Hello bill, thanks for replying.
I'd never heard of this sort of thing happening before. Pretty shocking, and even moreso when the same registrar (that failed) are offering to sell the domain back to us for that crazy price! Obviously the domain isn't totally beyond reach for them, whatever their supposed relationship is with the current registrant.
I'm going to be speaking to my client again today to keep him in the picture and see if he has a preference as to how we should proceed. More generally though, as you say, a good reason to choose multi-year registrations.