Court of Appeal upholds OFSI licence curbs on VTB Bank claim

The Court of Appeal has dismissed an appeal by designated Russian bank PJSC VTB BankNationalarchives against an OFSI amendment to the General Licence governing the administration of its London subsidiary VTB Capital plcNationalarchives. The amendment requires the joint administrators to deduct the value of the Bank's Russian enforcement recoveries and of intra-group receivables owed to the subsidiary before any distribution or provision is made for the Bank's claimNationalarchives of more than £205 millionNationalarchives, and bars statutory interest for periods in which distributions are withheld because of those deductionsNationalarchives. The court held the amendment lawful on every groundNationalarchives, while ruling that it cannot dictate the insolvency outcomeNationalarchives: the Bank's disputed creditor rights remain for the Insolvency Court to determineNationalarchives.

The Bank was designated under the Russia Regulations on 24 February 2022, freezing the subsidiary's assets, and the subsidiary entered administration in December 2022. The administrators proposed a Part 26 scheme under which the Bank would defer to other creditors and accept intra-group receivables in specie. The Bank voted the scheme down in September 2024 while continuing enforcement against the subsidiary's Russian assets, which the administrators cannot realise. At the administrators' request OFSI amended the General Licence on 8 January 2025 to insert the deduction conditionNationalarchives, and a revised scheme was then approved with the Bank's claim counting at a reduced value for voting purposes. The Bank challenged the amendment, lost at first instance, and appealed.

The court's first answer is that a Treasury licence is purely permissiveNationalarchives: it decriminalises conduct that would otherwise breach the asset-freeze and making-available prohibitions in regulations 11 to 15, and does nothing moreNationalarchives. It does not displace insolvency law, bind the administrators or the Insolvency Court, or extinguish the Bank's rightsNationalarchives. Sanctions do not remove a designated creditor's right to a proportionate share of the estate or to administration under the statutory schemeNationalarchives; they only prevent payment while designation lastsNationalarchives. Making provision for a disputed claim under rule 14.39 of the Insolvency Rules 2016 retains assets in the estate rather than deploying themNationalarchives, so it is not making funds availableNationalarchives, and the amendment's provisioning words can have no legal effect beyond suggesting a direction of travel.

The second answer is that the purposes of the sanctions legislation are broad enough to support the amendmentNationalarchives. Sanctions are meant to be severe and open-ended so that designation hurts, and stopping a designated state-owned bank from double recovery, from stepping ahead of unsanctioned creditors or from profiting from statutory interest serves the goal of pressuring Russia over Ukraine. The Padfield, irrationality, Article 6 and prior-consultation grounds therefore all failedNationalarchives: fairness did not require consulting the Bank because the amendment decided nothing finally against it, and consulting every affected creditor would have been impracticable.

For practitioners, the boundary is now firm. OFSI can steer an administration toward outcomes consistent with sanctions policy through licence conditionsNationalarchives, but cannot require a departure from insolvency lawNationalarchives. The sanction hearing for the revised scheme and the administrators' application for permission to distribute on the amended terms are still pending, and the Insolvency Court must decide how to square the circle, possibly through the hotchpot rule or by earmarking the Russian assets and group receivables to the Bank's claim. The court noted a further licence amendment may be needed to avoid misunderstanding. The legal basis is the Sanctions and Anti-Money Laundering Act 2018 and the Russia (Sanctions) (EU Exit) Regulations 2019 (regulations 11 to 15 and 64), with Schedule B1 to the Insolvency Act 1986, Part 26 of the Companies Act 2006 and rule 14.39 of the Insolvency Rules 2016.