Denali Corp – FZCO (incorporated in Dubai) v Allister Manson & Ors

For sanctions purposes, an assignment of uncertain or contingent contractual rights to receive liquidation proceeds is an economic resource, not a fund, where the rights confer no present entitlement to a definite or liquidated sum. That includes a right to prove in a liquidation for an uncertain surplus and reversionary or contingent rights to residual trust money. Under regulation 11 of the Russia (Sanctions) (EU Exit) Regulations 2019, a company's consent to an assignment between a designated assignor and a non-designated assignee is not, without more, a dealing with those resources where the company is not party to the assignment and neither it nor its liquidators exchanges or uses the rights for funds, goods or services. Consent therefore does not breach the sanctions regime.

Atlas, a Russian company later designated under the Sanctions and Anti-Money Laundering Act 2018 and the Russia (Sanctions) (EU Exit) Regulations 2019, assigned to Denali certain rights under a share sale deed relating to Petropavlovsk’s liquidation. The assignment required Petropavlovsk’s consent, to be given by its liquidators. The liquidators withheld consent because of the possible sanctions consequences.

Denali applied under section 112 of the Insolvency Act 1986 for directions including consent to the assignment. The court had to construe the assigned rights, classify them under section 60 of the Sanctions and Anti-Money Laundering Act 2018 as funds or economic resources, and decide whether consent was a dealing under regulation 11. The central issue was whether consent would offend the sanctions legislation.

Disposition. The application was determined in Denali’s favour on the sanctions issue. The liquidators’ consent would not breach the sanctions legislation, and the parties were invited to agree an order giving effect to the judgment.

1. Subject matter of the assignment. The Settlement Agreement and Assignment Agreement were contemporaneous documents forming part of one transaction and were construed together. The Assigned Rights were the bundle of contractual rights under clauses 10.1, 12.1 and 13.1 of the Share Sale Deed. They were not the Term Loan, the declared dividend or Atlas’s proof in the liquidation. The references to liquidation proceeds, the uncertainty as to amount and the commercial consequences of assigning the Term Loan supported that conclusion.
2. Economic resource or fund. The court applied section 60 of the Sanctions and Anti-Money Laundering Act 2018 and the exposition in PJSC National Bank Trust v Mints [2023] EWCA Civ 1132. The right under clause 10.1 was a right to prove in the liquidation for an uncertain surplus. The rights under clauses 12.1 and 13.1 were reversionary or contingent rights to residual sums held on trust, without a present interest or definite amount. Those rights were therefore economic resources rather than funds. The case was closer to the boundary than PJSC National Bank Trust v Mints, but the same classification applied.
3. Dealing with economic resources. Regulation 11(1) of the Russia (Sanctions) (EU Exit) Regulations 2019 prohibits dealing with funds or economic resources owned, held or controlled by a designated person. Since the Assigned Rights were economic resources, regulation 11(5) was applicable. The simple giving of consent by Petro, acting through its liquidators, to an assignment between Atlas and Denali was not an exchange of the rights for funds, goods or services, nor their use in such an exchange. Petro was not a party to the assignment transaction. The words dealing with were therefore not apt to describe the consent, which did not breach regulation 11.
4. Licensing point. The court noted that regulation 11 does not apply to conduct authorised by a Treasury licence under paragraph 64 of the Regulations. Part 1 of Schedule 5, paragraph 8, appeared capable of providing a route for satisfying a designated person’s pre-designation obligation. The point was not decided because the consent was lawful without a licence. The conclusion did not depend on the principle of legality.

not stated in the judgment.