Sova Capital Limited

We last wrote about Sova Capital last month, when the High Court allowed Dominanta to swap its admitted unsecured claim of c.£233m for a portfolio of Russian shares nominally valued at £274m, marking what appears to be the first unsecured credit bid of its kind.

Now, David Soden and Ian Wormleighton of Teneo, the Joint Special Administrators, have released their Progress Report providing updates on the progress of the administration.

One of the Joint Special Administrators' objectives is to return client assets as soon as reasonably practicable. The Joint Special Administrators declared and paid a second interim cash distribution of 40p/£ to clients holding Client Asset Sourcebook Accounts, which was in addition to the first interim distribution of 50p/£, bringing the total distribution to 90p/£.

Another of the Joint Special Administrators' objectives is to rescue the company as a going concern or wind it up in the best interests of creditors. Given the current estimated deficiency to unsecured creditors, a rescue of the company would likely require a material recapitalisation and/or equity injection. The Joint Special Administrators have continued to explore opportunities for a rescue of the company, including exploring interest from Russian and non-Russian parties. No formal proposals to rescue the company have been received, although informal approaches have been made. As such, the Joint Special Administrators have continued to prioritise a sale of the company's business and certain assets in order to maximise returns for creditors.

On current information, and assuming it is not possible to rescue the company as a going concern, the Joint Special Administrators anticipate that:

• client money and custody assets will be returned in full, less the fees and costs incurred in dealing with client assets (the shortfall for which can be claimed from the estate);

• it is currently unclear how much Wood Street, a secured creditor with a fixed charge (a rent deposit deed in relation to the company's UK premises), will claim, and therefore whether it will be paid in full;

• no preferential creditors (being employee claims for pre-administration arrears of wages and accrued holiday, as well as HMRC for pre-Special Administration VAT and PAYE arrears) are anticipated, as these were paid in full during the course of the Special Administration; and

• unsecured creditors are expected to receive approximately 44%-61% of their total claims based on current estimates, but the timing of future dividends remains uncertain.

The Dominanta transactions completed on 7 March. At the time that UK Court approval was obtained, the value of the securities had fallen to c.£251m. As such, they were only sufficient to waive c.£213m of Dominanta’s claim (rather than the full £233m).

At the time of the appointment, the company had 320 employees. That number has now reduced to 126 employees (102 in Moscow and 24 in London).

The Joint Special Administrators anticipate that they will still realise c.$24m in securities, c.$10m in derivatives and c.$5m in other assets.

They have been assisted by Hogan Lovells and Winston & Strawn, as well as agents Forensic Risk Alliance and Alantra Partners.

The Progress Report can be found HERE.