On 15 November 2024, Joshua Ray and Duncan Henderson, partners at CANDEY, acted for the First and Second Applicants on the matter of Re KRF Services (UK) Ltd and others. Andrew Twigger KC sat as a Deputy Judge of the High Court and published his written judgment on 26 November 2024.

The judgment discusses and clarifies two important issues: (i) the position of a sole director under the Model Articles in UK company law and (ii) the in-court appointment of administrators in light of sanctions regulations.

Background

KRF Services (UK) Ltd (“KRF”) managed assets of the family of a Dr Viatcheslav Moshe Kantor, a designated person under the 2019 Russia Sanctions Regulations. KRF became subject to asset freezing restrictions, eventually causing it to be unable to pay its KRF debts. KRF and its sole director applied to court to appoint administrators.

Issue 1: UK Company Law

Legal issue: Can a sole director validly pass board resolutions and bind the company where it has adopted the Model Articles for a private limited company?

The tension that Deputy Judge Twigger KC was asked to resolve was between Article 11(2) of the Model Articles, which requires a quorum for directors’ meetings of at least two directors, and Article 7(2) of the Model Articles, which states that, if a company only has one director and no provision of the articles requires it to have more than one director, the sole director may take decisions regardless of other provisions in the Model Articles.

Finding: Deputy Judge Twigger KC held that Article 7(2) prevails over Article 11(2) in the case of unamended Model Articles. Therefore, a sole director can validly pass board resolutions and bind the company. It does not matter whether there had always been only a sole director or there had been a multi-member board previously.

Issue 2: Sanctions Regulations

Legal issue: Does the making of an administration order breach asset-freezing sanctions when the company is designated or owned or controlled by a sanctioned person? 

One question at the heart of this issue was whether the appointment of administrators involved ‘dealing with’ a ‘fund’ as defined in regulation 11(4) of the Russia (Sanctions) (EU Exit) Regulations 2019 (SI 2019/855), which would constitute an offence.

Finding: Deputy Judge Twigger KC held that appointing administrators does not ‘enable’ the funds in question to be used in due course. Therefore, it was not in breach of the sanctions regulations.

However, obtaining an OFSI licence is always preferable before administrators are appointed. The appointment of administrators without a specific licence in place yet, as was the case here, is preferably limited to those cases where it is appropriate to make an immediate order so that administrators can take immediate control of the company.

Legal development: On 5 December 2024, a new licencing purpose was added to the Russia (Sanctions) (EU Exit) Regulations 2019, namely activity relating to insolvency proceedings [Sanctions (EU Exit) (Miscellaneous Amendments) (No 2) Regulations 2024 (the Amendment Regulations), SI 2024/1157].