretary of State for Foreign, Commonwealth and Development Affairs [2025] EWCA Civ 41, [2025] 1 WLR 2009 | The underlying sanctions philosophy is to impose consequences capable of influencing the sanctioned state. | Used to explain the legitimate breadth and purpose of the sanctions regime. [41] |
| UniCredit Bank GmbH v. Constitution Aircraft Leasing (Ireland) 3 Ltd [2026] UKSC 10, 1 WLR 1522 | Sanctions may have serious consequences for affected entities. | Cited in support of the sanctions-policy analysis. [41] |
| R (Fridman) v. HMT [2023] EWHC 2657 (Admin), [2023] WLUK 280 | The serious consequences of sanctions. | Cited alongside other sanctions authorities. [41] |
| R (KP) v. SSFCDA [2025] EWHC 370 (Admin), 1 WLUK 370 | Principles of process and outcome rationality. | Identified as the basis of the lower court’s rationality analysis. [42] |
| R (BMA) v. General Medical Council [2025] EWHC 960 (Admin) | The two-stage approach to a Padfield challenge. | Referred to in analysing statutory purpose and the exercise of discretion. [43] |
| R (Palestine Solidarity Campaign Ltd) v. Secretary of State for Housing, Communities and Local Government [2020] UKSC 16, [2020] 1 WLR 1774 | A Padfield inquiry is an inquiry into whether a measure is ultra vires. | The court found it unnecessary to resolve the parties’ debate on that issue. [22][44] |
| Re Sova Capital Ltd [2023] EWHC 452 (Ch), [2024] 1 All ER (Comm) 69 | Creditors’ statutory right to have company assets administered under insolvency law. | Used to describe the Appellant’s insolvency rights. [45] |
| Re AGPS Bondco plc [2024] EWCA Civ 24, [2025] 1 All ER (Comm) 26 | The “no worse-off” protection in restructuring plans. | Used to explain that insolvency rights may be overridden by an approved restructuring mechanism. [46] |
| Cleaver v. Delta American Reinsurance Co [2001] UKPC 6, [2001] 2 AC 328 | The hotchpot principle. | Cited in explaining treatment of foreign recoveries. [47] |
| Bloom v. Harms Offshore AHT “Tauris” GmbH & Co KG [2009] EWCA Civ 632, [2010] Ch 187 | The court’s jurisdiction to protect assets in administration from foreign execution. | Cited in the discussion of the hotchpot rule and foreign enforcement. [47] |
| PJSC National Bank Trust v. Mints [2023] EWCA Civ 1132, [2024] KB 559 | Sanctions do not prevent designated persons bringing civil proceedings or obtaining judgment. | Supported the conclusion that sanctions did not remove the Appellant’s insolvency rights. [48][49][50][51] |
| Re KRF Services (UK) Ltd [2024] EWHC 2978 (Ch), [2025] Bus LR 202 | The Russia Regulations do not prevent administration proceedings involving a subsidiary of a sanctioned entity. | The court agreed with that conclusion but found the decision unhelpful on the meaning of “deployment” of assets. [52][53] |
| LLC EuroChem North-West-2 v. Société Générale [2025] EWHC 1938 (Comm), [2025] 7 WLUK 697 | The broad meaning of “making available” funds or economic resources. | The court held that the authorities did not establish that making insolvency provision constituted making funds available. [54][55] |
| SH v. TG Case C-168/17 | “Making available” may include acts necessary for a person to obtain full power of disposal. | Considered but held insufficient to capture an insolvency provision. [54][56] |
| DNO Yemen AS v. Petrolin Trading Limited Case C-842/24 | Funds are made available where the designated entity obtains power or means of disposal. | Considered in interpreting the Licence Amendment. [57] |
Court's Reasoning and Analysis
The Court held that the sanctions themselves froze assets and prohibited making funds or economic resources available to the Appellant, but did not remove its underlying insolvency rights. The Appellant could not receive a distribution while sanctions remained in force, but its right to a proportionate distribution after sanctions were lifted was not thereby extinguished. [58][59][60]
The Licence Amendment was permissive. It authorised and decriminalised conduct that would otherwise breach the sanctions regime; it did not compel the administrators or the Insolvency Court to take any step, override insolvency law, or determine the Appellant’s rights. [61][62][63][64]
The court further held that making provision for the Appellant’s possible future claim did not itself make funds or economic resources available to the Appellant. Such provision merely retained assets within the insolvency estate and gave the Appellant no present interest, payment or financial advantage. [55][65][66]
Accordingly, the wording of the Licence Amendment concerning provision could not legally prohibit provision in the manner suggested, although it might indicate a preferred course to the administrators. Even if the wording were effective, it would still not override insolvency law or require the Insolvency Court to approve a distribution. [67][68][69][70]
The Padfield challenge failed because the licensing authority’s purpose was to make sanctions effective and address their unforeseen consequences, which fell within the broad statutory purposes. The irrationality challenge failed because the Licence Amendment did not itself impose the historic exchange rates or determine how insolvency provision should be calculated. [35][71][72]
The Article 6 challenge failed because the Licence Amendment did not predetermine the Appellant’s insolvency rights; any such rights remained for determination by the Insolvency Court. The representations challenge failed because prior consultation was unnecessary, impracticable and potentially pointless in the circumstances. [73][40]
The Court expressly declined to decide the disputed insolvency-law questions, including the treatment of foreign recoveries, in specie distributions and currency conversion. It suggested that insolvency mechanisms might provide a solution, but left those matters to the Insolvency Court. [74][75][76][31][33]
Holding and Implications
APPEAL DISMISSED. The Licence Amendment was lawful and did not itself extinguish or materially alter the Appellant’s insolvency rights. [10][63][77][11]
The direct consequence is that the Licence Amendment remains in force, subject to the Insolvency Court determining whether and how the proposed arrangements comply with insolvency law. The Appellant may challenge any subsequent Insolvency Court decision on available insolvency or other grounds. [78][79][75]
The decision did not finally resolve the disputed insolvency-law issues and did not establish that the proposed deductions must be applied. No broader new precedent was set beyond the interpretation and application of the Licence Amendment in this case. [74][80][31]