Novalpina and the Interpretation of Solvency in Members’ Voluntary Liquidations

Introduction

For a company being placed into a solvent Members’ Voluntary Liquidation (MVL) process, the directors of the company must make a statutory declaration of solvency in accordance with s89 of the UK’s Insolvency Act 1986 (the Act), supported by a statement of assets and liabilities which must, in order to confirm solvency, include known, contingent and potential liabilities. Liabilities must be able to be settled, with interest, within a period not exceeding 12 months from the commencement of the winding up. 

It has been relatively standard practice for such declarations to refer to the full 12-month period. For the most part, MVLs are closed within this 12-month period – by their very nature, a company entering MVL is usually ‘clean’, with liabilities having been settled prior to liquidation as part of the requisite due diligence work carried out by the directors/group (supported by the proposed liquidator). As statutory interest must be applied to any creditor payments made after the date of liquidation, a priority of a proposed liquidator is to ensure that the company’s directors and shareholders are made aware of this extra cost if liabilities are outstanding upon liquidation (and so a potentially reduced distribution to members). 

It is not unusual, however, for a MVL to continue for longer than 12 months for various reasons specific to a particular company. However, it is a fundamental requirement of a MVL that any creditors can be paid (with statutory interest where relevant) within 12 months. 

Statutory Framework

Section 89 Insolvency Act 1986 

Section 89 requires directors (or designated members in the case of LLPs) to make a statutory declaration of solvency. The declaration must state that, after full inquiry into the company’s affairs, the directors have formed the opinion that the company will be able to pay its debts in full, together with statutory interest, within the period specified (not exceeding 12 months). 

This section goes on to note that if the company is wound up pursuant to a resolution passed within five weeks after the making of the declaration, and its debts, together with interest, are not paid or provided for in full within the period specified, it is to be presumed (unless the contrary is shown) that the directors did not have reasonable grounds for their opinion. 

Making a declaration without reasonable grounds for the opinion exposes directors to criminal liability, including fines and imprisonment. The seriousness of this obligation underscores the need for rigorous due diligence. 

Section 95 Insolvency Act 1986 

Section 95 provides that if the liquidator forms the opinion that the company will be unable to pay its debts in full within the period stated in the declaration, the liquidation must be converted into a Creditors’ Voluntary Liquidation (CVL). This conversion is mandatory and reflects the principle that creditors’ interests must be protected where solvency is in doubt. 

Case Summary: NOAL v Novalpina

The case addresses the interpretation of sections 89 and 95 of the Act, particularly the obligation to pay debts within 12 months and the implications for insolvency practitioners (IPs) of taking action to convert a MVL to a CVL where debts are outstanding at the 12-month point. It confirms that the solvency test is one of payment ability within the specified period, not a balance sheet solvency test, and highlights the risks for directors and IPs where contingent liabilities are overlooked.  
 
The facts of the case illustrate the practical challenges faced by directors and IPs in assessing solvency. The relevant dates are: 

• April 2021: NOAL acquired a business following due diligence carried out by Novalpina.
• 10 May 2023: Novalpina’s designated members made a declaration of solvency, and its members passed a winding up resolution (or determination) to place Novalpina into MVL.
• October 2023: NOAL commenced proceedings against Novalpina in Luxembourg, claiming damages of approximately €287 million.
• December 2023: Novalpina’s liquidator received a proof of debt from NOAL for €247 million. 

The potential liability to NOAL was not disclosed in the statement of assets and liabilities at the time the declaration was made. The Judge notes an absence of evidence as to whether Novalpina was aware of this claim; although proceedings had not yet been issued, if the designated members were aware of it then the declaration of solvency was not correctly made.  

By May 2024, one year into the liquidation, creditors remained unpaid and the Luxembourg litigation was expected to take several years to conclude. The liquidator’s first annual progress report noted receipt of the NOAL proof and acknowledged that this was going to be a prolonged process. The other creditors were relatively trivial but given that inter-company book debts had not been realised, it was not clear that even those smaller creditors could be paid from the cash asset. 

