VTB Capital - Case Update

The High Court has made an order permitting a distribution in the administration of VTB Capital plc (“VTB Capital”).

David Soden and Stephen Browne of Teneo were appointed Administrators of VTB Capital following the introduction of sanctions against Russia. VTB Capital is ultimately owned by a Russian entity, VTB Bank. It has assets in the UK but also in Russia. The Russian assets have been referred to as "Trapped Assets" because the Administrators are unable to collect them. They include securities held with the Central Depository of the Russian Federation, referred to as the National Settlement Depository (or “NSD”).

VTB Capital proposed a scheme of arrangement (the “Scheme”) on 4 September, which both VTB Bank and NCH (another creditor) voted against. VTB Bank and NCH collectively have sufficient voting power to vote down the Scheme. The Scheme meeting was adjourned and will be reconvened on 30 January 2025, with a sanction hearing now listed for 6 February 2025. Discussions are ongoing with a view to amending the relevant terms of the Scheme and possibly securing the support of the dissenting creditors.

In the meantime, VTB Bank has been progressing three claims in Russia (two in St Petersburg and one in Moscow) against VTB Capital and has recently taken enforcement steps against the company's assets in Russia. In October, the NSD wrote to VTB Capital notifying it that company assets totalling circa £40 million had been transferred to VTB Bank in partial satisfaction of a judgment obtained against the company. To the Administrators' knowledge, there remains circa £17 million in cash and securities at the NSD.

Perhaps even more troubling, VTB Bank appears to be undertaking its own proposed restructuring, which entails a transfer to a new company of VTB's assets and liabilities to unfriendly counterparties amounting to up to RUB 170 billion roubles (circa £1.34 billion) and this is due to take place by the end of 2024.

Concerned that these steps could prejudice VTB Capital’s creditors, the Administrators sought permission to distribute. They intend to make the first distribution after either the Scheme is sanctioned early next year, or it becomes clear that creditors will not support the Scheme, in which case the Administrators will distribute in accordance with the provisions of the Insolvency Rules 2016. The Administrators consider that they will be in a position to distribute some £175 million.

The Court concluded that it is only a matter of time before a distribution is actually made and the relevant timescale is intended to be a relatively short one. The administration is effectively "in distribution mode". No creditors objected to the distribution application when originally put forward as part of the Scheme.

As to the propriety of the Administrator's objectives, the Court stated that insolvency set-off is a substantive part of insolvency law, and there is nothing unjust in bringing insolvency set-off into play as between the company and its creditors. In the present context, the Court found that the question of whether to permit the distribution should be looked at from the perspective of the creditors' interests as a whole. The fact of the general estate being better off by reason of the application of insolvency set-off, even if it comes at the expense of a particular creditor, is a factor in favour of granting permission rather than against it. The same is true of maximising the application of the hotchpot principle, since that also is a rule intended to benefit creditors as a whole.

The order granted includes a liberty to apply for the benefit of creditors, meaning that any creditor who wishes to dispute the permission to distribute can do so before any distribution is actually made without the need to appeal out of time.

The decision can be accessed HERE.

Adam Al Attar KC (instructed by Weil, Gotshal & Manges) for the Administrators