Cresta Estates Limited & Ors v MPB Developments Limited & Ors

The petitioners presented a winding-up petition under section 122(1)(f) of the Insolvency Act 1986, advancing a primary case of balance-sheet insolvency under section 123(2). The court applied the established test from Eurosail and related authorities: compare the company’s present assets (commercial value) with its present and prospective liabilities, making proper commercial allowances for contingencies and deferment, and ask whether the company can reasonably be expected to meet those liabilities.

The petitioners' unchallenged expert accountancy and property valuation evidence (in particular the report of Mr Desai, supported by expert valuers) established a present date value of assets of approximately £5.5 million and, after discounting for deferment, present date liabilities to the petitioning creditors of about £64.1 million. The respondents produced speculative business plans but declined to call expert valuation or accountancy evidence and did not update those plans; the court regarded the plans as not providing a realistic basis to conclude the company could meet its liabilities by 31 December 2029.

Applying section 123(2) and relevant authorities the court concluded the value of the company's assets was materially less than its liabilities and that the company could not reasonably be expected to meet the debts due to the petitioners. The court exercised its discretion in favour of granting the petition.

Background and parties: MPB Developments Limited (the Company) was incorporated in 2018 as a private company limited by shares. The petitioners, Cresta Estates Limited and Luxor Properties Limited (together the Creditors), are prospective unsecured creditors who advanced loans to the Company repayable on 31 December 2029. Stanbreck Properties Limited, a shareholder and related company, had an adjourned petition and an unfair prejudice petition dependent on the outcome of this petition.

Nature of the application: A winding-up petition presented on 5 May 2023 under section 122(1)(f) of the Insolvency Act 1986, alleging balance-sheet insolvency under section 123(2) (primary) and alternatively cash-flow insolvency under section 123(1)(e).

Procedural posture: The petition was directed to be heard as a preliminary issue. The court received factual witness statements and expert reports: the petitioners served accountancy expert evidence (Mr Desai) and two property valuation reports (Mr Pilbrow and Mr Roberts). The respondents declined to instruct property valuation experts and elected not to serve further accountancy expert evidence; a three-page non-Part 35 letter (Grunberg Letter) was disclosed but not put forward as expert evidence.

Issues framed by the court:

• Whether the company is balance-sheet insolvent under section 123(2) IA 1986, having regard to present assets and present and prospective liabilities (discounted for contingencies and deferment).
• Whether the respondents' business plans provided a realistic prospect that the company could meet the indebtedness by 31 December 2029.
• The weight to be attached to the parties' evidence given the respondents’ decision not to call expert evidence.

Evidence and submissions: The petitioners relied on unchallenged expert evidence that the present date value of the company’s assets was about £5.5 million and that the present date value of the petitioning creditors’ liabilities (discounted) was about £64.1 million. The respondents relied on business plans prepared in May 2023 claiming a restructured, "asset light" model would generate c. £88.5 million by 2029, but those plans were described in the judgment as illustrative, out-of-date, speculative and not updated.

Reasoning: The court applied the legal principles in Eurosail and subsequent authorities: the balance-sheet inquiry requires commercial judgments about asset values and allowance for contingent/prospective liabilities; the burden lay on the petitioners to prove insolvency but the respondents' failure to adduce expert valuation or accountancy evidence meant the petitioners' unchallenged expert evidence stood unopposed. The court found the business plans did not provide a realistic basis to displace the petitioners' evidence. The court also considered contemporaneous discussions and proposals (e.g. November 2022 discussion and a February 2024 proposal) as supporting the view that the company would not be able to repay the loans.

Conclusion: The court concluded on the balance of the unchallenged evidence that the company was balance-sheet insolvent under section 123(2) IA 1986 and could not reasonably be expected to meet the petitioning creditors' liabilities by 31 December 2029. The court exercised its discretion to grant the winding-up petition and declined to reach the cash-flow alternative.

The petition is granted. The court held that, applying the balance-sheet test in section 123(2) of the Insolvency Act 1986 and the principles from Eurosail and related authorities, the company's present assets (commercial value) were materially less than its present and prospective liabilities (after appropriate discounts), and it could not reasonably be expected to meet the debts owed to the petitioning creditors. The petitioners' expert evidence was unchallenged; the respondents' business plans were speculative and insufficient to displace that evidence.