Trustees in Bankruptcy seeking to make distributions to a creditor who may be subject to UK sanctions should follow the guidance in the recent case of Thomas, Carter, Nilsson (as the joint trustees in bankruptcy of Nikolay Fetisov and Ilya Yurov) and PJSC National Bank Trust [2025] EWHC 75 (Ch).

Background

TLT were instructed to act on behalf of the joint Trustees in Bankruptcy of two Russian individuals, Nikolay Fetisov and Ilya Yurov.

Sanctions regulations won't prevent administration orders but may affect timings and require undertakings

The Office of Financial Sanctions Implementation (OFSI) has published guidance (the Guidance) following the publication of the Sanctions (EU Exit) (Miscellaneous Amendments) (No.2) Regulations 2024 (the Regulations) on 14 November 2024. OFSI is the body with regulatory oversight of the financial sanctions regime and is responsible for its implementation and enforcement within the UK.

Introduction:

In an insolvency case involving both UK trustees and Russian Bank Creditors, the High Court issued guidance in regards to the potential breach of the 2019 Regulations surrounding sanctioned entities. The significant criminal and civil penalties potentially arising from this case make it a consequential and relevant case for UK arbitration and litigation lawyers to consider and understand. The final ruling deals with three key questions, as outlined in the court proceedings and expanded upon below.

Case Summary:

It is essential that any UK individual or entity doing business, managing funds/other economic resources, or providing financing or professional services, keeps abreast of the current UK Russian sanctions regime, which is chiefly set out in the Russia (Sanctions) (EU Exit) Regulations 2019 (the "Regulations"). The question of how the Regulations might apply to those with fiduciary duties – either as trustees or as directors – has been considered in two recent High Court cases.

The High Court has directed the trustees in a UK bankruptcy case to treat certain Russian bank creditors as not being subject to UK sanctions, unless new evidence suggests otherwise.

A recent judgment in Kevin Hellard & Ors v OJSC Rossiysky Kredit Bank (in liquidation) & Ors [2024] EWHC 1783 (Ch) the High Court considers the ‘ownership and control’ test in Bankruptcy, involving trustee powers and Russian Bank creditors.

Hellard & others -v- OJSC Rossiysky Kredit Bank (in liquidation) & others [202] EWHC 1783 (Ch)

In dealing with whether trustees in bankruptcy might potentially be breaching UK sanctions legislation by allowing Russian creditors to participate in UK liquidation proceedings, the Court has considered recent authorities on whether a designated person can be said to directly or indirectly own or control an entity and has offered its own perspective on how the relevant wording in the legislation should be construed.

The background facts

The judgment of Nicholas Thompsell, sitting as a Deputy High Court Judge, in Hellard & Ors v OJSC Rossiysky Kredit Bank & Ors [2024] EWHC 1783 (Ch) deals with three questions raised by an application of the trustees in bankruptcy of Anatoly Leonidovich Motylev for directions under s 303(2) Insolvency Act 1986:

(1) Should the trustees treat certain Russian bank creditors as being caught by the sanctions imposed under the Russia (Sanctions) (EU Exit) Regulations 2019?

Asset freeze measures enacted by the United Kingdom against designated persons (DPs) can, under certain circumstances, extend to entities “owned or controlled” by DPs. To date, there have been few—and at times partly contradictory—English court cases addressing the “ownership and control” criteria under the UK sanctions regime. The latest judgment in Hellard v OJSC Rossiysky Kredit Bank sought to reconcile the previous guidance provided by the courts in the Mints and Litasco cases.