English Court considers the impact of sanctions and sole director resolutions on its ability to make an administration order

Quick read

The English High Court has provided guidance on the validity of a resolution by a sole director to apply for an administration order and the impact of the sanctions regime on the court's ability to grant such an order.

Background

KRF Services (UK) Ltd managed the assets of Dr Kantor, a sanctioned Russian businessman (a designated person). Due to sanctions imposed on Dr Kantor, KRF's business operations were severely restricted. The company faced financial difficulties and applied for an administration order.

Decision

The Court held that:

The Sanctions Regulations do not prevent the court from granting an administration order for a company connected to a designated person. There would need to be an express prohibition in legislation to restrict the statutory right to apply for an administration order.
The company's articles were unamended Model Articles and the Court considered the competing authorities in Re Fore Fitness and Re Active Wear Ltd (see our Alert). The court concluded that Article 7(2) of the Model Articles allows a single director to make decisions independently if no provision requires multiple directors. The fact that the company had more than one director in the past is irrelevant.

Key takeaways

This decision supports the view that sole directors of companies with unamended Model Articles may take any decision relating to the conduct of the affairs of the company.
The Sanctions Regulations do not prevent the making of an administration order but the order was subject to the administrators applying for an Office of Financial Sanctions Implementation (OFSI) license to take all necessary steps in the administration.
On 5 December 2024, certain amendments to the Sanctions Regulations came into force including a new insolvency licensing ground to permit OFSI to licence insolvency, restructuring and related proceedings, provided that any payments made directly or indirectly to a designated person are credited to a frozen UK bank account.