Tensions between sanctions and insolvency law: Searching for a model solution with a focus on the European Union and Poland

Abstract

This article explores the conflict between insolvency law and sanctions law, particularly in the context of European responses to Russia's invasion of Ukraine. Historically, conflicts between legal systems have shaped laws, and modern insolvency law continues this struggle by determining creditor priorities in cases where debtors cannot fully satisfy them. The article highlights how recent sanctions, which freeze assets to restrict the economic activities of sanctioned individuals and entities, complicate insolvency proceedings. The European Union, along with Poland, has imposed unprecedented sanctions on Russia, including bans on transactions, asset freezes, and trade restrictions. These sanctions, while aimed at political objectives, often push businesses into insolvency by preventing access to resources. Case studies such as GoSport in Poland, Amsterdam Trade Bank in the Netherlands, and Fortenova in Croatia demonstrate the complexities that arise when businesses linked to sanctioned entities become insolvent. Key issues include the legal treatment of frozen assets, creditor satisfaction, and the potential for sanctioned entities to benefit from bankruptcy proceedings. Poland has revised its sanctions law, introducing provisions for the appointment of independent managers to oversee sanctioned companies, ensuring continued operations without benefiting sanctioned owners. However, uncertainty remains over the management and distribution of frozen assets, with no clear framework in place. The article concludes that insolvency and sanctions law, though often in conflict, must be applied flexibly to address individual cases. A balanced approach is needed to protect creditors while adhering to the political and legal objectives of sanctions.