Posted: 23/09/2025
This article summarises the implications of the recent decision of NOAL SCSp & Ors v Novalpina Capital LLP & Ors [2025] EWHC 1392 (Ch).
The decision deals with a liquidator’s obligations pursuant to section 95 of the Insolvency Act 1986 (IA 1986), and provides guidance on when a liquidator is required to convert a members' voluntary liquidation (MVL) to an insolvent liquidation.
The case has significant implications for officeholders dealing with MVL appointments and has prompted R3's technical team to enter into a dialogue with the Insolvency Service about the practical challenges for officeholders.
In NOAL v Novalpina, the High Court considered the correct test for a liquidator to apply when deciding whether to convert an MVL into a creditors' voluntary liquidation (CVL) pursuant to section 95 of the Insolvency Act 1986. The court also considered the test of solvency to be applied pursuant to section 89 of the IA 1986, which triggers the MVL statutory regime.
The High Court held that the relevant test under section 89 of the IA 1986 is whether the company can pay all of its debts, plus interest, within the 12-month period immediately following the commencement of the MVL. The court also held that the obligation on the liquidator to convert the MVL into a CVL is triggered as soon as it becomes apparent that the company will not be able to pay all debts within the 12-month period specified in the statutory declaration of solvency.
The court rejected the submission that actual payment of all debts is not required within the 12-month period as long as there is an ability to pay or overall solvency. It held that a strict 12-month payment period applies with no flexibility. If there is any doubt about the company’s ability to comply with the strict 12-month payment period, the liquidator must convert the MVL to a CVL.
The case concerns Novalpina Capital LLP (NCL), an LLP incorporated in England and Wales. NCL entered into MVL on 10 May 2023 pursuant to section 89 of the IA 1986.
The sworn declaration of solvency prepared in accordance with section 89 of the IA 1986 stated that NCL had a total surplus of £148,358, although no provision was made in the statement of affairs for the estimated costs of the winding-up process.
In November 2023 NOAL SCSp, a Luxembourg private equity fund, and two connected companies – the applicants – notified the liquidator of their claim as creditors of NCL. The claim in question was the subject of proceedings in Luxembourg and related to NCL and another – now dissolved – entity's role as investment advisors in relation to the acquisition of a gambling business.
In December 2023 the applicants sent the liquidator five proofs of debt totalling £247,600,253.92 in respect of their claim. The designated members of NCL disputed the claim and insisted that NCL was solvent. The liquidator stated that he intended to take a position of neutrality and all of the claims would be subject to the determination of the Luxembourg court. He also stated that he would instruct solicitors in Luxembourg to provide advice on the validity and merits of the claim, as well as seeking advice on whether to convert the MVL to a CVL.
On 12 July 2024 the liquidator filed his annual progress report up to 9 May 2024 (as required under section 92A of the IA 1986). The report covered the 12-month period stipulated in the sworn statutory declaration of solvency. The report stated that, in so far as the applicants were creditors of NCL, there were insufficient sums available as at the date of the report – being a date more than 12 months after the commencement of the liquidation – to pay any creditor. The report also revealed the shortfall in relation to the expenses of the liquidation.
Thereafter, the designated members of NCL took steps to remove the liquidator. A new liquidator, Mr Murphy, was appointed on 20 September 2024, took legal advice on the merits of the claim, and considered that the merits of the claim were at 15% or less.
Against this background, he attributed a value of zero to the applicants’ claim against NCL for the purpose of determining its solvency. He considered that it was within his powers to assess the merits of the disputed claim on a summary basis and to make a decision about whether the applicants were a creditor of NCL.
Mr Murphy did not follow the adjudication process set out in the IA 1986, and rules 14.2-14.8 of the Insolvency (England and Wales) Rules 2016 (IR). He also did not carry out an assessment pursuant to IR 14.14 to place an estimated value on the claim.
The applicants subsequently applied to remove and replace Mr Murphy as liquidator and sought a direction that the MVL of NCL be converted into a CVL. The applicants also sought the appointment of an additional liquidator pending the determination of some preliminary issues.
The court appointed an additional liquidator on 3 December 2024. The court also directed that there would be a preliminary issues hearing to deal with the issues raised in relation to the MVL regime and the treatment of the applicants’ claim as creditors.
The preliminary issues to be determined at the hearing were identified as follows:
At the hearing, it was submitted by some of the respondents that section 95 of the IA 1986 refers to the 'balance sheet insolvency test' as defined within section 123 (2) of the IA 1986. Accordingly, the proper construction of sections 89 and 95 of the IA 1986 is that an MVL can last more than 12 months in cases where assets have not been realised or where the debts have not been paid in full within the 12-month period as long as the company has sufficient assets to be able to meet its liabilities.
The court rejected these arguments and held that the correct test for a liquidator to apply when determining whether to convert an MVL into a CVL pursuant to section 95 of the IA 1986 is whether the company can actually pay its debts in full with interest within the 12- month period specified in the sworn declaration of solvency which must be prepared in accordance with section 89 of the IA 1986.
The court rejected the suggestion that a liquidator has any discretion under section 95 of the IA 1986 to extend the duration of the relevant period to enable the company to pay its debts in full or to allow more time for illiquid assets to be realised. The court also rejected the argument that section 92A of the IA 1986 – which deals with progress reports – envisages the possibility that an MVL may last for more than 12 months and undermines a strict interpretation of the 12-month rule.
