March 7, 2023
The High Court (Mr Justice Miles) has handed down judgment giving directions to the Joint Special Administrators (the “JSAs”) of Sova Capital Limited (“Sova”) to perform transactions with one of its creditors, Dominanta. Sova entered special administration after the invasion of Ukraine and the JSAs have experienced difficulty realising its assets, many of which are held in Russia, as a result of Western sanctions and Russian restrictions on dealing with UK companies.
Under the transactions, Dominanta will receive certain Russian securities held by Sova valued at £274 million in consideration for it waiving its adjudicated claim in the special administration. The JSAs’ position was that the transactions would generate higher distributions to the remaining unsecured creditors of Sova as a result of the waiver of Dominanta’s significant creditor claim than would be the case if the JSAs sought to realise value from the securities by more conventional means.
The transactions were challenged by another creditor and bidder for the securities, Mr Boris Zilbermints, on the grounds, inter alia, that they would amount to an impermissible distribution in specie to a creditor which would violate the pari passu principle.
Mr Justice Miles held that the transactions amounted to a sale and not a dividend. The pari passu principle was therefore not engaged. He further found that the JSAs were acting honestly and rationally in causing Sova to enter into the transactions and accepted that the transactions would not breach any sanctions regime.
The case is significant for being, as the Judge observed, the first time in the history of English insolvency law where the permissibility of such an unsecured ‘credit bid’ transaction model has been considered in detail by the courts. As a result it is likely to be of considerable interest to insolvency practitioners and lawyers seeking to realise maximum value for creditors.
Nicholas Wright, led by William Buck, acted for Dominanta instructed by Michael Barnett and Laurence Crees of Quillon Law LLP.
Download the judgment.