CargoLogicAir

CLA was a perfectly healthy and viable business until February 2022. While neither CLA nor its Parent were specifically designated under the UK Regulations, Regulation 11(7) confirms that funds and economic resources are to be treated as owned, held or controlled by a designated person if they are ultimately owned held by a Designated Person. CLA was therefore also subject to the asset-freezing provisions imposed on the Parent Majority Shareholder, and it could not make payments or access its funds without approval from the Office of Financial Sanctions Implementation (OFSI).

Prior to our involvement in October 2022, CLA had struggled for months. Its two leased aircraft were grounded and repossessed, very soon after the invasion of Ukraine. Employees had not been paid in weeks. An application to transfer ownership to an employee-owned trust (a strategy to lift the sanction effects) had been rejected by OFSI. The company’s only operational bank account was set to be closed. CLA was not just commercially paralysed – it was rapidly approaching complete collapse.

Solution

We were formally engaged in October 2022 to lead the contingency planning. Our priority was to assess whether administration could provide a route to protect value for creditors, safeguard core assets, and restore operational control.

Key steps we took included:

• Regulatory engagement: We opened early dialogue with OFSI to prepare for administration. A detailed OFSI Plan was developed, forecasting administration scenarios, estimated costs, and the likely creditor impact. We applied for an Administration Licence from OFSI and coordinated with CLA to extend is Basic Needs Licence.
• Legal foundation: We advised the director on fiduciary duties under insolvency law, particularly the risks of wrongful trading. The administration application was filed before the company lost access to its bank entirely.
• Court appointment: On 16 November 2022, we were appointed Joint Administrators by court order. Mr Justice Green acknowledged the unique challenges posed by sanctions and the importance of structured administration in maintaining creditor value.
• Access to funds: Knowing that banks were unlikely to engage with a sanctioned entity, we sought and secured court permission to use the UK Insolvency Service Account (ISA). This would allow us, pending approval from the ISA’s bankers and OFSI, to operate an account for CLA and eventually transfer its frozen funds.
• Stakeholder collaboration: We engaged with the Civil Aviation Authority (CAA) to preserve CLA’s Air Operator Certificate, a potentially valuable asset. We also consulted with CLA’s management to retain essential employees and initiate redundancy consultation where appropriate.
• Asset and record recovery: We negotiated access to premises and began recovering limited physical records. However, most of CLA’s operational data (technical logs, aircraft stock records, Outlook email, etc.) was stored digitally, behind accounts frozen by service providers.

Outcome

Our structured approach yielded several tangible outcomes:

• Sanction compliance: We secured both the Administration Licence and an updated Basic Needs Licence from OFSI in February 2023.
• Preserving creditor value: Though we initially explored a business sale, ongoing sanction restrictions and banking barriers made this unviable. Our strategy pivoted to asset recovery and maximising returns for creditors, including potentially unpaid employees.
• Employee protection: A core team was retained to assist with administration. We were then in a position – pending full banking access – to prioritise salary payments to staff who had gone unpaid for months.
• Bank account negotiations: Despite our authority and licences, UK banks remained risk averse. We worked closely with the Company’s original bank, OFSI, and the Insolvency Service to unlock access to CLA’s funds in a lawful and controlled manner, but no independent bank agreed to hold the funds, so they remain in the ISA.
• Future recoveries: We prepared claims for lease deposits, corporate tax refunds, and outstanding receivables, although without full access to the company’s digital records or bank account, legal and practical barriers remained and we are considering taking legal action against Microsoft to recover the Company’s data.

The CLA case demonstrates the high complexity of administering a company entangled in sanctions—even if it is not directly sanctioned. The role of the administrator extends well beyond traditional insolvency practice into regulatory, legal, and geopolitical territory.

Our experience with CLA reinforces the need for early regulator engagement, specialist legal advice, and a proactive, multi-disciplinary team approach. Sanctions compliance must be woven into every step of the administration process, requiring both legal precision and strategic flexibility.