Quillon Law succeeds in Sova Capital judgment involving the first “unsecured credit bid” of its kind

Partner Michael Barnett and Associate Laurence Crees successfully acted for Dominanta, a creditor of Sova Capital Limited, in a major case involving the acquisition of £274 million of Russian securities in England’s first “unsecured credit bid”.

This transaction was the first of its kind to be considered in the context of an administration by the English courts, in circumstances where the ability for administrators acting for Sova Capital Limited to sell these assets was severely limited by the invasion of Ukraine,  Western sanctions and restrictions in Russia placed on such sales.

The court granted Sova Capital’s administrators permission to complete the sale of these securities to Dominanta in a credit bid, with Dominanta waiving its claim as a creditor in exchange. This was resisted by an opposing creditor wishing to pursue his own proposed transaction who argued that the administrators had no power to enter into this transaction. The opposing creditor claimed that it amounted to a distribution “in specie” which was contrary to the pari passu rule.

In his judgment, Mr Justice Miles addressed the “novel issues which have not previously been decided by the courts”, holding that a creditor could purchase assets from a company in administration by using its creditor claim as consideration, and that such a transaction was not properly characterised as a distribution of assets, as the creditor was acting as purchaser and not as creditor.

In doing so, the judgment identified a potential approach by which administrators can realise value to the benefit of the body of creditors where a cash sale to third parties is problematic.

Mr Justice Miles’ judgment was handed down on 2 March 2023, and can be read here.