SIV creditors granted equal rights

LONDON (Reuters) - The assets of Sigma Finance, a collapsed structured investment vehicle (SIV), are set to be shared equally amongst its creditors, after the country's top court overturned a lower court ruling on Sigma's debt repayment.

The ruling is likely to have an impact on any financing scheme involving "waterfalls" of payments from one group of creditors to another, lawyers said.

In the first appeal ruling from the new Supreme Court, the judges said on Thursday that Sigma receivers Ernst & Young did not need to repay debts as they came due if there were insufficient funds to pay all secured creditors in full.

"The judgement is notable ... because it may have an impact on the legal interpretation of waterfall clauses in other cases where asset values have plummeted beyond the contemplation of the lawyers drafting the original documentation," said Linton Bloomberg, a lawyer at Jones Day, which represents one of the secured creditors.

Equal rights amongst creditors -- or ranking "pari passu" -- has always been a fundamental principle of insolvency law, Bloomberg said.

Lower courts had ruled that Sigma's receivers could pay back debts as liabilities came due, which would mean most secured creditors -- owed more than $6 billion (3.6 billion pounds) -- would not be repaid.

Sigma's assets, once valued at $27 billion, realised just $310 million at auction last year.

Ernst & Young said it was considering the implications of the judgement and how would affect Sigma's receivership.

Sigma, managed by UK-based Gordian Knot, collapsed in October 2008 after banks cut their funding lines to the complex debt vehicle.