The creditor in this case applied for an order setting aside the official liquidator’s partial admission and partial rejection of its proof of debt. The claim related to proceedings in New York arising out of injuries allegedly sustained by a third party insured in a boxing match. The New York proceedings had been stayed as a result of the chapter 15 recognition of the Cayman liquidation. The official liquidator admitted the proof of debt (which was submitted in an unquantified amount), but only in the sum of US$15,800 and without providing reasons for its decision.

The Court held that the official liquidator was wrong to treat the contingent claim in the way that he did, treating it as a fixed amount to satisfy the creditor’s claim, to allow the company to then distribute the remaining assets to shareholders. As held by the Court in Re Sphinx, because of the inherent uncertainties in predicting the ultimate value of contingent claims, the Court needs to be highly sensitive to the risk of irremediable prejudice to claimants who are to be viewed as ranking in priority to others. The Court should set a reserve which it is satisfied, to a high degree and not just on a balance on probabilities, would be sufficient to satisfy the maximum sum that might reasonably be incurred by the creditors. The Court was satisfied the position remains as set out in Re Sphinx.

The Court noted that this is different to the approach in England and Wales where liquidators are vested with the power to disclaim onerous property, such that they may proceed with distributions without recourse from creditors even where contingent liabilities which were not fully provided for have been compromised.

The Court held that the proof of debt should be admitted and the liquidator should estimate and fully reserve against it. The Court directed the appointment of an independent assessor in the US to recommend an appropriate reserve to reflect the full potential liability arising from the proceedings.

This decision provides useful practical guidance to liquidators and creditors with contingent claims as to how such claims should be valued on adjudication in Cayman Islands liquidations.