High Court Upholds Rigid Payment Regulation for Solvent Liquidations
In a significant ruling, the High Court has mandated Novalpina Capital LLP (NCL) to convert from a members' voluntary liquidation (MVL) to a creditors' voluntary liquidation (CVL). The case, Noal SCSp v Novalpina Capital LLP, was heard at the High Court in 2025.
The decision reinforces the strict payment test for MVL, emphasizing the need for genuine confidence in rapid debt settlement for companies in MVL. The Insolvency Act 1986, which governed the High Court's ruling, states that an MVL can only be used when directors believe that a company can pay all its debts within 12 months. If a company fails to meet this criterion, it must convert to a CVL.
An MVL is used when a company is believed to be solvent, while a CVL is for insolvent companies. The Insolvency Rules require contingent liabilities to be properly valued in the context of an MVL. In the Noal SCSp v Novalpina Capital LLP case, Noal SCSp (Noal), a Luxembourg fund, brought a damages claim against NCL in Luxembourg and submitted a proof of debt in the liquidation totalling over £247 million. Any realistic valuation of Noal's claim would have been above zero, triggering the conversion requirement from MVL to CVL.
The conversion from MVL to CVL is primarily driven by the insolvency test and the need for creditor involvement when the company cannot pay its debts within the MVL timeframe. The liquidator in an MVL has no discretion to decide whether to convert the process to a CVL if the company is insolvent. The Insolvency Act 1986, specifically section 95, dictates that if the liquidator is of the opinion that the company will not be able to pay its debts in full within the period specified for an MVL, the liquidation must be converted to a CVL.
While the High Court does not directly decide the conversion process, it may become involved in disputes or if the company's financial situation necessitates a court decision. For specific legal advice, consulting with insolvency practitioners or legal experts who are updated on the latest court rulings is advisable.
It is worth noting that the MVL regime is designed to protect creditors from companies that may not genuinely be able to pay all debts within 12 months. The statutory timeframe for an MVL expires when a company fails to pay all debts within 12 months, leading to a mandatory conversion to CVL.
NCL was placed into a members' voluntary liquidation in May 2023. The conversion of NCL's liquidation status to a CVL underscores the importance of the insolvency test in ensuring that companies are honest about their financial standing and that creditor interests are protected. For more detailed discussions on this topic, please contact a member of the Restructuring and Insolvency team.
- In light of the ruling, it is crucial for companies like NCL, during MVL, to demonstrate genuine confidence in rapid debt settlement to avoid the need for conversion to a creditors' voluntary liquidation (CVL), as failure to meet the strict payment test could trigger this conversion.
- The decision in the Noal SCSp v Novalpina Capital LLP case emphasized the financial aspect, as any realistic valuation of debts, such as Noal's claim of over £247 million, would fall above zero, thereby necessitating a conversion from members' voluntary liquidation (MVL) to a CVL due to insolvency.
