Sanctioned creditors

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.

The case concerned applications made by the Trustees for directions under section 303 of the Insolvency Act 1986 to permit them to make distributions to the largest creditor in both bankruptcies, PJSC National Bank Trust (NBT), by making payment into the client account of NBT’s UK solicitors.

NBT is a Russian bank, regulated and majority owned by the Central Bank of Russia (CBR). It collapsed in 2014 and is now in run-off in Russia.

NBT is not an entity which is specifically named as being subject to the UK sanctions regime (i.e. it is not a designated person). However, the Trustees were concerned that NBT might be treated as being subject to sanctions on the basis that it is ‘owned or controlled directly or indirectly’ by a designated person. In this case, the designated persons relevant to the application are Vladimir Putin, the President of the Russian Federation, and Ms Elvira Nabiullina, the Governor of the CBR.

The Trustees’ concern about NBT’s status stemmed from obiter dicta comments made in Mints [2023] EWCA Civ 1132, which indicated that NBT is controlled by a designated person (although guidance issued by the Office for Sanctions Implementation (OFSI) after Mints adopted a different approach to the ‘ownership and control’ test under all UK sanctions regimes).

If NBT were to be treated as being subject to UK sanctions, the payment of dividends might be found to be a breach of the sanctions regime, giving rise to criminal liability on the trustees’ part.

Accordingly, the Trustees sought assistance from the Court in respect of the performance of their functions. The Court commented that the Trustees were seeking comfort on a matter of “real personal significance to them” and that seeking the assistance of the Court was an entirely appropriate course of action. It appears to be the first time that a question of this kind has been raised with the Court.

The UK’s Sanctions Regime 

The relevant regulations in this case are the Russia (Sanctions) (EU Exit) Regulations 2019 (the Regulations).

The Trustees were concerned that certain provisions of the Regulations may be engaged by the payment of dividends to NBT and this includes:

• making funds available to a designated person;
• making funds available for the benefit of a designated person; and
• making economic resources available to a designated person.

Breach of the above prohibitions is a criminal offence except for acts done under the authority of a licence granted by OFSI. There are also some exceptions.

It is worth noting that The Sanctions (EU Exit) (Miscellaneous Amendments) (No.2) Regulations 2024 have recently (5 December 2024) been extended to include a new insolvency licensing purpose which permits payments directly or indirectly to a designated person to be made provided they are credited to a frozen bank account. However, this extension appears to only relate to corporate insolvency and did not remove the need for the application in this case, being a personal insolvency matter.

The Court’s decision

As part of its decision, the Court considered all the evidence and noted the following:

• NBT is not a designated person in the UK. It was designated in the USA by The Office of Foreign Assets Control in November 2024 but the Court noted that this appears to have been a broad-brush designation of fifty Russian banks rather than a specific reassessment of Mr Putin and/or Ms Nabiullina’s ability to control NBT.

• The Mints appeal proceeded on the basis of a concession about Mr Putin’s actual de facto control of NBT. A similar concession was not made in this case.

•  OFSI had confirmed that it does not consider NBT to be owned or controlled directly or indirectly by Mr Putin or Ms Nabiullina.

• The bank’s solicitors confirmed that based on the information available to them, Mr Putin and/or Ms Nabiullina do not exercise control over NBT.

• There was an absence of evidence of potential de facto control in this case, which the Court considered to be significant.

• It did not seem reasonable, having regard to all the circumstances, to expect that Mr Putin and/or Ms Nabiullina would (if they chose to) be able to achieve the result that the affairs of NBT are conducted in accordance with their wishes.

The Court concluded that if it was wrong about NBT not being subject to the UK sanctions regime, a limited exemption under Regulation 58 applies which permits a relevant institution (such as the bank which provides NBT’s solicitors’ client account) to credit an account held by a designated person where “those funds are transferred in discharge (or partial discharge) of an obligation which arose before the date on which the person became a designated person”.

In this case the obligations arising from judgments against the bankrupts in favour of NBT, which later became bankruptcy debts, arose well before the designation of Mr Putin (as he was the first of the two relevant individuals to be designated).

The Court granted the relief sought by the Trustees and has permitted the Trustees to distribute funds due to NBT in both bankruptcies by way of payments to a client account under NBT’s solicitors’ control.

The Court concluded (pending any change of circumstances) that the Trustees should deal with NBT on the understanding that it is not a designated person and it is not owned or controlled by any designated person. This is on the basis that they have no knowledge or grounds for reasonable suspicion that this is not the case. The Court stressed that the Trustees should also undertake enhanced monitoring as regards the status of NBT.

Key takeaways for Trustees

1. Prioritise continued and enhanced monitoring. If an entity is not a designated person under the UK sanctions regime, it may still be ‘owned or controlled’ by a designated person. Continued and enhanced monitoring on the creditor’s status is therefore extremely important.

2. Keep OFSI informed. It is preferable to serve them with the application or notify them of the hearing of any application.

3. Consider whether an exemption under the Regulations applies. The facts of each case and the exemptions will need to be carefully considered.

Co author: Stefan Ramel of Guildhall Chambers

If you would like further information or advice about the issues discussed in this insight please contact a member of TLT’s Restructuring & Insolvency team.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at January 2025. Specific advice should be sought for specific cases. For more information see our terms and conditions.