The Bottom Line
- Sanctions Licensing Isn’t a Blank Cheque: HM Treasury (and its sanctions body, OFSI) cannot refuse licenses on broad policy grounds alone. The High Court has confirmed that decisions must be rational, well-reasoned, and consider the specific context, especially when interacting with other legal frameworks like UK insolvency law.
- A Lifeline for Insolvent Subsidiaries: This ruling provides a potential pathway for sanctioned parent companies to fund the orderly administration or liquidation of their UK arms. This is crucial for insolvency practitioners seeking to pay for costs and manage a wind-down effectively.
- Increased Scrutiny on Government Decisions: Businesses now have a clearer precedent for challenging sanctions-related licensing decisions. Expect greater scrutiny of OFSI’s reasoning, forcing the department to be more transparent and nuanced in its application of the sanctions regime.
The Details
The case revolved around PJSC VTB Bank, a sanctioned Russian parent company, and its UK subsidiary, VTB Capital PLC, which entered administration following the imposition of sanctions. The administrators of the UK entity needed funding from the parent company to conduct an orderly wind-down, including paying professional fees and other administration expenses. However, HM Treasury refused to grant the necessary license, prompting a judicial review claim from VTB.
VTB’s core argument was that the Treasury’s decision was irrational and failed to consider relevant factors. The bank contended that the purpose of the funds was not to circumvent sanctions or benefit the Russian parent, but to facilitate the proper functioning of the UK’s own statutory insolvency regime. By preventing the transfer, the Treasury was effectively frustrating the administrators’ ability to perform their duties to the detriment of UK-based creditors and employees. VTB argued that the Treasury had applied a blanket policy without properly balancing the objectives of the sanctions against the public interest in an orderly administration.
In a significant ruling, the High Court sided with VTB Bank. Mrs Justice Collins Rice held that while the Treasury has wide discretion in enforcing sanctions, that power is not absolute. The court found that the refusal to grant a license in these specific circumstances was flawed because the decision failed to adequately weigh the distinct purpose of the funds—which would be controlled by independent, court-appointed administrators—against the broad aims of the sanctions regime. The judgment quashed the Treasury’s refusal and ordered it to reconsider the license application on a sounder legal footing.
Source
High Court of Justice (King’s Bench Division, Administrative Court)
