Noal SCSp & Ors v Novalpina Capital LLP & Ors

Sections 89 and 95 of the Insolvency Act 1986 impose a specific payment-in-time test for a members’ voluntary liquidation. The question is whether the company can pay all debts, with interest, within the period stated in the declaration, not whether it is solvent on a balance-sheet or cash-flow basis.

A liquidator cannot prolong a members’ voluntary liquidation by relying on later realisations, or by assigning a disputed claim a value of zero through an informal assessment. Provable contingent and disputed debts must be dealt with under the Insolvency Rules 2016. If debts cannot be paid within the specified period, conversion to a creditors’ voluntary liquidation is required.

The applicants claimed substantial damages against Novalpina Capital LLP in Luxembourg proceedings arising from alleged defects in due diligence concerning the acquisition of a gambling business. The LLP had entered members’ voluntary liquidation after directors made a declaration of solvency under section 89 of the Insolvency Act 1986.

The applicants notified proofs of debt. The liquidators did not complete the statutory adjudication process and one liquidator instead carried out an informal assessment, valuing the claim at zero. The preliminary issues concerned the applicable conversion test, the characterisation and treatment of the applicants’ claim, and whether the claim had to be established on the balance of probabilities.

1. Applicable test. Sections 89 and 95 of the Insolvency Act 1986 create a specific test. The company must be able to pay its debts in full, together with interest at the official rate, within the period stated in the directors’ declaration, which cannot exceed 12 months. The test is neither the balance-sheet insolvency test nor the ordinary cash-flow test.
2. The expression “provided for” in section 89(5) concerns the statutory presumption relating to the criminal sanction and does not alter the test in sections 89(1) and 95. A members’ voluntary liquidation may continue after 12 months only where the debts and interest were paid within that period.
3. Liquidator’s role. The liquidator must assess the statutory question at the relevant time. Later funding or realisations cannot retrospectively satisfy the test. Once the period has expired without payment in full, conversion is required.
4. Claims. The applicants’ claim was a provable contingent liability under rules 14.1 and 14.2 of the Insolvency Rules 2016. Its disputed status did not prevent it being a debt. It should have been estimated under rule 14.14 or dealt with through the statutory proof and adjudication procedures. The liquidator had no power to conduct an informal merits assessment and assign it a value of zero.
5. Alternatively, if characterised as an actual disputed debt, it remained a provable debt which had to be taken into account. The applicants were not required to establish the claim on the balance of probabilities for the purposes of conversion. The winding-up petition and administration regimes involved different statutory tests.
6. Disposition. The LLP had been unable to pay its debts, including its expenses, within the relevant period. The members’ voluntary liquidation was therefore required to be converted into a creditors’ voluntary liquidation. Mr Horton was directed to take the necessary steps and was to remain liquidator, subject to any further directions.

First-instance decision on preliminary issues in proceedings concerning the liquidation of Novalpina Capital LLP.