In September 2024, the members of Novalpina removed Mr Goderski as liquidator and appointed Mr Murphy in his place. No explanation was clearly given to the court, although NOAL suggested that this was because Mr Goderski was minded to convert to CVL, which would have put a possible subsequent change of the liquidator into the hands of the creditors. In December 2024, Mr Horton was appointed by the Court as an additional liquidator on the application of NOAL. 

In instructing solicitors to start the application seeking to compel conversion to CVL, NOAL apparently stated its claim at a much reduced, but still large, €14 million. The advice received by the liquidators was that NOAL’s claim stood a 10% to 15% chance of success, but not zero. The liquidator could not simply dismiss the claim from his decision as to whether the MVL needed to be converted to a CVL. 

Once the NOAL claim had been made, the timescale to deal with it was going to be multi-year and the other creditors were not being paid. The Court held that a subsequent funding agreement by a third-party (months after the 12 months had expired) could not allow a retrospective interpretation of ss89 / 95, and the funding agreement was still only considering a balance sheet test, not the ‘paid-within-timescale’ test. 

The case has wide-ranging consequences for practice, regulatory oversight, and the future conduct of MVLs. 

Judicial Analysis 

The judgment provides important clarification on several points: 

• Primary Test: The statutory test is whether debts and interest can be paid within the specified period, not whether assets exceed liabilities.
• Scope of Debts: All debts, including contingent and post-liquidation liabilities, fall within the requirement.
• Mandatory Conversion: Where payment within the declared period becomes impossible, conversion to CVL is mandatory.
• Section 89(5): This subsection refers to the debts not being “paid in full or provided for” within the 12 months. The words “provided for” seem to introduce a balance sheet element into the test. The Judge’s comments on this are difficult to follow, but it appears to us that this serves only to rebut the presumption of an offence having been committed by the directors in having made the declaration of solvency if the debts are not in the event paid in full within the 12 months. It does not appear to alter the primary payment obligation, but an offence will not be presumed in relation to the making of the declaration of solvency if there is merely a delay in paying the creditors in full.

The Court emphasised that directors must take a cautious approach when making declarations of solvency. 

Issues regarding disputed or contingent claims, or the quantification of complex claims such as closing out the company’s tax liabilities, may need to be resolved in advance of placing the company into MVL, even if the company’s ability to pay in a ‘worst-case’ outcome is not in doubt, but the timescale may be protracted. 

The case is going to appeal (date yet to be confirmed at the time of writing), but pending the outcome of this, provided that there is good reason for payment not to have been made within the period stated in the declaration and the liquidator is satisfied that there are (or will be within a reasonable time) sufficient realisations to pay any outstanding debts, plus the accruing interest, regulatory or disciplinary action will not be commenced against the liquidator of a MVL merely on the grounds that: 

• a MVL has existed for longer than 12 months (or the period in the declaration), or
• creditors were not paid within 12 months (or the period in the declaration), or
• the MVL was not converted to a CVL within 12 months (or the period in the declaration). 

The judgment confirms that a MVL can last for more than 12 months, if debts and interest thereon have been paid in full. Therefore, if there are no creditors, or if they have been paid in full, s95 would not apply and an MVL can exceed 12 months, even if the liquidator's remuneration and other expenses or capital distribution to members have not been paid. However if debts have not been paid in full, the liquidator is obliged to consider whether conversion to a CVL is appropriate. 

Implications for Insolvency Practitioners (IPs)

The case has significant implications for IPs: 

Due Diligence 

Directors must rigorously assess potential and contingent liabilities before making a declaration of solvency. This includes litigation risks, guarantees, product warranties and other obligations that may crystallise in the future. This should not in itself represent a change to existing practice in terms of due diligence carried out before proceeding to liquidation – IPs generally take a cautious approach to MVLs for the very reasons set out above and work closely with directors of MVL candidate companies to understand and identify actual or potential liabilities. We are not aware of any spike in MVL to CVL conversion rates, but it is still relatively early days.

