The High Court has granted an order for moneys to be paid into court in circumstances where a company wished to redeem loan notes before their maturity date due to a proposed refinancing, but had been prevented from paying the sums to the holder of those notes in light of UK, EU and US sanctions: Fortenova Grupa D.D. v LLC Shushary Holding & Ors [2023] EWHC 1165 (Ch).

The claim concerned loan notes issued by an EU company and held by the subsidiary of a well-known Russian bank, which is subject to sanctions as a result of the war in Ukraine, including in the UK, EU and US.

Due to a proposed refinancing, the company wished to redeem the notes held by the Russian subsidiary before their maturity date in September 2023. However, the company could not pay the sums to the Russian subsidiary to redeem the notes because of the sanctions in place. The company obtained relevant licences from the relevant authorities to make a payment into court, and then applied to court to make such a payment. The court granted the company’s application for: (i) an order that moneys be paid into court enabling the company to redeem the loan notes and for the company to take the necessary steps to release the security in the Russian subsidiary’s favour, with the intention that the Russian subsidiary could apply for the moneys if and when sanctions are lifted; and (ii) a declaration that the company is not liable for default interest on the notes.

The judgment will be of interest to financial institutions following case law developments involving sanctioned entities. The court appears to have taken a sensible and pragmatic approach to dealing with the difficulties caused by sanctions and has provided guidance on the approach to take where an obligor wishes to exercise its right to redeem.

We discuss the decision in further detail below.


This was an expedited Part 8 trial of a claim concerning loan notes with a face value of approximately €400m issued by Fortenova Grupa d.d. (the Company), which is part of the Fortenova Group, a major food producer in Central and Southeastern Europe. The notes are held by the first defendant, LLC Shushary Holding (Shushary), a subsidiary of the Russian bank VTB Bank PJSC (VTB).

Pursuant to a 2019 Subscription Agreement, governed by English law and subject to the exclusive jurisdiction of the English court, the Company had issued a total of €1.157 billion worth of senior secured floating rate notes. Shushary held approximately 37.9% of the notes. The fifth and sixth defendants, as holders of the remainder of the notes, were joined to the proceedings so that they could be bound by the court’s decision. In accordance with the terms of the Subscription Agreement, the loan notes were secured against various assets of the Company and other companies in the Fortenova Group.

During 2021, the Company began exploring options for refinancing the notes. Due to the proposed refinancing, the Company wished to redeem the notes held by Shushary before their maturity date in September 2023 (as permitted under the Subscription Agreement). In line with a Payment Direction Letter, which post-dated the Subscription Agreement, the Company was to pay any sums due in respect of the Shushary notes to certain bank accounts with VTB and VTB Bank Europe SE, in the names of Shushary and VTB (the VTB accounts).

However, in February 2022, as a result of Russia’s invasion of Ukraine, the UK, the US and the EU imposed sanctions in respect of Russian individuals and entities, including VTB. As a result, it became unlawful for the Company to make payments to Shushary or VTB and so the Company could not redeem the Shushary notes, despite being contractually entitled to do so. This made it impossible for the Company to proceed with the proposed refinancing and was causing it serious prejudice.

Accordingly, the Company applied for an order that moneys be paid into court to enable the Shushary notes to be redeemed, and for the security in Shushary’s favour to be released so that the refinancing could proceed. It would then be for Shushary to apply for the moneys to be released from there, when and if sanctions are lifted. The Company also sought a declaration that it was not liable for default interest on the notes, because it has been unable to pay interest to Shushary in accordance with the Subscription Agreement while the sanctions are in place.


Payment into court

In granting an order for the payment of moneys into the Court Funds Office bank account, the court recognised that the Company must comply with the sanctions legislation in the UK, the US and the EU, and therefore the Company needed the relevant licences from the relevant authorities in order to pay the Shushary moneys into court. Importantly, the court remarked that “the court order itself is not sufficient protectionfor the Company and its advisers. The court noted that the Company had sought and obtained various licences and mentioned, in respect of UK sanctions, that the Office of Financial Sanctions Implementation (OFSI) had recently, on 28 March 2023, issued a new general licence which “UK persons involved in the transactions should be able to rely upon to pay the Shushary moneys into court and which may render a specific licence issued further to the OFSI pre-licence unnecessary”.

