Judge Agnello in a recent court decision[1] concluded that a company must pay its debts within the period of 12 months from the start of an MVL, and if it does not, the liquidator is obliged to convert the MVL to a company voluntary liquidation (CVL).

Depending on how you interpret the requirement that the company “will be able to pay its debts in full” the decision may not come as a surprise –  but for many practitioners the wording “will be able to pay” is often taken to mean that the company is able to pay (i.e it is balance sheet solvent), not that it has paid within 12 months of the company entering into MV.

In practice there are many MVLs that run beyond the 12-month period, without the debts actually being paid in full in that first year – often because there are claims that are still in the throes of being agreed.

However, this ruling brings into doubt that practice, and with it raises concern about whether an MVL is appropriate.  We understand that the decision may be appealed – in which case watch this space for further updates – but if not, the implications of the decision will be concerning for both officeholders and directors.

Overview

When a company enters MVL the directors of the company must swear a statutory declaration confirming that “they have formed the opinion that 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” (section 89 IA 1986)

There are a couple of consequences that flow from this:

  • A director who makes such a declaration without having reasonable grounds for reaching that opinion is liable to imprisonment or a fine or both (section 89 IA 1986) ; and
  • Where the liquidator is of the opinion that the company will be unable to pay its debts in full etc within 12 months they must convert the MVL to a CVL (section 95 IA 1986).  

Conversion to CVL then brings into play other consequence for the director(s) and if the company is part of a group, the wider group (which we explore below).

MVLs in Practice

There are different views on what is meant by the expression in s89 that the company “will be able to pay” but many practitioners take this to mean that as long as the company can pay, then the liquidation does not need to be converted to CVL if the debts have been provided for and will be paid at some point. 

This approach allows some flexibility which is often needed in practice where matters are outside of the directors/practitioners’ hands because, for example, there are delays in agreeing claims.  In our experience delays in agreeing the tax position with HMRC is often a reason why an MVL cannot be wrapped up within 12 months.

What did the court decide in Noal SCSP?

Novalpina Capital LLP (NCL) was in members voluntary liquidation (MVL) with liquidators having been appointed in May 2023.  In November 2023, three creditors (NOAL SCSp, OEGH Holdings S.a.r.l. and NOAL Luxco S.a.r.l) (the Applicants) filed claims in the MVL totalling £247 million.  Those claims were valued at zero.

The Applicants applied to court to convert the MVL to CVL on the basis that the debts of NCL had not been paid in full with interest within 12 months of NCL entering MVL.  The court had to consider the approach taken by the liquidator in valuing the Applicants’ claims, whether contingent debts needed to be taken into account under s95 IA86, and whether NCL should be converted to CVL given 12 months had passed since the date it entered MVL.

The key points to note from findings in this case were:

  • The test for converting an MVL into a CVL under s95 IA86 is whether the company can actually pay its debts in full (with interest) within the 12-month period specified in the statutory declaration under s89 IA86 – not that the company is able to do so or is balance sheet solvent.
  • Contingent/disputed debts must be taken into account in an MVL when determining whether they can and will be paid within that 12 month period.
  • A liquidator has no power to carry out a summary dismissal/valuation of a contingent debt.  When valuing a contingent/disputed claim a liquidator must do so only in accordance with the Insolvency Rules. In this case the court determined that a disputed debt that had not been adjudicated upon fell within the definition of contingent debts in rule 14.2.
  • If the adjudication process of a claim under the Insolvency Rules runs until after the 12-month period, the MVL must be converted to a CVL.

What are the implications of the findings?

For directors who must swear a declaration of solvency as part of placing a company into MVL they will have to consider whether; in providing that, the company will be able to pay any contingent/disputed liabilities within the next 12 months.  This will require careful consideration given that directors face both criminal and civil liabilities for a false declaration. For example, if a debt is disputed, will that dispute be concluded within 12 months? 

Will this deter directors from using an MVL in favour of a solvent wind down?  Given the personal risks – it is understandable that it might.  Particularly, if there are too many risk outside of their control that the MVL might be converted to a CVL. Although the process is driven by the directors and the MVL liquidator it relies on creditors submitting their claims in a timely manner.  Add into the mix a disputed debt which can take time to deal with, 12 months is suddenly a short period and if the debts are not paid with interest, what was a MVL will now have to be converted to a CVL with the consequences that follow – the solvent liquidation is now insolvent; the liquidator has power to investigate and bring claims under the insolvency legislation and is obliged to file a report with the Insolvency Service on the directors’ conduct.

For group companies where perhaps the MVL is part of a wider restructuring, a company which then goes into CVL may trigger defaults and cross-defaults across the wider group creating an unintended domino effect which will therefore have to be factored into planning at the outset.

For MVL liquidators they will need to

  • consider whether the company can pay within 12 months of the solvency declaration;
  • take into account contingent/disputed debts when deciding if the company can pay all its debts in full within 12 months – and follow the process set in the Insolvency Rules to determine the value to be attributed to those;
  • convert an MVL to CVL if all debts have not been paid, with interest, within 12 months

This is likely to require IPs to “front load” more work to ensure that the MVL can be completed within 12 months but will also need creditors to engage in a timely manner. 

Much of the timing in an MVL is driven by matters which are outside of the control of the liquidator which is likely to be one of the biggest challenges faced moving forward.

The more concerning question is: What should a MVL liquidator do if they are appointed on an MVL that is already beyond 12 months?  Should they now convert? Arguably yes, but sensibly perhaps they should wait to see how industry responds to this decision and if there is an appeal given the findings – at least in respect of the 12-month rule – go against practice.

[1] NOAL SCSP & Ors v Novalpina Capital LLP & Ors [2025] EWHC 1392 (Ch)