Advocate Damian Molyneux reviews a recent English decision and analyses whether Insolvency Practitioner flexibility in Members’ Voluntary Liquidations has been stymied permanently.

In Noal SCSP & Ors v Novalpina Capital LLP & Ors [2025] EWHC 1392 (Ch), the High Court in England and Wales ruled on the proper test for solvency in the context of Members’ Voluntary Liquidations (MVLs) and when they should be converted to a Creditors’ Voluntary Liquidation (CVL) under the Insolvency Act 1986 (“IA”). The decision (which it is understood is subject to appeal) appears to depart from some established practices. Whilst it is an English decision, there is potential for the principles to be applied within the jurisdiction of the Isle of Man (where English Court decisions, although not binding, are persuasive) as there are sufficient similarities between the MVL and CVL procedures, albeit we have no IA as such.

Background in Novalpina

The company (Novalpina Capital LLP) entered into MVL, based on a statutory declaration under the IA that it could pay its debts in full (plus interest) within 12 months (a similar provision exists in the Isle of Man Insolvency legislation per the Companies Act 1931). After the MVL commenced, a creditor filed a significant (contingent and disputed) claim which, if admitted, would far exceed company assets. The liquidator assessed the claim as having zero value, rather than formally adjudicating upon it and consequently the creditor applied to the court to compel conversion of the MVL into a CVL under the relevant IA provision, arguing the company could not in fact pay all its debts within 12 months as provided for by the IA.

Issues for determination

The court was asked to resolve two connected issues:

1. What is the correct solvency test when deciding whether to proceed by way of MVL or CVL (i.e. balance sheet, cash‑flow or something else)?
2. How to treat contingent, disputed, unadjudicated claims in applying that test (i.e. whether the liquidator may discount them).

The court held as follows:

Solvency

All debts (including interest) must be paid in full within 12‑months. Therefore, simply demonstrating on paper that a company has enough assets to cover its debts in that period is no longer sufficient in the context of an MVL. The question is whether actual payment in full, including interest, will be made within the statutory 12-month period (or such other period as may be provided for).

This interpretation also therefore potentially affects how directors must approach their solvency declarations. It seems they must now take a more rigorous approach, because it's not enough to believe the company is generally solvent; they must be confident that every debt can, and will be, settled within the timeframe specified.

The judgment also makes clear that liquidators do not have flexibility to extend beyond the 12-month window in an MVL, even if a payment is anticipated shortly afterwards, or asset realisations are pending. If it becomes evident at any point before the end of that period that all debts will not be settled in full, the MVL must be converted into a CVL.

Contingent claims

Any potential or disputed liabilities, including those not yet proven, must still be treated as valid for the purpose of assessing whether the company is able to meet its obligations in time. Liquidators cannot ignore such claims unless they have been properly adjudicated.

Summary

Whatever flexibility there may have been for liquidators in the conduct of MVLs in the past has now seemingly been significantly curtailed (subject to appeal of Novalpina). Practical consequences for IPs (and to some extent directors, shareholders and creditors) to consider when considering and conducting MVLs therefore now include:

1. Stricter standards for solvency declarations; and
2. Mandated conversion where necessary; and
3. Intolerance of informal valuation of liabilities; and
4. Impact on liquidation strategy generally, before deciding which route to adopt.

Manx legislation is very similar as to the required statutory declaration in MVLs (i.e. that the company “will be able to pay its debts in full within a period not exceeding 12 months” (s218(1) Companies Act 1931)). Similarly, it seems possible under Manx law that creditors and the like could apply to the Court to have an MVL converted in similar circumstances to those in Novalpina. Although there is no express statutory provision equal to that of s.96 IA which specifically deals with conversion of an MVL to a CVL, there are other provisions under which the Manx Court may have the discretion to hear such an application. Whether, on any such application (and, per the above, on the basis that English law, although not binding on the Manx courts, is persuasive), the Manx Court would actually apply the principles set out in Novalpina remains to be seen, but it is, theoretically possible. If Novalpina is successfully appealed, the question may never trouble the Manx Courts. Until then, IPs should perhaps err on the side of caution.

The author of this article, Damian Molyneux, is a director of M&P Legal with substantial insolvency experience. He can be contacted via dpm@mplegal.im. This article does not constitute legal advice and specific advice should be sought for individual circumstances.

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