In the matter of Petropavlovsk plc (in administration)

On an application under paragraph 63 of Schedule B1 to the Insolvency Act 1986, the court may bless an administrator’s momentous decision where the proposed transaction is within the administrator’s powers and the administrator has acted honestly, rationally, without conflict, and after considering relevant matters.

Where there is a real doubt about statutory power or compliance with an important external prohibition, the court must scrutinise the position more carefully and may withhold its authorisation. Where the risk of breach is insubstantial, authorisation may nevertheless be granted. The court’s permission insulates the office-holder from internal claims concerning the authorised step, but does not bind a regulator or prevent external enforcement or prosecution.

The joint administrators of an English holding company applied urgently under paragraph 63 of Schedule B1 to the Insolvency Act 1986 for liberty to sell substantially all of the company’s business and assets to UMMC-INVEST. The company’s Russian operating businesses had been seriously affected by sanctions, refinancing had failed, and the administrators considered the proposed sale the only viable alternative to a substantially worse outcome.

The application raised questions about the court’s jurisdiction to bless an administrator’s decision, the effect of possible breaches of UK and EU sanctions legislation, the principle in ex p James, and whether notice should have been given to creditors and shareholders.

1. Relief granted. The administrators were given liberty to enter into and perform the proposed sale and to receive the sale proceeds into an English commercial bank account. The order did not constitute a declaration as to the meaning of the sanctions legislation and did not bind OFSI.
2. Paragraph 63 of Schedule B1 permits directions concerning an administrator’s functions. The administrators had power to sell the company’s property under paragraph 60 of Schedule B1 and paragraph 2 of Schedule 1 to the Insolvency Act 1986.
3. The applicable test was the Public Trustee v Cooper category 2 blessing jurisdiction. The court had to be satisfied that the proposed exercise was within power, that the administrators genuinely considered it beneficial to the company and creditors, that they acted rationally and without conflict, and that relevant rather than irrelevant considerations had been taken into account.
4. The court’s inquiry was more stringent where there was doubt about the existence of the power or possible breach of an important external prohibition, including criminal legislation. Here, however, there was no real doubt that the transaction complied with the relevant sanctions legislation. The practical risk of breach was low, and the urgency, deteriorating value, absence of a viable alternative, and likely prejudice from Russian enforcement justified proceeding without awaiting a licence.
5. The principle in ex p James did not prevent the transaction. The administrators had considered the sanctions regime carefully and were seeking to act in creditors’ interests. Their conduct was neither unfair nor dishonourable.
6. Authorisation insulated the administrators from claims by creditors and shareholders concerning the authorised step, but did not prevent action by outsiders, including regulatory enforcement or prosecution. In the circumstances, notice to creditors and shareholders was not required.