The licence will keep you out of prison. It will not tell you what to pay: VTB v HM Treasury for officeholders

Introduction

Picture the scene. You are joint administrator of a London company whose assets were frozen the day its Russian parent was designated. The parent is also your largest creditor, with a proof above £205 million. Most of the company’s own assets, around £180 million, sit in Russia where you cannot reach them, and the parent is enforcing against them there while you watch. You proposed a scheme of arrangement. The parent voted it down the night before the meeting. The unsanctioned creditors, more than half of them UK businesses, have been waiting since 2022.

So you go to OFSI and ask for a sanctions solution: an amendment to the general licence that stops the parent being paid, or provided for, until its Russian recoveries have been deducted at 2022 exchange rates and without statutory interest. OFSI gives you one. Two years of correspondence, a licence amendment on 8 January 2025, and a route to distributing the estate.

That was the position of the joint administrators of VTB Capital plc. On 30 October 2026 the Court of Appeal told them, in PJSC VTB Bank v HM Treasury [2026] EWCA Civ 1373, that the licence they had fought for did not do what they thought it did. They won the appeal. They did not get the solution.

What a licence is for

Start with what sanctions do to an estate, because it comes at you from two directions. A designated person is one named on the UK sanctions list, in this case under the Russia (Sanctions) (EU Exit) Regulations 2019, and designation does two things: it freezes the designated person’s assets, and it prohibits anyone from making funds or economic resources available to it or for its benefit. “Economic resources” include any funds, tangible or intangible property or assets.  The parent statute is the Sanctions and Anti-Money Laundering Act 2018, and section 38 of it lets a designated person challenge a licensing decision in the High Court on judicial review principles.

First direction: the company itself. A majority-owned subsidiary of a designated person is caught by the asset freeze, so VTB Capital’s own assets froze in February 2022 and it could not trade. Even the administration order could only be made once OFSI and OFAC had licensed payments in the insolvency (paragraphs 24 to 29). Second direction: the dividend. Any payment to the parent is a payment to a designated person, which no licence has permitted.

What designation does not do is take the creditor’s rights away. The Bank “cannot receive, while sanctions remain in place, any dividend on its proof of debt”, but its right to a proportionate share of the assets after sanctions are lifted, and to have the estate administered under the statutory scheme, “are not extinguished by the sanctions” (paragraphs 99 to 100). The Russia Regulations do not stop a designated person suing and obtaining judgment (Mints), and do not stop the court making an administration order over the subsidiary of a sanctioned entity (KRF Services) (paragraphs 101 to 105). Suspension, not extinction.

So the officeholder is holding a frozen claim that will one day be payable, and the question is what to do with the money in the meantime.

What the administrators asked for

The first answer was the scheme: the parent’s entitlement would go into a holding period trust until sanctions allowed release. OFSI amended the general licence in May 2024 to permit that trust, at paragraph 5.3 of the licence, and the Bank never objected to it (paragraph 34). Then the Bank killed the scheme (paragraph 35).

The second answer was paragraph 5.3A, added on 8 January 2025. No funds to be made available to the Bank, “including the making of any provision”, without first deducting the value of its Russian enforcement recoveries and the intra-group receivables, converted to sterling at December 2022 rates, with no statutory interest for the period of delay (paragraphs 37 and 40). The administrators’ own evidence was candid about the point: the sanctions solution was there to reach an outcome that was, at least arguably, “not available under insolvency law” (paragraph 108).

That is what the Bank attacked. Not the trust. The deductions. On its case, 5.3A told the administrators not to provide for its claim unless the claim was first cut down, which reduced a £205 million proof by administrative act (paragraphs 8, 59 and 97).

What the Court of Appeal said

The Master of the Rolls, Bean LJ and Zacaroli LJ dismissed the appeal on two grounds that each disposed of it (paragraph 17), and the first of them is the one every officeholder should write on the wall.

A licence is permissive. It “decriminalises conduct that would otherwise be a breach of sanctions but it does not, in itself, affect any substantive rights the Bank may have in the insolvency of the Subsidiary or determine what those rights are”. The Court adopted the judge’s line: “Decriminalisation is the only thing a licence can achieve” (paragraph 116). OFSI can “point the JAs and the Insolvency Court towards a course of action, but cannot tell them what to do” (paragraph 146).

Second, OFSI was entitled to make the amendment. The purposes of SAMLA and the Russia Regulations are broad enough, and the fact that it prejudiced the Bank is no objection; sanctions are meant to hurt (paragraphs 54 and 145). Lawful, then. Just not effective.

Four things follow for you.

