Must A Members Voluntary Liquidation Convert To A Creditors Voluntary Liquidation If The Debts Cannot Be Paid Within 12 Months?

Must a members voluntary liquidation (“MVL”) convert into a creditors voluntary liquidation (“CVL”) if the debts cannot be paid within 12 months? Yes, at least according to the case of NOAL SCSP & Ors v Novalpina Capital LLP & Ors [2025] EWHC 1392 (Ch). If a liquidator is unable to pay the debts of a company that has gone into MVL within 12 months, then Section 95 of the Insolvency Act 1986 is triggered and the company must go into CVL.

However, let’s hold it right there and take note of the fact that a new position appears to have sprouted. It is understood that the matter is subject to appeal and as a first instance decision, it is persuasive but not binding.

In May 2023, Novalpina Capital LLP (“NCL”) entered into members voluntary liquidation (MVL) under Section 89 of the Insolvency Act 1986. This type of liquidation is meant for solvent companies that can pay off all debts plus interest within 12 months.

The Spark

The applicants appear to be claiming sums ranging from €14 million to £287 million.

Why The Liquidation Status Matters

Initially, NCL’s designated members swore that the company was solvent, showing around £58,996 in cash and £275,916 in receivables against modest liabilities. But when the applicants lodged creditor claims of over £247 million in late 2023, the solvency picture appears to have shifted somewhat.

A central legal issue became:

Should NCL remain in MVL, controlled by its members, or be converted into a CVL?

The Court’s Preliminary Questions

Chief ICC Judge Briggs set down two key issues:

1. What test applies to convert MVL into CVL under section 95 IA 86?
   Must debts be paid within the 12 months set by section 89, or is a broader “balance sheet insolvency” test enough?

2. Is the applicants’ claim a “debt” under the Insolvency Act and Rules?
   If so, how should it be treated when deciding whether MVL must convert to CVL?

The Ruling: MVL Means Debts Must Be Paid In 12 Months

The court appears to have held that the MVL test is strict.

To stay in MVL, all debts plus interest must be paid in full within 12 months of commencement.

This is not a balance sheet test. Even a solvent company on paper cannot remain in MVL if debts are not paid within that timeframe.

Because NCL’s debts were not paid within 12 months, with a disputed creditor claim outstanding, the company must be converted to CVL.

Treatment Of The Applicants’ Claim

The court further confirmed that the applicants’ claims are provable debts, even if disputed or contingent and cannot be valued at zero outside the statutory adjudication procedures.

Appeal

It is understood that this decision is being appealed. An ICAEW News article Guidance for IPs on recent High Court decision about MVLs says:

ICAEW, ICAS and the IPA understand that the judgement is being appealed. In the interim, as a first instance decision of the High Court, it is persuasive but not binding so may or may not be followed in future cases before the High Court.

Why The Uncertainty?

The case has created uncertainty because Section 95 of the Insolvency Act 1986 says:

(1) This section applies where the liquidator is of 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.

(1A) The liquidator must before the end of the period of 7 days beginning with the day after the day on which the liquidator formed that opinion—

(a) make out a statement in the prescribed form as to the affairs of the company, and

(b) send it to the company’s creditors.

The interesting feature is that if the opinion of the liquidator is that the company cannot pay the debts within 12 months of commencement of liquidation, then the mandatory position of conversion to CVL is triggered. However, what if the liquidator doesn’t think this position has arisen and what happens if the opinion is one formed after 12 months but not before?

The Liquidator’s Opinion

Of course, the potential ambiguity appears to be by virtue of the allowance of the liquidator to have an opinion.

However, the issue there might be that a Declaration of Solvency might be simple, such that the notion of an opinion might be outflanked by objective reality. One perhaps has to wonder why the draftsman might have muddied the waters by floating the notion of an opinion when it might be crystal clear as to what any such opinion should be!

Key Takeaways

MVL is only for truly solvent companies that can clear debts within a year. If not, conversion to CVL might be mandatory.

Disputed or contingent claims still count as provable debts. They must be formally adjudicated.