Vol 20 (2023) - Issue 5

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English Court Approves First 'Unsecured Credit Bid', in Administration of Sova Capital

Synopsis
The English Court approved the first 'unsecured credit bid', in the special administration of Sova Capital.
The court granted Sova's administrators permission to enter into the sale of Russian securities (representing the bulk of Sova's estate) to an unsecured creditor, in consideration for that creditor waiving its claim against Sova.
In categorising the transaction as a 'sale' to a creditor rather than a 'distribution', the court found that the pari passu principle (which requires equal treatment of unsecured creditors in insolvency) did not apply.
The court's judgment provides detailed guidance as to the methodology used to value the unsecured credit bid. Notably, the sale consideration was evaluated on the basis of the dividend that the buyer would have received in the administration had the transaction not taken place; it was not calculated on the basis of the full value of the buyer's claim.
Although the nominal value of the relevant securities (c. £274 million) was higher than the amount of the buyer's c. £233 million unsecured claim, various Russia-related factors made the realisable value of securities far lower.
The case was opposed by another unsecured creditor (and competing bidder).