Cresta Estates Limited & Ors v MPB Developments Limited & Ors

For balance-sheet insolvency under Insolvency Act 1986, the court must assess the commercial value of present assets against present, contingent and prospective liabilities, allowing for contingencies and deferment. The inquiry is evaluative rather than mechanical. A company may be balance-sheet insolvent even if it can presently pay its debts. Future profit-generating potential may be relevant, but speculative or unrealistic business plans cannot establish a reasonable expectation that distant liabilities will be met. The burden lies on the party asserting insolvency, and the more distant the liabilities, the harder the case will generally be to prove.

The petitioners, including two prospective creditors, sought the winding-up of MPB Developments Limited under Insolvency Act 1986 s 122(1)(f), relying principally on balance-sheet insolvency under s 123(2). The issue was whether the company could reasonably be expected to meet substantial unsecured loans, with interest, when they fell due on 31 December 2029.

The winding-up petition was ordered to be determined as a preliminary issue. The respondents ultimately ceased defending it. The central question was whether the company’s present assets, together with their realistic future value, were sufficient to meet its prospective liabilities.

1. Petition granted. The court exercised its discretion to wind up the company under Insolvency Act 1986.
2. The petitioners bore the burden of proving balance-sheet insolvency. Applying the principles in BNY Corporate Trustee Services Ltd v Eurosail-UK 2007-3BL plc and the authorities summarised in the judgment, the assessment required a commercial and fact-sensitive comparison between the value of present assets and present, contingent and prospective liabilities, with proper allowance for contingencies and deferment. The statutory test was not mechanical.
3. The company’s liabilities to the petitioners, including interest and discounted for deferment, substantially exceeded the accepted present value of its assets. The respondents provided no expert evidence to support their higher valuation.
4. The business plans did not alter the conclusion. They were out-of-date, highly speculative and wildly optimistic, unsupported by evidence of implementation or realistic future implementation. The company’s future profit-generating potential therefore did not provide a reasonable basis for concluding that it could meet its liabilities in 2029.
5. The alternative cash-flow insolvency case did not need to be determined.