Court determines test applicable to convert members’ voluntary liquidation into creditors’ voluntary liquidation

The court was asked to resolve preliminary issues regarding the conversion of Novalpina Capital LLP’s members’ voluntary liquidation (MVL) into a creditors’ voluntary liquidation (CVL). The applicants—a private equity fund and its subsidiaries—had engaged Novalpina in April 2021 to advise on acquiring a gambling business. They alleged Novalpina concealed the identity of the ultimate beneficial owner, and claimed they wouldn't have proceeded had they known.

Novalpina entered MVL in May 2023 under s.89 Insolvency Act 1986, declaring a surplus of £148,358. In October 2023, the applicants filed a c€247 million negligence claim in Luxembourg. Novalpina’s appointed liquidator, Mr Murphy, valued the negligence claim at zero, relying on legal advice that it was unlikely to succeed. 

The applicants sought Mr Murphy’s removal and requested the MVL be converted to a CVL under s.95 Insolvency Act 1986. 

The court considered two key issues: the insolvency test applicable to MVL-to-CVL conversion, and whether the applicants’ claim constituted a debt under the Insolvency Act and the Insolvency Rules 2016.

The court determined that: (a) s.95 requires a company in MVL to be able to pay all its debts plus interest within 12 months of the liquidation starting, and that this was not the same as the cash flow or balance sheet insolvency test; and (b) the applicants’ claim was a contingent liability which should have been properly assessed under Rule 14.14 Insolvency Rules 2016 and not valued at zero by Mr Murphy. 

The court then determined that as Novalpina’s financial position as at the expiry of the 12-month period was such that it had insufficient realised assets to be able to discharge its expenses, and as it had a valid contingent claim against it, the MVL should be converted to a CVL. 

Noal SCSp v Novalpina Capital LLP