By Naomi Rovnick and Kirstin Ridley

LONDON(Reuters) -Administrators of Sova Capital, a collapsed London broker formerly controlled by Russian banker Roman Avdeev, are seeking UK court approval to sell a pile of Russian securities to Avdeev in a complex and novel attempt to shift illiquid Russian assets.

The case illustrates how Russian and offshore owners of assets rendered almost impossible to trade by war-related sanctions are testing exit routes a year on from the start of the conflict.

Lawyers for Teneo, Sova’s administrators, on Monday told Britain’s High Court that Avdeev, the broker’s former controlling shareholder, plans to swap a 233 million pound ($280.30 million) creditor claim he has against Sova in return for a discounted purchase of its portfolio of Russian securities, valued in court filings at a notional 274 million pounds.

Avdeev, who is not himself subject to sanctions, could not be reached for comment via lawyers for Dominanta, the entity through which he is bidding, who said they did not have instructions to comment on these live court proceedings.

Teneo lawyer Mark Phillips told the court that the portfolio of Russian stocks had become “trapped” inside Sova, which had offered foreign investors access to Russian markets. It went into special administration as a barrage of sanctions hit businesses with Russian ties last year.

“There is a substantial portfolio of Russian securities,” Phillips said, “significantly impacted by legal restrictions and sanctions imposed by authorities around the world.”

Rules such as Moscow’s ban on institutions from nations that have imposed sanctions on Russia from trading on the country’s stock market had prevented Teneo from selling Sova’s Russian securities on the Russian exchange, Phillips said.

Teneo last year approached potential buyers of the securities including Goldman Sachs, JP Morgan, Citigroup and distressed debt investment funds but did not receive adequate interest, he added.

Russian financial institutions, meanwhile, were mostly “subject to sanctions or asset freezes,” which severely limited the “universe of potential buyers,” Philips said.

That meant Avdeev’s offer, made by a vehicle controlled by the Russian banker, was “the only alternative,” Phillips added.

Posing an obstacle to Avdeev’s proposal, another Russian creditor of Sova filed an objection to the court on the basis that Avdeev’s credit bid should not be permitted under UK insolvency laws.

Russian businessman Boris Zilbermints, who has made a rival 125 million pound cash offer to the administrators, urged the court not to approve the Dominanta transaction.

The proposed deal, Zilbermints said, would lead to an “unprecedented contravention of creditors’ rights to equal treatment” and urged Teneo to continue exploring the possibility of selling the Russian securities for cash, according to court filings. 

International investors have been stranded with Russian stocks and bonds worth tens of billions of dollars when they were freely tradable.

Lawyers expect wealthy individuals and institutions to continue seeking court approval for ways of exiting Russian investments while complying with sanctions.

“People are going to start testing the limits of what is permissible,” said Paul Feldberg, a partner and sanctions expert at law firm Jenner & Block.

“The sanctions are not going away and there are a lot of people and institutions who have assets written down to nothing and they aren’t going to just accept it.”

The hearing continues on Tuesday.

($1 = 0.8326 pounds)

(Reporting by Naomi Rovnick; additional reporting by Nell Mackenzie in London. Editing by Dhara Ransinghe and Christina Fincher)

---