Petropavlovsk PLC

Petropavlovsk PLC, the parent of a group of gold mining companies operating in the far east of Russia, entered administration on 18 July, after its ability to operate was impaired due to international sanctions and other restrictions resulting from Russia’s invasion of Ukraine.

Specifically, in March, the UK government announced the imposition of sanctions against banks and other entities, including GPB, the Company’s main lender and a major buyer of the group’s gold. As a result of these sanctions, as well as the legal and practical impediments to transferring funds from the Russian subsidiaries to the Company, the Company and its subsidiaries defaulted on the US$200 million term loan and c.US$86.7 credit facilities provided by GPB. The group was also unable to sell gold to GPB.

In April and May, GPB assigned the term loan to other entities not subject to sanctions. However, ongoing sanctions and restrictions made it difficult for the Company’s Russian subsidiaries to trade effectively and to move funds to the Company to enable it to service its debts. Given the threat of enforcement action at both parent and subsidiary levels and the group’s inability to meet its substantial debts, it was clear that the Company was insolvent and the decision was made to apply for administration.

On 8 September, the Joint Administrators delivered their Statement of Proposals, outlining certain ethical issues considered prior to their appointment. Specifically, the Joint Administrators identified that the particular complexities and high-profile nature of this case could be deemed to present an ethical threat. However, they determined that the significant experience and knowledge possessed by key members of the team removed this risk. The appointment of the Joint Administrators was also sought by way of Court order, rather than by any out-of-court route, in order to provide complete transparency to all stakeholders regarding the validity of the administration, and to provide an opportunity for any party to attend and participate in the process of appointment.

In addition, the Joint Administrators took comfort in an internal ethical review being completed, the disclosure of the potential ethical matters to creditors, and the team dealing with the administration having no prior involvement or relationship with the Company or its directors.

The Joint Administrators also described the pre-pack sale of the Company’s shares in its subsidiaries to UMMC-Invest, the Company’s largest creditor. The High Court granted the Administrators the liberty to enter into the transaction on 1 August, and the sale was completed on 7 September. It is anticipated that the sale proceeds will enable creditors to be paid in full.

Allister Manson, Trevor Binyon and Joanne Rolls of Opus are the Joint Administrators. They are assisted by Joseph Hage Aaronson in relation to legal issues surrounding the sale and sanctions; insolvency counsel (Peter Arden KC and Joseph Wigley) and sanctions counsel (Jim Sturman KC) to provide specialist advice and representation; DAC Beachcroft to deal with an outstanding employee claim; Isadore Goldman in relation to the Company’s leasehold interest in its trading premises; and Shoosmiths relating to all employment matters with the existing team and any potential TUPE implications. Weil Gotshal and Dechert provided legal advice in relation to the Company’s financial situation prior to Opus’ engagement. Lawyers in various other jurisdictions have also assisted with the transfer of the Company’s shares.

The full report can be found HERE.