The Financial Conduct Authority has announced this week that Insolvency Practitioners at Teneo Financial Advisory Limited have been appointed as special administrators following Sberbank CIB's entry into special administration.
Sberbank CIB is the UK arm of Russia's largest bank, Sberbank, and is authorised and regulated by the FCA. It provided trading and execution services to its clients and access to the Russian market. With the scope of sanctions on Russian entities ever expanding and an increasing refusal of UK business to been seen to engage with any entity with links to Russia, Sberbank CIB became operationally unable to make payments (despite having sufficient assets to make payment of its liabilities).
The directors of Sberbank CIB placed it into special administration and the special administrators were appointed on 1 April 2022. So what is a special administration and what are the initial steps that the special administrators will take?
A special administration applies where the entity in question carries out a function of a public nature. For example, water companies, energy companies, social housing and financial institutions may all find themselves facing a special administration in an insolvency scenario. More recently, you may recall that Bulb Energy were placed into special administration.
A special administration can only be commenced by order of the Court and there are three grounds on which the application may be made:
- Ground A: the investment bank is or is likely to be unable to pay its debts
- Ground B: that it would be fair to place it into special administration
- Ground C: that it is in the public interest to place it into special administration
Once administrators are appointed, their aims for the special administration will differ from the standard administration objectives. The administrators objectives will be:
- To ensure the return of funds as soon as reasonably practicable;
- To ensure timely engagement with authorities (for example, the Bank of England and the Financial Conduct Authority); and
- To rescue the institution as a going concern or to wind it up in the best interests of the creditors.
Unlike a standard administration, the special administrators may opt to prioritise any one of these objectives to achieve the best result for creditors and customers. However, there is a caveat to this: the FCA may direct the administrators to prioritise one of the objectives, if they see fit to do so.
Provisions in Schedule B1 of the Insolvency Act 1986 will apply to special administrations. Therefore, as you might expect, the administrators will need to produce a statement of proposals within 8 weeks, host an initial meeting of creditors and consider the appointment of a creditors' committee. The special administrators will work to return client money and custody assets to customers in line with applicable law.
However, the FCA are likely to want to be involved in the special administration of Sberbank CIB and they are entitled to insert themselves into the process. Indeed, the FCA have noted that they "are liaising closely with the joint special administrators". In particular, they may opt to send a representative to be present at creditors' committee meetings and make representations if they consider it appropriate to do so. Further, they may require that the administrators produce evidence that they have put a formal communication strategy in place to keep creditors and customers updated.
Together with the news this week that the London branch of Russia's VTB Bank has entered administration (also with insolvency practitioners at Teneo appointed), the special administration of Sberbank CIB is a significant insolvency event in London. It does, of course, remain to be seen how much further damage the sanctions will do to Russia's international financial position and what impact this will have on Russian-based financial entities with a presence the UK.
Sberbank CIB’s failure is the consequence of the ability and risk appetite of critical suppliers to work with firms with links to the Russian state following the invasion of Ukraine and the global imposition of sanctions.