In considering the nature of the equity of redemption, the court referred to the authorities which emphasised that the policy of the courts of equity was always to ensure that there is nothing to prevent redemption, or rather that there are “no clogs” on the equity of redemption. The court noted that there was no dispute as to the clearly established principles in this area and held that:

“The court will fashion a remedy to ensure that a debtor is able to rid their property of encumbrances and that will include directing that security be released upon payment into court of the sums required to redeem.”

As it was not lawful for the Company to make payment to the VTB accounts in accordance with the Subscription Agreement and the Payment Direction Letter in light of the various sanctions, resulting in the Company being prevented from exercising its right to redeem the Shushary notes and obtain a release of the security, the court held that an order permitting the Company to pay moneys into court, in the event of the Company exercising its right of redemption, was a “perfectly proper and sensible route” in the circumstances. Moreover, without the relief, the court noted the Company and the Fortenova Group more widely faced a real risk to their financial stability.

The court held that the possibility of Shushary being unable to receive funds for a potentially lengthy period of time was no reason to refuse redemption. Indeed, the court held that this was precisely why the court should make the order, as otherwise the Company would be left in a state of paralysis.

It was submitted that Shushary would have preferred payment to be made to a blocked account in its name within the EU, or in rubles to a Russian account. Payment to Russia would clearly be unlawful and unacceptable. Therefore, the court held that, as no suitable account in the EU was identified, there appeared to be “no alternative” but for the moneys to be paid into court.

Accordingly, the court ordered that moneys be paid into court to enable the Shushary notes to be redeemed and for the security in Shushary’s favour to be released so that the refinancing could proceed. It would then be for Shushary to apply to court for the moneys to be released to it, or to such other person as it nominated, with the application showing that such payment would be lawful and not in contravention of any applicable sanctions regime.

The court commented that the application for the payment of moneys into court was a “relatively straightforward way” of dealing with the “unfortunate situation”, and notably the application was “not strenuously opposed” by Shushary. The court also considered that the Company bringing the claim on its own behalf and pursuant to CPR 19.8(1) on behalf of the companies within the Fortenova Group that had granted security for the notes was a “sensible way to have proceeded”.

Default interest

The court also held that, in the circumstances, the Company was not liable to pay default interest under the Subscription Agreement. The relevant default interest clause stated:

“If an obligor fails to pay any amount payable by it under a finance document on its due date, interest shall accrue on the overdue amount from the due date up to the date of actual payment.”

It was argued that the clause presupposes that it is lawful for the obligor to pay the debt. However, the Company cannot be said to have failed to pay sums due to Shushary, in circumstances where the Company was willing to pay those sums, but was not permitted to do so as a result of international sanctions which prohibited the Company from paying Shushary. Having been referred to a series of cases decided during wartime (notably NV Ledeboter and Van der Held’s Textielhandel v Hibbert [1947] KB 964), where it was held that the debtor cannot be in default if performance of the obligation would be unlawful, the court held that the situation with the present case was analogous and so the correct construction in the circumstances was that the Company was not liable to pay default interest.

In reaching its conclusion, the court agreed with a previous judgment in this case handed down on 5 April 2023 (Fortenova v Shushary [2023] EWHC 970 (Ch)), where the court had expressed a preliminary view that it would be a “harsh construction” if the Company was fixed with default interest, when it was at all times willing and able to pay but was prevented from doing so by sanctions.

Although the court held that it was not necessary to consider the Company’s argument on the default interest being an unenforceable penalty in the circumstances, the court considered that the argument was “quite compelling” and added to the construction argument.

Rupert Lewis
Rupert Lewis
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Ceri Morgan
Ceri Morgan
Professional Support Consultant
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Sarah McCadden
Sarah McCadden
Professional Support Lawyer
+44 20 7466 2193