Shoosmiths’ CR&A team were instructed by Teneo, the special administrators of Sova Capital Limited, on their directions application relating to a proposed sale of “trapped” securities which had traded on the Russian Stock Exchange.

On 2 March 2023, Mr Justice Miles gave judgment on the application and directed the special administrators to proceed with the proposed sale to an unsecured creditor, with the unsecured creditor utilising their proposed dividend out of the estate as settlement of the purchase price for the assets, which the judge commented is likely to be the first of its kind. 

The argument from an opposing creditor that the bid was effectively a distribution in specie of the assets to a single unsecured creditor and as such contravened the pari passu principle was not successful. 

The innovative valuation mechanism for the transaction, which valued it by reference to the hypothetical dividend which the bidder would receive, rather than to the value of their claim in the administration, convinced the judge that this was not a simple distribution in specie. 

As a result of the sanctions imposed by the UK, EU and US and the counter restrictions imposed by the Russian government on trades with Western states, the realisation of these assets was difficult, but with the confirmation that this sale will go ahead, there will be improved returns for the remaining creditors, and a precedent for the use of unsecured credit bids going forward.

Shoosmiths CR&A partner Lee Sennett, principal associate Charlotte Broster and associate Lucy Sanderson advised on the transaction and the second application.