Can lenders enforce security against sanctioned individuals?

Tom Taylor, Associate

The decision of the High Court in West One Loan Limited v Anna Okroyan provides a significant reminder that, whilst sanctions may restrict the making and receipt of payments, they do not necessarily prevent a secured lender from enforcing its security.

How do sanctions affect secured lending and loan repayments?

The case concerned a mortgage over a substantial residential property owned by Ms Okroyan, who was designated under the Russia (Sanctions) (EU Exit) Regulations 2019.

Following her designation, the sanctions regime prohibited dealings with her funds and economic resources absent an appropriate licence. The borrower contended that, because the sanctions regime rendered payment unlawful, her obligations under the loan were effectively suspended.

Can lenders enforce security against sanctioned individuals?

The Court rejected that argument. Mr Justice Edwin Johnson held that the lender’s right to possession arose from its proprietary security rights and was not defeated by the borrower’s sanctions status. The fact that payments could not lawfully be made without a licence did not relieve the borrower of her contractual obligations nor provide a defence to enforcement of the mortgage security.

In reaching that conclusion, the Court distinguished authorities addressing claims for damages and default interest where payment had become unlawful because of sanctions. Those authorities did not alter the position where a secured creditor sought to enforce its security following an event of default.

What does the judgement mean for lenders and insolvency practitioners?

The Judgment will be of particular interest to lenders and insolvency practitioners navigating the increasingly complex intersection of sanctions and debt enforcement. It confirms that sanctions restrictions, whilst capable of affecting the mechanics of performance, will not necessarily deprive a secured creditor of its substantive enforcement rights. The courts remain willing to uphold and enforce mortgage security against designated persons.

For advice on asset recovery, enforcement, and the options available to secured creditors, contact a member of our specialist asset recovery team on 0161 832 3434, or at info@ kuits.com.