Sanctions and creditors

Trustees in Bankruptcy asked for the court’s guidance on how to apply the Russia (Sanctions) (EU Exit) Regulations 2019 (2019 Regulations) to avoid a situation where either: the Trustees wrongfully treat the Russian Bank Creditors as not being subject to sanctions, and are exposed to criminal and substantial civil liability; or the Trustees wrongfully treat the Russian Bank Creditors as being subject to sanctions and accordingly refuse to allow them to participate in the normal way in the Bankrupt's insolvency, exposing themselves to a potential civil liability to the Russian Bank Creditors

The Bankrupt, Anatoly Leonidovich Motylev, is a Russian national, resident in the UK since 2015. The Bankrupt had previously controlled a number of Russian Banks. These Russian Bank Creditors had claim in his bankruptcy.

The Bankrupt’s Trustees in Bankruptcy (Trustees) applied to the court for directions and/or declarations, concerning three apparently simple questions:

1. Should they treat the Russian Bank Creditors as being caught by the sanctions that have been imposed under the 2019 Regulations?
2. If the Russian Bank Creditors should be treated as being caught by sanctions, is it lawful for the Trustees to accept votes from them for the purposes of any creditors' decision procedure and/or to allow those creditors to take part in and vote at meetings of the creditors' committee?
3. Are the Trustees providing financial services in breach of Regulation 18A of the 2019 Regulations?

The court considered the 2019 Regulations, the broader UK sanctions regime, and recent case law interpreting this, and provided guidance as to the status of the Russian Bank Creditors under the 2019 Regulations.

The court refrained from going so far as to make a declaration in relation to the status of the Russian Bank Creditors; however, pursuant to section 303 IA 1986, it was found that:

1. Pending any change in circumstances, including any new facts of which the Trustees may become aware, or any notice or requirement from OFSI, or any new guidance from the court, the Trustees should deal with the Russian Bank Creditors on the understanding that they are not designated persons and are not owned or controlled by any designated person and on the basis that they have no knowledge and no grounds for reasonable suspicion that this is not the case.
2. The Trustees should undertake (to an extent that is proportionate having regard to cost) enhanced monitoring of the position of the Russian Bank Creditors. As a minimum, their status should be checked on each occasion that the Trustees have cause to consider a distribution to creditors.

Re: Hellard v OJSC Rossiysky Kredit Bank [2024] EWHC 1783 (Ch)