Tough sanctions imposed in response to Russia's invasion of Ukraine have left many Russian-owned companies in a state of zombie-like paralysis. However, as a High Court ruling showed, insolvency practitioners are working hard to ensure their orderly wind-down and fair treatment of their creditors and employees.
The case concerned an English-registered air freight company in which a Russian businessman held a majority shareholding. Both he and the company were subject to the full force of UK asset-freezing sanctions and the latter had been constrained to cease trading. Its aircraft leases had been terminated; its bankers had announced their intention to close its only operative account and its Civil Aviation Authority licence was in jeopardy.
Although the company had more than £13 million in the bank and was apparently balance sheet solvent, its difficulty in accessing those funds had resulted in about £2 million in unpaid debts. Its workforce of about 100 faced an uncertain future. With a view to salvaging the value of its assets and rescuing it as a going concern, its sole director applied to the Court for it to be placed into administration.
In granting the order sought, the Court noted that it was perfectly clear that, due to the sanctions, the company was cash flow insolvent in that it was unable to pay its debts as they fell due. It was reasonably likely that experienced and well-regarded administrators would be licensed by the Office of Financial Sanctions Implementations (OFSI) to deal with the company's funds.
The OFSI was likely to have confidence in independent administrators and, even if a sale of the company were not permitted, it was reasonably likely that they would be licensed to gather in and distribute its assets so as to satisfy its creditors and meet its obligations to its employees. They could at least ensure an orderly wind-down of its business in a manner that respected the sanctions in that no direct or indirect distributions would be made to the majority shareholder.