Solvent liquidations are often regarded as an orderly process, but the recent Noal case shows they have exacting requirements. When a company enters a members’ voluntary liquidation (MVL), it is not enough simply to have assets that outweigh liabilities. The High Court has confirmed that solvency in this context means being able to pay all debts, including contingent and prospective debts and liabilities, together with statutory interest, within 12 months of starting the process.

Key findings from the Noal case

• The Noal case has determined that a company in an MVL must be able to pay its debts, together with interest, within 12 months of commencement of its winding up.
• This is the applicable test when making a declaration of solvency to commence an MVL.
• If all debts are not paid within 12 months of commencement of an MVL, it should be converted into an insolvent liquidation.

The implications of the Noal case

The case of Noal SCSp & Others v Novalpina Capital LLP & Others [2025] EWHC 1392 (Ch) (the Noal case) has determined some important issues concerning MVLs.  In particular, it has decided that for a solvent liquidation (i.e. an MVL) to be valid, the company must be able to pay its debts (including its contingent and prospective debts and liabilities), together with interest, within 12 months from the commencement of its winding up. If those debts and liabilities, together with statutory interest, cannot be paid in full during the 12-month period, the liquidation is not a solvent liquidation and must either be commenced as, or converted to, a creditors' voluntary liquidation (CVL), i.e. an insolvent liquidation process.

The case has also stipulated that the test of solvency for a solvent liquidation (i.e. an MVL), is the test set out in section 89 of the Insolvency Act 1986 (the Act). That is different from the cashflow and balance sheet insolvency tests used in connection with other provisions in the Act.

Before the Noal case, the longstanding approach for MVLs was that a liquidation could continue as a solvent MVL, as long as there were sufficient assets in the company to be able to pay all debts and liabilities.  This was the case even where it took longer than 12 months to discharge all of the debts and liabilities in full. Now, because of the decision in Noal, even if the company has sufficient assets to pay all liabilities, if those are not discharged before the end of the 12-month period from the commencement of the MVL, the company is not considered to be solvent for the purposes of the MVL, and the liquidation must be converted into a CVL.

A key difference between a solvent and an insolvent liquidation is that in a solvent liquidation the members'/shareholders' interests dominate, as creditors' interests fall away once they have been paid. In an insolvent liquidation however, the creditors' control many aspects of the liquidation, including who is appointed liquidator.

Case background: Novalpina and Noal

Novalpina Capital LLP (Novalpina) was placed into an MVL in May 2023.  As part of this process, the directors of Novalpina made a statutory declaration under section 89 of the Act stating that the LLP would be able to pay its debts in full, together with interest, within a period not exceeding 12 months from the commencement of the solvent liquidation.   

Noal SCSp, a Luxembourg private equity fund (the Fund), subsequently brought a claim against Novalpina for damages arising from advice given by Novalpina in connection with the acquisition of certain investments.  The proofs of debt in respect of the claim were filed after commencement of the MVL and totalled circa £274 million. The declaration of solvency made no reference to the Fund's potential claim.

The Fund made an application to Court to change the liquidator of Novalpina and for the solvent liquidation (i.e. the MVL) to be converted into an insolvent liquidation, specifically a CVL.

Novalpina argued that:

• it was solvent (despite the Fund's claims) because the relevant test for insolvency was the balance sheet test for solvency, where assets are required to be in excess of the company’s liabilities, taking into account its contingent and prospective liabilities;
• even if the test was whether the company could pay its debts as they fall due, the company could be found to be solvent on the basis that the Fund's claim was disputed;
• an MVL can last for more than 12 months in cases where the company has sufficient assets to meet its liabilities, but the assets have not yet all been realised to pay all the debts in full.This may happen in circumstances where assets cannot be readily realised or need longer than 12 months to realise; and
• because the Fund had not submitted its claim before the MVL commenced, the Fund was not a creditor.

The MVL test

The judge said that the statutory declaration of solvency made by directors at commencement of an MVL, did not reference either the balance sheet test or the cashflow test for insolvency.  Instead, section 89 created a "clear and precise test for the statutory declaration, being can the director form the opinion that the company will be able to pay its debts in full, together with interest… within such period not exceeding 12 months from the commencement of the winding up (as is specified in the declaration). If the director can form this opinion, then he can make the declaration… The obligation upon the directors to make a full inquiry into the company's affairs is clearly, in my judgment, designed to ensure that the directors identify all of the company's debts and obligations, which would include those which the company may dispute, or are contingent or prospective".  

The test described by section 89 of the Act is therefore different to the cashflow test for insolvency, which relies on a company being unable to pay its debts as they fall due.  A company may be able to pay its debts as they fall due but may be unable to do so in full within the relevant 12- month period for an MVL. It is not an option to merely provide for the payments of its debts in the 12-month period.   

Under what circumstances could an MVL extend beyond 12 months?

The 12-month period is not an absolute deadline for the end of an MVL. The judge indicated that an MVL could continue beyond this timeframe, but only if the debts and interest are paid in full within 12 months.  In her opinion, there is no basis under the Act to prolong the duration of the MVL if the liquidator knows that the debts won't be paid within 12 months, even if they believe the debts will eventually be paid in full at a later date. In that situation, the liquidator must convert the MVL into a CVL.

Was the Fund a creditor? 

As to whether the Fund was a creditor for its £247 million claim when the directors commenced the MVL process, the judge relied on the decisions of the Supreme Court in Re Nortel Networks Ltd and Nortel GmbH (in administration) and concluded that that the Fund's claim was a contingent liability. The relevant contingency being the outcome of the proceedings in Luxembourg.  It made no difference that the proceedings were started after Novalpina went into liquidation. The Fund's claim related to issues against Novalpina which had accrued before its liquidation and therefore it was a contingent liability of Novalpina. Accordingly, it should have been dealt with in accordance with Rule 14.14 of the Insolvency Rules, which requires an officeholder to estimate the value of a debt that does not have a certain value because it is subject to a contingency (or for any other reason).

Even if the claim was a disputed actual debt, it would not prevent the claim being a provable debt under IR 14, to be taken into account when assessing a company's liabilities.

Practical guidance on solvent liquidations

We understand that the Court of Appeal is considering an application to appeal the decision. In the meantime, we recommend that:

• directors apply the test outlined in the Noal case when making a declaration pursuant to section 89 of the Act at the commencement of an MVL;
• liquidators should review the position as regard satisfaction of the debts throughout the course of an MVL. If there is doubt as to whether the debts can be paid in full, with interest within a 12-month period, they should consider whether conversion to a CVL will be required;
• particular care is taken where there is uncertainty as to whether all assets can be realised in a 12-month period, or where there are contingent or prospective claims which may not fall due within that period. In those circumstances a CVL may be more appropriate from the outset.

The Noal decision has changed the focus for the solvency test in members’ voluntary liquidations, emphasising the importance of timing requirements alongside assets and liability values. Organisations considering a solvent liquidation should ensure the 12‑month timeframe is carefully reviewed at the outset and throughout the course of the liquidation, with contingent and prospective debts and liabilities factored into planning. For more information contact Jasvir Jootla, Amar Adatia or Catherine Phillips.