Praesidiad Limited, Re
[2023] EWHC 2745 (Ch)
Kevin Hellard & Ors v OJSC Rossiysky Kredit Bank (in liquidation) & Ors
10 July 2024
[2024] EWHC 1783 (Ch)
High Court
Bankruptcy trustees in the UK were unsure if they could let Russian banks vote because of sanctions against Russia. The court said there wasn't enough proof to say the banks were breaking the rules, but it gave the trustees clear instructions on what to do. The court also clarified that the banks' votes are allowed because those votes aren’t the same thing as money or assets.
Key Facts
- •Trustees in bankruptcy of Mr. Anatoly Motylev sought court directions on applying the Russia (Sanctions) (EU Exit) Regulations 2019.
- •The main question was whether Russian bank creditors (holding 52.88% of the debt) were subject to sanctions, impacting their voting rights and the trustees' actions.
- •The Russian bank creditors were in liquidation under the Deposit Insurance Agency (DIA), a Russian state corporation, raising concerns about indirect control by sanctioned individuals.
- •The trustees sought protection from potential criminal and civil liability for misinterpreting the sanctions regulations.
- •OFSI (Office of Financial Sanctions Implementation) declined to participate in the hearing but provided some guidance in correspondence.
Legal Principles
Interpretation of the UK sanctions regime, derived from the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) and the 2019 Regulations.
SAMLA and the 2019 Regulations
Definition of 'owned or controlled' under Regulation 7(4) of the 2019 Regulations, considering existing and potential future de jure and de facto control.
Regulation 7(4) of the 2019 Regulations
Analysis of case law, particularly *PJSC National Bank Trust v Mints* and *Litasco SA v Der Mond Oil & Gas Africa SA*, regarding the interpretation of 'control' under sanctions regulations.
*PJSC National Bank Trust v Mints* [2023] EWCA Civ 1132 and *Litasco SA v Der Mond Oil & Gas Africa SA* [2023] EWHC 2866 (Comm)
Application of O'Reilly v Mackman principle regarding challenges to public authority decisions.
*O'Reilly v Mackman* [1983] 2 AC 237
Principles governing declaratory relief under the Senior Courts Act 1981 and CPR rule 40.20.
Senior Courts Act 1981 and CPR rule 40.20
Court's powers to provide directions under s.303(2) Insolvency Act 1986.
s.303(2) Insolvency Act 1986
Considerations regarding a civil court's involvement in matters potentially affecting criminal liability, based on cases like *Regina (Rusbridger) v Attorney General*.
*Regina (Rusbridger) v Attorney General* [2003] UKHL 38
Outcomes
No declaration made on whether Russian bank creditors were owned or controlled by designated persons; directions given to trustees instead.
Insufficient evidence to determine control; a factual rather than legal question; OFSI's non-participation; the court considered it unlikely trustees would face prosecution.
Declaration made that creditor voting rights in bankruptcy do not constitute 'funds' or 'economic benefits' under the 2019 Regulations.
Voting rights are not assets; their use does not involve dealing with funds or economic benefits; prohibiting such votes would be highly inconvenient.
No declaration needed on whether trustees' actions breached Regulation 18A; court found no breach.
Trustees' actions did not constitute 'financial services' under the relevant definition; actions were not for foreign exchange reserve and asset management; services were provided in relation to the bankrupt's estate, not to creditors.