Key takeaways
Fund or economic resource
Distinction between the two under UK sanctions legislation.
Fund
Has intrinsic financial value, usually as a liquidated sum.
Economic resource
Uncertain in nature, for example a claim or cause of action.
Denali Corp - FZCO v Manson & Ors [2026] EWHC 2287 (Ch) (04 September 2026)
The Court has held that the liquidators of a designated entity could give consent to an assignment of that entity’s contractual rights in an insolvent company’s liquidation without breaching UK sanctions regulation.
The decision is useful for clarifying the distinction between a ’fund’ and an ’economic resource’ for the purposes of sanctions legislation. It also highlights that the English Court will interpret sanctions regulations in a purposive manner.
The background facts
Term Loan
Petropavlovsk plc (Petro) is an English company which was involved in gold mining in Russia. It was the borrower under a term loan facility from JSC Gazprombank in the sum of US$200m (Term Loan). On 19 April 2022, the benefit of the Term Loan was assigned to a Russian company, Atlas JSC (then known as JSC UMMC-Invest).
On 18 July 2022, Petro entered administration and administrators were appointed by the Court. Atlas entered a proof of debt in the sum of US$200m plus interest in respect of the Term Loan.
Share Sale Deed
On 1 August 2022, with the permission of the Court, Petro and Atlas entered into a share sale deed (Share Sale Deed) for the sale of Petro's assets to Atlas for a total consideration of US$619m, which included cash consideration of US$380m.
Clause 20 of the Share Sale Deed provided that Atlas may assign its rights under the Share Sale Deed with Petro’s consent.
The sale under the Share Sale Deed completed on 7 September 2022. Petro went into creditors' voluntary liquidation on 9 July 2024, with the administrators being appointed as Liquidators.
On 8 October 2024 the Liquidators declared a dividend of 29.2 pence in the pound on Atlas's proof in respect of the Term Loan, being a dividend of nearly £19m. This was not paid.
Settlement Agreement
On 16 April 2025, Atlas entered into a settlement agreement (Settlement Agreement) with Denali Corp FZCO (Denali), as well as an Assignment Agreement, and a termination agreement. These agreements resulted from a gold contract between Denali and a wholly owned subsidiary of Atlas, JSC Pokrovskiy Mine, as seller of gold bullion. A change in the price of gold made this a heavy loss-making contract for Atlas and it wished to exit the contract.
Atlas agreed to assign to Denali the liquidation proceeds from Petro to which it was entitled. In return, Denali agreed to terminate the gold contract.
The termination agreement terminated the gold contract with immediate effect. The Assignment Agreement, however, required Petro’s consent to the assignment.
The Liquidators would have given such consent on behalf of Petro. However, on 17 June 2025, Atlas became a designated person under the UK Sanctions and Anti-Money Laundering Act 2018 (SAMLA) and the regulations made thereunder, being the Russia (Sanctions) (EU Exit) Regulations 2019 (the Regulations).
The Liquidators were concerned that consenting to the assignment might offend the UK sanctions regime. Denali, therefore, applied to the Court under s.112 of the Insolvency Act 1986 for a direction that the Liquidators give their consent to the assignment. The Court had to decide whether to do so would breach the sanctions regulations.
The sanctions regulations
Pursuant to the UK sanctions regime, all the assets of a designated person are frozen. It is a criminal offence for any person to deal in a designated person’s frozen assets or to make available any assets to a designated person.
S.60 of SAMLA distinguishes between an economic resource and a fund. Funds are essentially financial assets and benefits of every kind. Economic resources are assets that are not funds but than can be used to obtain funds, goods or services.
Pursuant to s.11 of the Regulations:
’11.— (1) A person ('P') must not deal with funds or economic resources owned, held or controlled by a designated person if P knows, or has reasonable cause to suspect, that P is dealing with such funds or economic resources.’
In this case, the Liquidators were P.
What amounts to “dealing” for the purposes of the Regulations depends on whether the asset in question is a fund or an economic resource.
Under Regulation 11(4), a person deals with a fund if the person
’(a) uses, alters, moves, transfers or allows access to the funds,
(b) deals with the funds in any other way that would result in any change in volume, amount, location, ownership, possession, character or destination, or
(c) makes any other change, including portfolio management, that would enable use of the funds.’
Under Regulation 11(5), a person deals with an economic resource if the person
’(a) exchanges the economic resources for funds, goods or services, or
(b) uses the economic resources in exchange for funds, goods or services (whether by pledging them as security or otherwise).’
In Mints & Ors v PJSC National Bank Trust & Anor [2023] EWCA Civ 1132 (06 October 2023), the Court of Appeal held that a claim for damages was an economic resource rather than a fund and there was no breach of Regulation 11(1) if judgment was entered against a designated person.
The Court of Appeal described funds for these purposes as assets that were certain in nature and had an intrinsic financial value, usually for a liquidated sum. A claim could include arguable causes of action that might or might not succeed at trial and was, therefore, uncertain.
Furthermore, there was no exchange of an economic resource for funds in entering judgment. Once judgment was entered, the cause of action was extinguished and replaced by the judgment so there was no exchange. The Court was also not receiving anything in exchange for the cause of action.
The Court decision
The Court decided that what was being assigned by the Assignment Agreement was the bundle of contractual rights set out in the Share Sale Deed, not the Term Loan.
Those rights represented an economic resource rather than a fund. What was assigned was a right to prove in the liquidation for what was an uncertain sum. It was a right only to a payment in a sum equal to any surplus in the liquidation which would depend on other creditor claims and the level of recovery out of assets. That appeared to be an economic resource that could be used to obtain funds, rather than a fund.
The Court decided that consent to the assignment by the Liquidators would not breach the Regulations. The words ’deals with’ did not apply to the simple giving of consent by Petro/the Liquidators to an assignment between Atlas and Denali of rights under the Share Sale Deed.
Petro was not a party to the transaction of which the assignment formed part, and the giving of consent did not involve any exchange by the Liquidators or Petro of those rights for funds, or the use by the Liquidators or Petro of the rights in exchange for funds.
The Court did not think this was an unduly narrow interpretation of the sanctions legislation or the meaning of ’funds.’
The Court added that all the benefits that Atlas was to receive under the 16 April 2025 arrangements had already passed to Atlas. The giving of consent to the assignment would not put any assets in Atlas’ hands or allow the use by Atlas of those assets. An inability to give consent would, on the other hand, mean that Atlas would have got all the benefits under the 2025 transaction, but without Denali receiving its consideration.
Comment
Interestingly, the Court noted that it was common ground that no license would have been available if the consent of the Liquidators would otherwise have been unlawful. The Court found this surprising but was not required to consider the point further given its conclusion that there was no sanctions breach involved.
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