Financial sanctions can create difficult practical issues during an administration or liquidation. An insolvency practitioner may be required to deal with creditor claims, contractual rights, assignments and distributions while also ensuring that nothing they do breaches the UK’s asset-freezing restrictions.
The High Court decision in Denali Corp-FZCO v Manson & Ors [2026] EWHC 2287 (Ch) provides useful guidance on this interaction.
The case arose from the liquidation of Petropavlovsk plc and concerned contractual rights held by a Russian company which had subsequently become subject to UK sanctions. The court was asked whether the liquidators could consent to an assignment of those rights without breaching the sanctions regime.
The court concluded that they could.
However, the decision does not mean that insolvency automatically overrides financial sanctions or that assets connected with a designated person can be dealt with freely. The legal treatment of a particular asset and the action an office-holder proposes to take remain important.
In simple terms, UK financial sanctions continue to apply during insolvency, so administrators and liquidators must consider whether dealing with assets or rights connected with a designated person is prohibited before taking action.
Our Company Administration Guide explains the wider administration process, while our company liquidation guidance considers what happens when a company moves into liquidation.
What happened in Denali Corp-FZCO v Manson?
Petropavlovsk plc was an English company involved in gold mining in Russia.
It entered administration in July 2022 before subsequently moving into creditors’ voluntary liquidation in July 2024.
Before liquidation, Petropavlovsk had entered into arrangements for the sale of its assets. One of the parties involved, Atlas JSC, also held substantial rights against Petropavlovsk arising from financing and the asset-sale arrangements.
In April 2025, Atlas agreed to assign certain contractual rights relating to proceeds from the Petropavlovsk insolvency to Denali Corp-FZCO, a Dubai company.
Those rights were estimated to have a potential value of at least approximately US$30 million.
The assignment required Petropavlovsk’s consent, acting through its liquidators.
The position became more complicated when Atlas was designated under the UK Russia sanctions regime in June 2025.
The liquidators were concerned that consenting to the assignment might amount to prohibited dealing with an asset belonging to a designated person. They therefore declined to give consent unless the legal position was clarified.
Denali applied to the High Court under section 112 of the Insolvency Act 1986 seeking a direction concerning the liquidators’ consent.
The High Court ultimately concluded that giving consent would not breach the relevant asset-freeze restrictions.
The High Court judgment in Denali Corp-FZCO v Manson & Ors contains the full reasoning.
How do financial sanctions affect an insolvency?
Entering administration or liquidation does not switch off the UK financial sanctions regime.
The Office of Financial Sanctions Implementation, or OFSI, has published specific guidance for insolvency practitioners. It explains that UK financial sanctions may restrict dealings with the funds or economic resources of designated persons and that licensing requirements may need to be considered before certain transactions take place.
This can create practical difficulties for office-holders.
An insolvency estate may contain contractual rights involving a sanctioned creditor. A designated person may have submitted a proof of debt. A proposed assignment may change who is entitled to receive future proceeds. An administrator or liquidator may also need to determine whether a distribution can lawfully be made.
These are not simply technical sanctions questions. They can affect how quickly an insolvency can progress and whether value can be realised or distributed.
Our insolvency practitioner services explain how legal issues arising after appointment can affect the administration and realisation of an insolvent estate.
The key point is that the precise asset and proposed transaction need to be identified before the sanctions consequences can sensibly be assessed.
Why did the difference between funds and economic resources matter?
UK sanctions legislation distinguishes between funds and economic resources.
That distinction was central in Denali.
The rights being assigned did not give Atlas an immediate entitlement to a fixed sum of money. Their value depended on matters including the outcome of the liquidation, recoveries from assets and the expenses incurred by the office-holders.
The High Court therefore concluded that the relevant rights were economic resources, rather than funds.
An economic resource is broadly an asset which is not itself a fund but can potentially be used to obtain funds, goods or services.
That classification mattered because the sanctions legislation defines what amounts to “dealing with” funds differently from what amounts to “dealing with” economic resources.
Having characterised the contractual rights as economic resources, the court considered whether the liquidators’ act of consenting to their assignment amounted to prohibited dealing.
It concluded that it did not.
The liquidators could therefore give their consent without breaching the sanctions restrictions considered by the court.
The decision should nevertheless be applied carefully. It does not establish that every claim, debt or contractual entitlement belonging to a sanctioned creditor is an economic resource rather than a fund. Classification depends on the nature of the particular right.
Can liquidators make distributions or approve assignments involving sanctioned creditors?
Denali does not create a general rule allowing liquidators to approve transactions involving designated persons.
The court determined a specific question about a particular assignment.
Different consequences may arise where an office-holder proposes to transfer money directly to a designated creditor, alter ownership of funds, release an asset or carry out another transaction caught by the sanctions regulations.
In some circumstances an OFSI licence may be required before a transaction can lawfully proceed.
That means insolvency practitioners need to separate three questions.
First, what asset or legal right is involved?
Second, how is that asset classified under the sanctions legislation?
Third, does the proposed action amount to prohibited dealing or otherwise make funds or economic resources available to a designated person?
Only once those questions have been considered can the office-holder determine whether the transaction can proceed, whether a licence is required or whether directions from the court should be considered.
This distinction also explains why a sanctions asset freeze is not the same thing as a commercial freezing injunction.
A commercial freezing injunction is a court remedy used to prevent assets being dissipated during litigation. Financial sanctions arise under a separate statutory regime and restrict dealings with assets connected to designated persons.
Where an insolvency estate contains assets which need to be identified, protected or recovered, our asset tracing and recovery guidance for insolvency practitioners explains the wider recovery process.
What should insolvency practitioners, creditors and directors do when sanctions are involved?
Sanctions issues should be identified as early as reasonably possible.
Office-holders should establish whether creditors, counterparties or beneficial owners relevant to the estate are designated persons or potentially owned or controlled by designated persons.
They should then identify the precise assets and rights involved rather than assuming that every creditor entitlement is treated in the same way.
OFSI guidance should be considered alongside the relevant sanctions regulations and the particular facts of the insolvency. Where the position is uncertain, specialist advice, licensing or an application to court may need to be considered before the proposed transaction proceeds.
Creditors acquiring claims or contractual rights connected with an insolvent estate should also investigate sanctions risk before completing an assignment. A transaction can become significantly more difficult if the parties discover only afterwards that consent, licensing or other restrictions apply.
For directors of companies approaching insolvency, the same principle of early identification is important. Existing relationships with sanctioned counterparties, restricted assets or unusual international payment arrangements should be properly documented and brought to the attention of professional advisers and any subsequently appointed office-holder.
That does not imply wrongdoing by the directors. It helps ensure that the legal position can be assessed accurately and reduces the risk of ordinary insolvency decisions becoming more complicated later because important sanctions information was not identified.
Our company rescue guidance explains the wider options available where a company is experiencing financial distress, while our administration services for insolvency practitioners deal with the legal issues which can arise after an appointment.
The practical importance of Denali is therefore not that sanctions cease to matter once insolvency begins.
It is that insolvency practitioners must identify exactly what asset they are dealing with and exactly what they propose to do with it.
In Denali, that analysis enabled the High Court to conclude that the liquidators could consent to the assignment without offending the sanctions regime. In another insolvency, involving different rights or a direct payment to a designated person, the answer could be different.
