Members’ Voluntary Liquidation: The Valuation Of Contingent Debts

Where a solvent company goes into liquidation voluntarily its creditors can expect to recover everything due to them. But what happens if a creditor's claim is contingent? In the case of Ricoh Europe Holdings BV and others v Spratt and another [2013] EWCA Civ 92 (19 February 2013) the Court of Appeal rejected a contingent creditor's attempt, in a solvent, members' voluntary liquidation, to force the liquidator to make a provision to ensure payment of the maximum potential amount of the creditor's claim upon crystallisation.

Legal Background

A creditor is able, in most cases, to prove in the liquidation of a company even if it cannot set a definite value on the claim, because that is dependent on a process which is incomplete at the time the company goes into liquidation. The Insolvency Rules 1986 (SI 1986/1925) (IR 1986) contain a mechanism to enable any contingent element of a creditor's claim to be valued. This mechanism applies both in compulsory and voluntary liquidations. A liquidator must estimate the final amount of the creditor's claim and inform the creditor of that estimate, and this becomes the value of the creditor's claim for the purpose of receiving a distribution of the assets of the company. In some members' voluntary liquidations there is simply a return of assets to the company's shareholders; in other cases the liquidator must first pay claims to creditors. Where there is to be a distribution to creditors, the liquidator gives notice of the intention to make a final distribution to creditors and sets a date for submission of creditors' claims. Failure by a creditor to do so results in exclusion from benefiting from that final distribution. It is often the case that there will be just one distribution of assets in a members' voluntary liquidation. A creditor who fails to submit its claim to the liquidator can therefore lose its right to claim against the company.

Facts

In 2006 the Ricoh group (Ricoh) bought the Infotec group (Infotec) from Danka Business Systems Plc (Danka). As part of the purchase Danka indemnified certain Ricoh companies against the tax liabilities of Infotec in a number of European countries. In 2009 Danka went into members' voluntary liquidation. Its liquidators declared an intention to make a single, final distribution to Danka's creditors and creditors were invited to submit claims. Ricoh submitted its claim, partly on the basis of the tax indemnity in the purchase agreement, the final valuation of...