In re Polly Peck International plc: ChD 1996

It was argued, unsuccessfully, that a special purpose company incorporated in the Cayman Islands should be regarded as a single economic unit with the holding company, so as to eliminate ‘double dip’ as well as double dividend.
Held: There would be obvious unfairness to other creditors if both a principal creditor and a surety were entitled to prove for and receive a dividend in respect of what is in substance a single debt. Robert Walker J said: ‘The rule against double proof is a long-standing principle of the law of bankruptcy, and has applied in the winding up of companies since the Companies Act 1862 (see Re Oriental Commercial Bank, ex p European Bank (1871) LR 7 Ch App 99). It has often been described in terms of straightforward and obvious fairness, depending on substance, not form
. . Much the commonest situation in which the rule against double proof applies is that of suretyship. Indeed it has been said that it applies only in a situation which actually is, or is analogous to, that of suretyship (the latter category includes the old cases on negotiable instruments considered in Re Oriental Commercial Bank ex p European Bank). It is therefore convenient to set out some very elementary rules as to suretyship, shorn of complications arising from the provision of security or from the Ellis v Emmanuel distinction. In what follows, C is the principal creditor, D the principal debtor, and S the surety (and all are companies).
(1) So long as any money remains due under the guaranteed loan, C can proceed against either D or (after any requisite notice) S.
(2) If D and S are both wound up, C can prove in both liquidations and hope to receive a dividend in both, subject to not recovering in all more than 100p in the pound.
(3) S’s liquidator can prove in D’s liquidation (under an express or implied right of indemnity) only if S has paid C in full (so that C drops out of the matter and S stands in its place).
(4) As a corollary of (3) above, S’s liquidator cannot prove in D’s liquidation in any way that is in competition with C; though S has a contingent claim against D (in the event of C being paid off by S), S may not make that claim if it has not in fact paid off C.
‘The situation in (2) above is what insolvency practitioners call a ‘double-dip’, which is permissible; the situation in (4) above is the simplest case of what would be double proof, which is not permissible.
‘So far as the basis of the rule needs (or indeed allows of) further explanation it is that the surety’s contingent claim is not regarded as an independent, free-standing debt, but only as a reflection of the ‘real’ debt – that in respect of the money which the principal creditor had loaned to the principal debtor.’


Robert Walker J


[1996] 2 All ER 433


England and Wales

Cited by:

CitedIn re SSSL Realisations (2002) Ltd and Another; Squires and others v AIG Europe (UK) Ltd and Another CA 18-Jan-2006
A creditor claiming an equity in a debt but who himself owed money to the debtor, could not pursue his claim without first contributing the sum due. A person could not take an aliquot share out of a fund without first contributing what he owed to . .
CitedIn re Kaupthing Singer and Friedlander Ltd SC 19-Oct-2011
The bank had been put into administrative receivership, and the court was now asked as to how distributions were to be made, and in particular as to the application of the equitable rule in Cherry v Boultbee in the rule against double proof as it . .
Lists of cited by and citing cases may be incomplete.

Company, Insolvency

Updated: 04 May 2022; Ref: scu.449872