Contingent claims and restructuring - what happens?
European Media. Solvent Liquidation
A European hi-tech business in the media and entertainment sector was undergoing a financial clean-up of its UK operations with its accountants. The Company had been acquired by a group in previous years but was still receiving burdening annual regulatory costs, the Company trade having been transferred internally and left as a shell. During this process a claim for damages from a former employee of The Company came to their attention. There was also the risk of further claims being made given the Company’s history of similar transactions.
This contingent claim had the result of creating an insolvent company, regardless of the eventual value of the claim. The risk that the Company’s insurer may reject the claim was considered, as well as an excess and several other costs to pay. A declaration of solvency was necessary in order to carry out an MVL (Members Voluntary Liquidation – also known as a solvent liquidation) process, and this was not possible without an indemnity for the value of the claim.
Following a full and detailed assessment, ReSolve advised the Company to seek indemnity from its parent company, to cover the value of the claim.
The liquidation of the Company commenced and the liquidators wrote to the claimant, the claimant’s solicitor, and the Company’s insurer to request the submission of the claim. Once a claim is submitted, a liquidator has the power to assess value and admit or reject the claim as appropriate.
The claim was received for a small sum, the indemnity called upon and the creditor paid.
This was a complex legal process, but the outcome was a sensible one, in the interest of the business that in one year later continues to trade as a leading player in its sector, having managed the potential consequences of the contingent liability.