UK: Members’ Voluntary Liquidation: The Valuation Of Contingent Debts

Last Updated: 3 May 2013
Article by Helen Matthews

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.


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 which was contingent on the conclusion of an audit process taking place between Infotec and the relevant European tax authorities.

The final value of Ricoh's claim was estimated by Danka's liquidators at approximately €270,000, but Ricoh claimed that its total potential liability was some €11,800,000. The liquidators proposed using their estimated value of Ricoh's claim in the distribution to Danka's creditors. Ricoh sought a court order directing the liquidators to retain £11,000,000 to meet Danka's contingent liability under the indemnity, once the final value of Ricoh's claim was known.

Ricoh's argument was that, if the liquidators made the proposed distribution without retaining the proposed £11,000,000 Danka's total liability under the indemnity would effectively be compromised; Danka's contractual obligation was to provide a full indemnity and Ricoh argued that it would be inequitable for Danka to limit its obligation by entering into a members' voluntary liquidation in which it was implicit that all creditor claims should be discharged in full. The High Court refused Ricoh's application and it appealed to the Court of Appeal.

On appeal, Ricoh argued that:

  • The liquidators were not obliged to proceed with the distribution that quickly, but should have delayed declaring a final dividend until the completion of the tax audit, or retained a fund to satisfy Ricoh's claim in due course.
  • The liquidators had a discretion to delay making the distribution to allow the final value of Ricoh's claim to be determined.
  • Ricoh's claim should have been estimated based on Danka's total potential liability thus protecting Ricoh against the unfairness of losing the full tax indemnity benefit within a solvent liquidation.

In reliance on the High Court authority of Re R-R Realisations Ltd [1980] 1 WLR 805, Ricoh argued that a liquidator's obligation to carry out a liquidation process with diligence and efficiency was tempered by an overriding obligation to be fair to the creditors of the company in question.

Notwithstanding Ricoh's arguments the Court of Appeal unanimously dismissed its appeal.

Court of Appeal Decision

The Court of Appeal did not accept Ricoh's arguments and distinguished its case from Re R-R. In that case a creditor made a late claim in the liquidation but this was alegitimate claim and there were good reasons for the lateness; accordingly it had been unfair to exclude the creditor from sharing in the distribution. Ricoh, on the other hand, had participated in Danka's distribution procedure and its claim had been processed according to the Insolvency Rules and in line with the liquidators' responsibility to distribute Danka's assets within a reasonable time.

In some cases it might be appropriate to delay a distribution pending final determination of a contingent claim, if this was imminent. In Ricoh's case the value was unlikely to be known until the indemnity expired in a year's time, hence there was no basis on which the liquidators should be ordered to delay declaring or distributing the assets.

Neither was there any duty under the Insolvency Rules for the liquidators to create a retention fund to deal with Ricoh's claim; the mechanism for determining claims and distributing assets set out in the Insolvency Rules was comprehensive. As the liquidators had followed the statutory mechanism for dealing with contingent claims in a reasonable timescale there were no grounds upon which the court should interfere with that procedure.

The liquidators had also carried out a proper estimation of the contingent element of Ricoh's claim so there was no basis for the court to interfere with the distribution process.

Despite Ricoh losing the full benefit of Danka's indemnity it was held that the object of the Insolvency Rules' mechanism was to allow a liquidation to proceed as efficiently as possible rather than to achieve a fair result for each creditor. Contingent creditors were allowed to claim in a liquidation to prevent the liquidation process being delayed pending the crystallisation of the contingency; the liquidator could not be put under a duty which would effectively defer the progress of the liquidation upon reliance on contingent events. The liquidators' duty was to carry out an active and independent estimate of Ricoh's claim.

The court said that the same valuation rules must apply in the same form to both solvent and insolvent liquidations. It would not be appropriate to allow a creditor's contingent claim to be inflated by a lack of rigorous estimation, as it would dilute the return to other creditors (in an insolvent liquidation) and the members (in a solvent liquidation). Accordingly, the liquidators could not, as Ricoh argued, simply allow Ricoh's estimates to stand, so as to prevent Ricoh from suffering the loss of the full tax indemnity. The nature of the contractual indemnity was irrelevant to the liquidator's assessment of the underlying contingent claim.


This decision confirms that a members' voluntary liquidation can, effectively, compromise a contingent claim against the company, notwithstanding that this is generally regarded as a process in which creditors receive full payment. The procedure provides finality, but at a cost to creditors with contingent claims.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.