(Bloomberg) -- Liquidators have been appointed to two European units of sanctioned Russian leasing company GTLK after their bid to win the protection of the Irish courts failed.

Hamstrung by penalties over Russia’s invasion of Ukraine, state-owned GTLK was unable to make interest payments to creditors on its foreign bonds, which went into default last year. Like many Russian Eurobond issuers, the company — one of the largest lessors of aircraft in Russia — used Ireland-registered subsidiaries to sell and service its foreign notes. 

Judge Conor Dignam appointed Damien Murran and Julian Moroney of Teneo Restructuring Ireland as joint liquidators to GTLK Europe DAC and GTLK Europe Capital DAC after a hearing at the High Court in Dublin on Wednesday

The firms had sought to have an examiner appointed after debts of $1.5 billion were forgiven by the Russian government. Examinership is a mechanism that provides for the rescue and return to health of ailing, but potentially viable companies. The company has to have a reasonable prospect of survival.

Kelley Smith, a lawyer for a group of creditors, asked the court on Tuesday to dismiss the application on the basis that the firms were insolvent and instead requested that the companies be wound up. The creditors represented by Smith claim to be owed $175 million by the GTLK Europe group.

Smith said various factors contributed to the GTLK firms having no chance of survival, most of which stemmed from sanctions imposed upon them following Russia’s invasion of Ukraine. The firms’ business activities had been effectively frozen as a result of those sanctions while the whereabouts of some of its assets were unknown, she said.

The companies had “admitted” their own insolvency and, as such, the “natural consequence” of this was that they had to be wound up, Smith added. 

While the companies said in their submissions on the winding-up application before the court that they were solvent, the same firms claimed in the examinership proceedings, on the basis of an independent expert’s report, that they were cash flow insolvent, the court heard on Tuesday.

‘Catastrophic’ Breakdown

The judge on Wednesday refused to appoint an examiner. He found that the firms had not acted in good faith and had not demonstrated that they had a reasonable prospect of survival. He ordered the winding up of the companies instead.

It seemed “incongruous” to allow companies that had sought the protection of the court on that basis to carry on business, the judge added.

Prior to the court’s ruling, legal representatives for GTLK on Tuesday sought and were granted permission to cease representing their clients after what the court heard had been a “catastrophic” breakdown in their relationship with the clients.

--With assistance from Irene García Pérez.

©2023 Bloomberg L.P.