The court considered that the express reference within section 92A of the IA 1986 to the provision being subject to section 96 of the IA 1986 -– which deals with the effect of the conversion from MVL to CVL – was relevant to the correct construction of these provisions. The court also placed great emphasis on the prime interest of members in an MVL which is distinct from a CVL where creditors have more rights including a right to receive annual progress reports and the ability to seek to replace a liquidator.
The court held that a strict 12-month payment period applies in an MVL pursuant to section 89 of the IA 1986. Section 89(1) of the IA 1986 states that a statutory declaration of solvency may only be made where 'the company will be able to pay its debts in full, together with interest at the official rate within such period, not exceeding 12 months from the commencement of the winding-up'.
The judge considered that the correct interpretation of this provision is that the directors of the company must form the opinion after making a full inquiry into the company’s affairs that the company will be able to pay its debts in full, with interest, within a period not exceeding 12 months from the commence of the winding-up.
The judge also considered that the purpose of the legislation behind section 89 of the IA 1986 was to 'create an alternative type of liquidation for those companies who are able to pay their debts within a specified period not exceeding 12 months'. This approach is mirrored in the provisions of section 95 of the IA 1986 which require a liquidator to convert an MVL into a CVL at the end of the 12-month period or at an earlier date if the liquidator forms the opinion that 'the company will be unable to pay its debts in full (together with interest at the official rate) within the period stated in the directors’ declaration under section 89'.
The judgment contains a number of examples of how the test should be applied in practice. If a company needs to realise a significant asset in order to enable it to pay its debts in full within the 12-month period and there is considerable uncertainty as to whether such a realisation could be made within 12 months, the company will not be able to go into an MVL.
Similarly, if a company has contingent or prospective claims which may fall due after the expiry of the 12-month period, it is unlikely to meet the statutory requirements for an MVL because the question to be asked is whether the company will be able to pay its debts in full, with interest, within a period not exceeding 12 months.
Where new debts or liabilities are identified after the winding-up process has commenced, those debts will need to be paid in full within the 12-month period, otherwise the MVL will fail. The expenses of the winding-up process also need to be discharged or otherwise provided for before any assessment is carried out in relation to the company’s ability to pay its debts in full with interest within the 12-month period. If the expenses of the winding-up have not been paid and a creditor comes forward with even a relatively modest debt that will be sufficient to require the liquidator to convert the MVL into a CVL pursuant to section 95 of the IA 1986.
The judge found that the applicants’ claim was a contingent liability because the liability depended upon the outcome of the Luxembourg proceedings. She also found that it was a provable debt within the meaning of IR 14.2 and the financial position of NCL at the expiry of the 12-month period was such that the liquidator should have taken steps to convert the MVL to a CVL because the value of the applicants claim was, in her judgment, well in excess of £1.
The judgment contains some useful commentary on how a liquidator should approach contingent and disputed liabilities in a solvent liquidation.
For contingent liabilities, a liquidator is required to carry out a genuine and fair assessment of the liability, including making a realistic estimate of the likelihood of a contingent liability arising and estimating the value of the liability.
For disputed debts the debt will need to be valued or adjudicated upon in accordance with the statutory provisions of the IA 1986 and IR 14.14. Unresolved disputes are also likely to require a conversion to CVL if the disputed debt cannot be determined and paid within the 12-month period.
Contingent liabilities and disputed debts must also be taken into account when a liquidator is assessing whether a company can pay its debts in full within the 12-month period specified in the statutory declaration pursuant to section 89 of the IA 1986.
This is an important decision for officeholders dealing with MVL appointments and has created significant practical challenges.
The decision means that officeholders will need to review their active cases and identify whether they have any MVLs that are already beyond the 12-month period where the debts have not been paid in full. It is likely that those cases will need to be converted to a CVL as a matter of priority although specialist professional advice should be sought.
Officeholders will also need to ensure that directors fully understand their obligations moving forward given the strict 12-month payment rule. Before making a statutory declaration of solvency pursuant to section 89 of the IA 1986 directors must go through 'an extremely careful and vigorous process' for the purpose of identifying all of the debts of the company including identifying any liabilities that may be disputed, contingent or prospective.
The penalties for giving a false declaration are severe (imprisonment of up to two years, a fine or both). As such, the strict 12-month payment rule may make MVLs a less attractive option for directors compared to an orderly wind down.
Prior to accepting an MVL appointment officeholders will also need to consider whether the company is likely to be able to pay all debts with interest within the 12-month period. Contingent liabilities and disputed debts must be included in this assessment. The need to comply with the strict 12-month period may require officeholders to front load work to ensure that claims are identified and any assets realised within the relevant period.
Where an MVL has already commenced officeholders will also need to carefully monitor the company’s ability to pay all debts in full within the strict 12-month period. If it becomes apparent at any stage that the company will not be able to pay its debts within the 12-month period – for example, if new liabilities arise or there is a delay in realising assets – a liquidator will need to convert the MVL to a CVL promptly.
We are also likely to see greater scrutiny of the conduct of directors and officeholders as a result of this decision particularly in cases where a MVL has been used and there are doubts as to the solvency of the company.
Finally, it should be noted that the sixth respondent has sought permission to appeal this decision. The contents of this article may be affected by the outcome of any appeal. As mentioned above, R3's technical team is also in contact with the Insolvency Service about the impact of this decision and has issued a technical alert on some of the unintended consequences of this decision. This may be of interest to officeholders by way of further reading.
This article was first published in the Lexis Nexis Corporate Rescue and Insolvency Journal (August 2025 Issue).
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