KRF Services (UK) Ltd & Ors, Re

The court granted an administration order under Schedule B1 of the Insolvency Act 1986 after finding the company was unable to pay its debts as they fell due and that administration was reasonably likely to achieve one or more of the statutory purposes. Key legal questions decided were (i) the validity of a resolution of a sole director under the Model Articles (Article 7(2) disapplies the normal board decision-making provisions, including Article 11, so the sole director’s board resolution of 14 May 2024 was valid); (ii) the company was cash-flow insolvent and at serious risk of creditor enforcement; and (iii) the impact of the sanctions regime under the Russia (Sanctions) (EU Exit) Regulations 2019 and SAMLA did not, in principle, prohibit the making of an administration order.

The court applied the tests in paragraph 11 of Schedule B1 (cash-flow insolvency and a reasonably likely prospect of achieving the administration’s purpose), considered the Court of Appeal’s reasoning in PJSC Bank v Mints on access to the court and sanctions, and concluded that appointment of administrators would not inherently breach regulations 11–15 or 19 provided appropriate licences from OFSI were sought and officeholders gave undertakings to refrain from dealing with funds until licences were granted. The court therefore appointed joint administrators and made ancillary banking and operational directions, subject to licences and the administrators’ undertakings.

Background and parties: KRF Services (UK) Ltd (the Company) provided management services to members of the Kantor family. All shares were held by a trust vehicle connected to Dr Viatcheslav Moshe Kantor, who was designated under the Russia (Sanctions) (EU Exit) Regulations 2019. The Company itself was not designated but its operations were paralysed by the sanctions. Applicants were the Company, its sole remaining director Mr Thomas Paillardon and creditor Keltbray Ltd (joined as a third applicant).

Nature of the application: An application for an administration order under Schedule B1 of the Insolvency Act 1986 (issued 15 May 2024). The court was asked to decide (inter alia) whether the sole director’s board resolution was valid, whether the company was unable to pay its debts, whether administration was reasonably likely to achieve the statutory objectives, and whether making an administration order would breach the Sanctions Regulations.

Issues framed by the court:

• Permission for Keltbray to appear and be joined.
• Validity of the Company’s application when passed by a single director under Model Articles (Article 7 v Article 11).
• Whether the Company was insolvent (cash-flow and/or balance-sheet).
• Whether administration was reasonably likely to achieve the statutory purpose (Schedule B1 para.3 objectives).
• Whether the Sanctions Regulations (regulations 11–15 and 19) prevented the court making the order or administrators from acting, and what role OFSI licensing played.
• Ancillary orders and terms, including banking arrangements and undertakings.

Court’s reasoning and findings:

• Permission and joinder: The court allowed Keltbray to appear and be joined; joinder avoided later arguments about the relevant date for the onset of insolvency and reduced procedural delay.
• Validity of sole director resolution: The Company had adopted unmodified Model Articles. Article 7(2) applies where a company "only has one director" and disapplies the articles relating to directors’ decision-making (including Article 11). The judge followed the reasoning in Re Active Wear Ltd and held the 14 May 2024 resolution passed by the sole director was valid and effective; past plurality of directors does not prevent Article 7(2) applying now.
• Insolvency: On the evidence (frozen bank accounts, cessation of funding and payments, admitted debt to Keltbray and many unpaid creditors), the Company was unable to pay its debts as they fell due (paragraph 11(a) Schedule B1 satisfied). It was unnecessary to decide balance-sheet insolvency.
• Purpose and prospects: The First Objective (rescue) was unlikely given sanctions; but the Second and Third Objectives were reasonably likely to be met if OFSI licences could be obtained so administrators could repatriate cash, pursue receivables from connected parties and negotiate with creditors. The court accepted there was a real prospect that administration would produce a better outcome than liquidation.
• Sanctions and exercise of discretion: Applying the Court of Appeal’s reasoning in PJSC Bank v Mints (right of access to the court and the principle of legality), the judge concluded there was no principled bar in SAMLA or the Sanctions Regulations to making an administration order. The appointment of administrators is not, of itself, a prohibited “dealing with” or “making funds available”; if necessary regulations should be read down to avoid curtailing the right of access to the court. OFSI licensing and prior authorities where administrators were appointed (Re Sberbank, Re VTB, Re CargoLogicAir) were important contextual factors. Because no OFSI licence had yet been granted, the Joint Administrators gave undertakings to pursue the licence and not to deal with funds until a licence was granted, and to return to court by a long-stop date if none was granted.
• Ancillary orders: The court authorised opening insolvency accounts, maintaining banking arrangements and permitted use of the Insolvency Service Account only with consent and subject to licences. The administration order was therefore made immediately on 15 November 2024, with undertakings and conditions to manage sanction risk.

Other findings: The judge noted the forthcoming Amendment Regulations (SI 2024 No. 1157) introducing paragraph 9DD (insolvency licensing purpose) into Schedule 5 of the Sanctions Regulations and treated that as supporting the licensing-based approach. The judge directed that the judgment may be cited despite being an unopposed application.

The court made the administration order on 15 November 2024 and appointed Mr Anthony Cork and Mr Stephen Cork as Joint Administrators. Rationale: the court was satisfied under paragraph 11 of Schedule B1 that the Company was unable to pay its debts and that administration was reasonably likely to achieve a statutory objective; the 14 May 2024 board resolution of the sole director was valid under the unmodified Model Articles (Article 7(2) disapplies the directors’ decision-making provisions); and the Sanctions Regulations did not in principle prevent the making of an administration order provided appropriate OFSI licences were sought and the administrators gave undertakings not to deal with funds until licences were obtained. Ancillary banking powers were granted subject to licences and the administrators’ undertakings, and a long-stop date was set for return to court if licences were not granted by 5 March 2025.