Danka Business Systems Plc (In Liquidation), Re Also known as: Ricoh Europe Holdings BV v Spratt Court of Appeal (Civil Division) 19 February 2013 [2013] EWCA Civ 92:

A liquidator does not have to wait for a contingent claim to crystalise before making a final distribution to members. Once a contingent claim has been admitted to proof as a debt under Rule 4.86(1) of the Insolvency Rules 1986 the liquidator is only obliged to value it, taking into account the likelihood of any contingency. Once he has done so then he can proceed to make a distribution of the company’s assets.

The recent UK Court of Appeal decision in Re: Danka Business Systems Plc (In Liquidation) held that invaluing a contingent claim, a liquidator is not obliged to apply the "worst case scenario", but can make a reasonable assessment of the likelihood of the contingency coming to pass.  

Ricoh's contingent claims

The facts of the case were that in 2007 'Ricoh' had acquired the issued share capital of various companies incorporated in a number of European countries. In the acquisition Danka Business Systems Plc ("Danka") agreed to indemnify Ricoh for a period of 7 years in respect of some of the pre-completion tax liabilities of those companies.

What happened next?

Two years later Danka went into member's voluntary liquidation with an expected surplus in the liquidation of in excess of US$66m. At that time Ricoh had both crystallised and contingent claims under the indemnities. The contingent claims were potential tax liabilities which were waiting for audits or investigations. When Danka's liquidators gave notice to creditors that they proposed to make a final distribution to members and requiring them to prove their debts, Ricoh objected. Rather than have the liquidators proceed on the basis of their valuation of Ricoh’s claims (€268,961) Ricoh wanted the liquidators either to wait until the indemnities expired in 2014 or make full provision for Ricoh's claims (some £11m). Ricoh applied for an Order under section 112 of the Insolvency Act 1986, and having failed at first instance, they appealed.

 Court of Appeal

The Court dismissed the appeal. There was no guarantee of a 100% return on any contingent liability, and there was no requirement for the liquidators to assume a worst case scenario. Once the contingent claims had been admitted to proof the liquidators had no alternative but to proceed to value them and then to distribute the net assets to the members after satisfying the creditors in the amount of the valuations. It found that the liquidators had fairly valued the contingent claims. Further, s4.84 of the Insolvency Rules 1986 allowed for that valuation to be revisited at any time up to the completion of the liquidation.

If any contingency became an actual liability before distribution then the creditor could lodge an additional proof out of time, and in a solvent liquidation, as was the case here, the liquidator would have to deal with it.

What about Cayman Liquidators?

The Companies Winding Up Rules order 16 Rule 6 directs that liquidators shall value contingent debts and can revise those estimates in the same way as in the Insolvency Rules of England & Wales. The estimate can be challenged by the creditor. Accordingly, this English Court of Appeal case is persuasive authority for the duty of a Cayman Liquidator to estimate contingent debts and to do so without having to proceed on a "worst case scenario" basis. As most Investment Funds in the Cayman Islands provide indemnities to Service Providers and the Statute of Limitations on those indemnities will usually be 6 years this decision could be very helpful in expediting the ability of Cayman Liquidators to get to the point of making Distributions.


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