Monitoring 

IPs should continuously monitor MVLs to ensure sufficient assets exist to discharge all debts and statutory interest. Although the declaration of solvency is a one-off event, which enables the company to enter MVL, circumstances may change, and IPs must remain vigilant. 

Conversion to CVL 

Where payment within the declared period is not achievable, prompt conversion to CVL is required. Delay in conversion may prejudice creditors and expose IPs to regulatory sanction.

Documentation 

All decisions should be fully documented. IPs should seek legal advice where uncertainty exists. Robust documentation provides protection in the event of regulatory or judicial scrutiny. 

Regulatory Guidance 

The regulatory bodies for IPs (Institute of Chartered Accountants in England and Wales, Institute of Chartered Accountants of Scotland, Insolvency Practitioners Association) have issued interim guidance indicating that disciplinary action will not be taken solely on the basis of MVLs exceeding 12 months, pending an expected appeal in respect of some aspects of the Novalpina judgment. However, IPs should remain cautious and consider advising directors to defer new MVLs where, although ultimate solvency is not in doubt, there may be uncertainty as to the ability to pay particular creditors within the 12-month timescale as a dispute or contingency in relation to those creditors’ claims may take longer than that to resolve. 

Wider Context and Policy Considerations 

The Novalpina decision raises broader questions about the role of MVLs in corporate simplification and restructuring. MVLs are widely used for tax-efficient distributions and group reorganisations. The judgment may lead to greater caution among directors and IPs, potentially reducing the attractiveness of MVLs. 

There is also a policy dimension. The requirement to pay debts within 12 months reflects a legislative intent to protect creditors and ensure prompt resolution. However, in complex cases involving litigation or contingent liabilities but with sufficient assets available, strict adherence to this requirement may be impractical. The judgment highlights the tension between statutory certainty and commercial reality. 

Practical Experiences and Guidance for IPs 

Following the judgment, we have seen HM Revenue & Customs (HMRC) making reference to the case in correspondence sent to IPs in respect of cases which have exceeded 12 months, and which have tax compliance matters outstanding. Even though HMRC may not have submitted a claim, they have highlighted that the liquidator needs to consider a CVL and that comments on the validity of the company continuing in a MVL process are required. 

We are also raising the case with clients and seeing more hesitation, or at least more thought being given, when putting companies forward for MVL when there has been a history of claims, for example under warranties. 

As noted above, generally IPs are doing what they always have done, ensuring directors carry out full due diligence and liaising with them on this, but also highlighting the potential ramifications which have been brought into focus by this case. The following practical steps are recommended: 

• Comprehensive Inquiry: Directors to undertake a full inquiry into the company’s affairs, including contingent liabilities. IPs to highlight this caselaw.
• Legal Advice: Directors to seek legal advice on potential litigation risks before making a declaration.
• Conservative Approach: Directors to adopt a conservative approach to solvency assessments and consider the ability to pay test, not solely the balance sheet test. If in doubt, defer the MVL.
• Ongoing Review: Liquidators to continuously review the company’s position during the liquidation.
• Prompt Conversion: Liquidators to convert to CVL promptly if payment within the declared period becomes impossible.
• Transparency: Liquidators to maintain transparency with creditors and other stakeholders, and ensure reasons for decisions made are documented in case files. 

Conclusion 

NOAL v Novalpina underscores the importance of accurate solvency assessments and timely creditor payments in MVLs. It reaffirms that the statutory test is one of payment ability within time, not balance sheet solvency. Directors and IPs must exercise caution, undertake rigorous due diligence and maintain robust documentation. The case serves as a reminder that MVLs are not risk-free and that compliance with statutory requirements is essential to protect the company’s directors, the creditors and insolvency practitioners. 

A version of this article first appeared in Corporate Rescue and Insolvency, published in February 2026. 

References 

• UK Insolvency Act 1986, sections 89, 95, 96.
• NOAL SCSp v Novalpina Capital LLP [2025] EWHC 1392 (Ch).
• Joint statement of the regulators (ICAEW, ICAS, IPA) – Interim Guidance on MVLs (2025).