1. Making provision is not making funds available. HM Treasury argued that provisioning for the Bank’s claim was itself a prohibited act. The Court rejected it. Rule 14.39 requires provision for undetermined and disputed claims; provision means assets are retained, and “the making of a provision gives the creditor nothing” (paragraph 128). It is not a dealing, not a benefit, not within the freeze. So the words in 5.3A purporting to stop provision without the deductions “can have no legal effect, save perhaps to suggest a direction of travel to the JAs” (paragraph 131). That is the holding, not a worst-case scenario; even if the reading were wrong, the licence could not override insolvency law (paragraph 132).

2. The licence is not an order. The administrators had told the Court they would be bound to follow the licence even where it contradicted insolvency law (paragraph 108). No. A licence “does not override any impediment that may exist under insolvency law to the JAs taking the actions it permits” (paragraph 116). And the Court shut the bigger door while it was at it. Two creditors, one designated and one not: can a licence authorise paying everything to the second and nothing to the first? Treasury counsel said yes. The Court said the Russia Regulations “do not permit OFSI validly to authorise a distribution of an insolvent company’s assets to one creditor without making any provision for a debt owed to a designated entity” (paragraphs 134 to 136). That is your floor.

3. The insolvency route to the same result is open, and it is the only route. The Court went out of its way to say the administrators’ outcome may still be reachable, through insolvency law rather than through OFSI: the hotchpot rule, under which a creditor that has recovered abroad takes no dividend here until the others have caught up; provision for the Bank’s claim being made by way of the Russian assets and the receivables themselves; or a restructuring plan (paragraphs 155 to 157). The exchange rate fight sits here too. The Bank says its rouble recoveries should be converted at the date each was made, when the rouble was weaker, which shrinks the deduction and enlarges its claim (paragraph 94). The Court decided nothing on it (paragraph 95), but said a creditor whose own designation halted the wind-down “cannot be heard to complain” if the Russian assets end up valued at an earlier date (paragraph 159). If provision is made that way, the licence may need amending again to remove the misleading words in 5.3A (paragraph 158).

4. No consultation right on the licence, but a day in the Insolvency Court. OFSI did not have to consult the Bank before amending the licence; the licence decided nothing finally, and consulting every affected creditor would be impracticable (paragraph 148). But “when, and if, the Licence Amendment is acted upon by the Insolvency Court, the Bank will, if it has insolvency or other grounds, be able to challenge the Insolvency Court’s decision” (paragraph 142). The scheme sanction hearing and the distribution application were both parked for this appeal (paragraph 44). They now go ahead with every one of the Bank’s insolvency arguments intact.

What you do on Monday

Back to the scene. You have the licence. Here is what it is worth.

Ask two questions of every step, not one. Is this a sanctions breach without a licence? Does insolvency law permit it? The licence answers the first. Nothing OFSI gives you answers the second.

Get the licence early and read it narrowly. The general licence in VTB was amended four times. Each amendment permitted something; none of them required anything. Comply with its conditions and reporting obligations, and maintain a record, because the licence is what keeps you out of the criminal law. Do not read it as authority for a distribution.

Make full provision under rule 14.39. On ordinary principles, the claim should be converted to sterling at the administration date, with statutory interest in a surplus scenario, and recorded as retained rather than deployed. If your case is that the provision should be smaller because of foreign recoveries or in specie assets, that is an application to the Insolvency Court with hotchpot evidence. It is not a licence condition.

Sequence the applications. Licence first, so the court application is not seeking permission to commit an offence. Court application second, because that is the one that changes rights. Then back to OFSI if the court’s solution does not match the licence wording.

Settle the voting question before the meeting. OFSI confirmed the Bank could vote on the scheme (paragraph 39). The revised scheme passed only because the Bank’s claim was assigned a reduced value for voting purposes, on the premise that the licence had affected its rights (paragraph 41). The Court of Appeal has now said it affected none. Expect that premise to be tested at the sanction hearing, and do not build a scheme on it.

The Court’s own verdict on the sanctions solution was that it had “not exactly achieved what the JAs wanted” (paragraph 152). What it produced instead is a division of labour that will outlast this case: OFSI decides what is lawful under sanctions, the Insolvency Court decides what the estate does. Plan the appointment around that division and you will spend less time in the Administrative Court and more in the one that can actually make the order.

Paul Henty is a partner at Beale & Co in London and heads the firm’s competition, public procurement, sanctions and trade practice. He is dual-qualified in England and Wales and Ireland.

PJSC VTB Bank v HM Treasury [2026] EWCA Civ 1373, 30 October 2026, Sir Geoffrey Vos MR, Bean LJ and Zacaroli LJ, on appeal from Collins Rice J [2025] EWHC 3359 (Admin).