CargoLogicAir Ltd

We recently wrote about how the High Court ruled that Joint Administrators should be immediately appointed over CargoLogicAir Ltd, an English registered company operating as a cargo airline which has been affected by sanctions, rather than suspending the appointment until the Joint Administrators obtain the necessary licences. David Buchler and Joanne Milner of Buchler Phillips were appointed on 16 November 2022.

Over two months have passed since their appointment, and the Joint Administrators have now released their proposals outlining the reasons for the company’s insolvency and their strategy for the administration.

The company was the UK’s only main-body air freight carrier. For the year ended 31 December 2020, the company achieved turnover of US$148,910,070 and posted profit of US$45,430,411, having worked to transport urgent medical supplies to combat COVID-19.

In June 2022, following Russia’s invasion of Ukraine, the UK government imposed sanctions on Alexey Isaykin, the company’s ultimate beneficial owner, who was deemed a Designated Person because of alleged links to the Russian government. The conflict between Russia and Ukraine resulted in the company being unable to operate flights in the EU and US airspace.

In August 2022, OFSI issued the company a licence authorising it to make payments in relation to its basic needs and for its prior obligations. Despite the licence, Citibank, the company’s bankers, began to cause significant delays in actioning payment requests, causing significant delays in payments being made to the company’s staff and suppliers, and ultimately causing the company to become unable to meet its liabilities as they fell due.

The company attempted to implement a reorganisation to transfer ownership of the company to a British-based and registered employee-owned trust structure, but OFSI refused the proposed reorganisation in early September 2022. This resulted in the termination of the employment of a majority of the company’s employees effective November 2022.

On 28 October, Citibank notified the company of its intention to close the company’s only operational bank accounts by 30 November. Given the circumstances, it was determined that the company would not be able to find an operational account from another source, and that administration would be the best option for the company. An OFSI licence application for the conduct of the proposed administration was made on 1 November.

Since their appointment, the Joint Administrators determined that their objective would be to achieve a better result for the company’s creditors than would be likely if the company were wound up, since they currently expect to realise sufficient funds to pay all creditors in full.

However, they have outlined various issues related to this as a result of the sanctions. Among other things, the estimated to realise figure is uncertain for the deposits on the leased aircraft, as the recoveries of these funds are likely to involve litigation in different jurisdictions. In addition, the intercompany debtors are unlikely to be recoverable because these entities are subject to various sanction regimes and some of them are registered outside of the UK with the debts disputed.

The Joint Administrators also intend to make an application to the Court for directions as to how to effect a distribution to creditors unaffected by the UK sanctions regime. This may involve the company being placed in liquidation, or the Court may order that the company remain in administration for an indefinite period, with the Joint Administrators being given permission to make a distribution to the creditors.

Alternatively, the Joint Administrators may consider whether it is appropriate for the company to enter into a Part 26A restructuring plan with its creditors or a CVA.

The Joint Administrators’ proposals can be found HERE.

The Joint Administrators have been assisted by DLA Piper.