By Naomi Rovnick
LONDON (Reuters) – London’s High Court has ruled that the administrators of Sova Capital, a collapsed London broker formerly controlled by Russian banker Roman Avdeev, can employ a novel deal structure to swap a portfolio of Russian shares.
In a case highlighting how the owners of Russian assets left almost impossible to trade by sanctions relating to the war in Ukraine are testing exit routes, the High Court ruled the Sova Capital administrators’ deal did not breach Western laws.
The ruling allows for the swap of a portfolio of Russian shares held by the broker, nominally valued at 274 million pounds ($329 million), for a 233 million pound creditor claim Avdeev has against Sova Capital’s business, court documents dated March 2 which were released on Friday showed.
Lovells, the law firm representing Sova’s administrators Teneo, said in a statement that the deal structure was “unprecedented in the UK where credit bidding has no technical recognition”.
So-called credit bids allow lenders to offer their debt in exchange for assets without paying cash and are commonly used in U.S. bankruptcy proceedings.
The judge’s ruling noted that the securities may be “worth more” to Avdeev’s purchasing vehicle Dominanta than they would be to Sova, and that Dominanta “may be able to make a profit from the transaction”.
The judge added, however, that this issue arose from “the unusual circumstances” of Sova’s insolvency.
The broker collapsed a year ago as Western sanctions hit businesses with Russian ties. Rules such as the Kremlin’s ban on institutions from countries it considers unfriendly from trading on its stock market had prevented Sova from selling the securities on Russia’s MOEX exchange.
In his ruling, the judge noted that “MOEX prices for the Russian Securities are no more than nominal for Sova”.
Another constraint, he said, was Sova’s ability to get cash from a sale of securities that were “effectively trapped”.
A February court hearing was told that Teneo had approached potential buyers of the portfolio such as Goldman Sachs and JP Morgan, but did not receive adequate interest.
($1 = 0.8338 pounds)
(Reporting by Naomi Rovnick; Editing by Dhara Ranasinghe and Alexander Smith)
