11 September 2026
Denali v Manson and the intersection of sanctions law and insolvency
Exploring Offshore Litigation
About
The consequences of getting it wrong are severe yet the legislation often leaves practitioners without clear answers to commercially significant questions. The recent English High Court decision in Denali Corp – FZCO v Manson considers one of those unanswered questions: when a designated person holds contractual rights whose value is uncertain, do those rights constitute "funds" or an "economic resource" under the UK sanctions regime?
The distinction is not academic. It determines the scope of the asset freeze, the range of conduct that could amount to a criminal offence, and as the liquidators in this case discovered, whether administrative acts such as consenting to an assignment can lawfully proceed at all.
In Denali Corp, the court had to determine whether the liquidators of Petropavlovsk plc (Petro) could consent to the assignment of contractual rights from Atlas JSC, a designated person, to Denali Corp-FZCO without breaching the UK sanctions regime under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) and the Russia (Sanctions) (EU Exit) Regulations 2019.
The case turned on a seemingly simple question. Were the contractual rights being assigned a "fund" within the meaning of section 60(1) of SAMLA, or an "economic resource" under section 60(2)? The distinction was important with far-reaching implications.
Under Regulation 11(4), "dealing with" funds is defined broadly and captures any use, alteration, transfer, or change in ownership, possession, or character. By contrast, "dealing with" an economic resource under Regulation 11(5) is defined more narrowly and is limited to exchanging the resource for funds, goods, or services, or using it in exchange by way of pledge or otherwise.
In practical terms, if the contractual rights were classified as an economic resource rather than a fund, then the range of conduct that could give rise to a sanctions breach was significantly reduced.
In considering the issue, the court built on the framework established by the English Court of Appeal in PJSC National Bank Trust v Mints, where it was held that a claim or cause of action was not a fund but rather an economic resource. The key distinguishing factor in Mints was uncertainty. The items listed in the statutory definition of "funds" share a common feature of having an intrinsic financial value, typically for a liquidated or definite sum. A claim for damages, being inherently uncertain in outcome, did not fit that mould.
HHJ Johns KC applied the same reasoning to the contractual rights. The rights arose under a share sale deed entered into between Petro and Atlas and specifically related to, with the liquidators' consent, the rights to receive liquidation surplus proceeds, residual amounts from a US$20 million administration fund, and a US$6 million contingency fund.
The court found that the rights being assigned were, in practice, a right to prove in the liquidation for what was an uncertain sum dependent on the outcome of asset realisations, the level of claims and ongoing costs and expenses of the liquidation.
The court acknowledged that while the rights were probably closer to the border between a fund and an economic resource, the uncertainty inherent in the rights was sufficient to bring them within the definition of "economic resource" under section 60(2) of SAMLA.
Having classified the rights as an economic resource, the court concluded that the liquidators' consent to the assignment did not constitute "dealing with" those resources. The consent required did not involve any exchange of the rights for funds, nor any use of them by the liquidators in exchange for funds. Importantly for insolvency practitioners, the court held that the words "deals with" were simply not apt to describe the administrative act of giving consent to an assignment between two other parties.
Although Denali Corp is an English decision, the court's reasoning will be highly persuasive to the courts, and instructive to insolvency practitioner...
The distinction is not academic. It determines the scope of the asset freeze, the range of conduct that could amount to a criminal offence, and as the liquidators in this case discovered, whether administrative acts such as consenting to an assignment can lawfully proceed at all.
In Denali Corp, the court had to determine whether the liquidators of Petropavlovsk plc (Petro) could consent to the assignment of contractual rights from Atlas JSC, a designated person, to Denali Corp-FZCO without breaching the UK sanctions regime under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA) and the Russia (Sanctions) (EU Exit) Regulations 2019.
The case turned on a seemingly simple question. Were the contractual rights being assigned a "fund" within the meaning of section 60(1) of SAMLA, or an "economic resource" under section 60(2)? The distinction was important with far-reaching implications.
Under Regulation 11(4), "dealing with" funds is defined broadly and captures any use, alteration, transfer, or change in ownership, possession, or character. By contrast, "dealing with" an economic resource under Regulation 11(5) is defined more narrowly and is limited to exchanging the resource for funds, goods, or services, or using it in exchange by way of pledge or otherwise.
In practical terms, if the contractual rights were classified as an economic resource rather than a fund, then the range of conduct that could give rise to a sanctions breach was significantly reduced.
In considering the issue, the court built on the framework established by the English Court of Appeal in PJSC National Bank Trust v Mints, where it was held that a claim or cause of action was not a fund but rather an economic resource. The key distinguishing factor in Mints was uncertainty. The items listed in the statutory definition of "funds" share a common feature of having an intrinsic financial value, typically for a liquidated or definite sum. A claim for damages, being inherently uncertain in outcome, did not fit that mould.
HHJ Johns KC applied the same reasoning to the contractual rights. The rights arose under a share sale deed entered into between Petro and Atlas and specifically related to, with the liquidators' consent, the rights to receive liquidation surplus proceeds, residual amounts from a US$20 million administration fund, and a US$6 million contingency fund.
The court found that the rights being assigned were, in practice, a right to prove in the liquidation for what was an uncertain sum dependent on the outcome of asset realisations, the level of claims and ongoing costs and expenses of the liquidation.
The court acknowledged that while the rights were probably closer to the border between a fund and an economic resource, the uncertainty inherent in the rights was sufficient to bring them within the definition of "economic resource" under section 60(2) of SAMLA.
Having classified the rights as an economic resource, the court concluded that the liquidators' consent to the assignment did not constitute "dealing with" those resources. The consent required did not involve any exchange of the rights for funds, nor any use of them by the liquidators in exchange for funds. Importantly for insolvency practitioners, the court held that the words "deals with" were simply not apt to describe the administrative act of giving consent to an assignment between two other parties.
Although Denali Corp is an English decision, the court's reasoning will be highly persuasive to the courts, and instructive to insolvency practitioner...