The Interesting Case of Cresta Estates Ltd & Ors v MPB Developments Ltd & Ors [2025] EWHC 1291 (Ch)

Executive Summary

This significant High Court decision establishes key precedents on when company directors can be held personally liable for litigation costs through non-party costs orders.

In a landmark ruling, the Court ordered two directors of an insolvent property development company to personally pay multi-million-pound legal costs after they unreasonably defended a winding-up petition primarily to serve their own interests rather than those of the company.

Background

MPB Developments Limited operated as a non-trading holding company and investment vehicle. Its primary assets were shareholdings in four subsidiary companies engaged in property holding and development. The company had a minimal issued share capital of just 100 £1 shares.

Between April 2018 and June 2021, Cresta Estates and Luxor Properties advanced unsecured, interest-bearing loans totalling over £57 million to MPB Developments. Crucially, these loans were not due for repayment until 31 December 2029.

On 5 May 2023, the creditors filed a winding-up petition against MPB Developments, asserting that the company was unable to pay its debts.

Their primary argument was balance sheet insolvency under section 123(2) of the Insolvency Act 1986. Despite the loans not being due until 2029, the creditors argued that the company’s liabilities substantially exceeded its assets, with no realistic prospect of repayment when the loans matured.

MPB Developments, acting through its directors Hilton and Welsh, vigorously defended the petition by:

• Denying insolvency; and
• Presenting business plans and projections claiming that the company could generate sufficient funds from its property subsidiaries to repay the £57 million by 2029.

Shortcomings in the Company’s Defence

1. Lack of Expert Valuations: No independent expert property valuations were provided.
2. Speculative Business Plans: The plans were highly speculative, overly optimistic, and largely created in response to the petition.
3. Internal Acknowledgements: Evidence showed the directors had previously accepted that the company could not repay the loans.

The Court’s Decision on Insolvency

On 28 January 2025, the High Court:

• Found that the creditors had proved balance sheet insolvency;
• Concluded that the company’s assets were significantly less than its liabilities;
• Determined that the business plans offered no real prospect of repayment in 2029; and
• Granted the winding-up petition, ordering the dissolution of MPB Developments Limited.

Although the loans were not due for repayment for several years, the Court’s decision to treat them as relevant liabilities was itself noteworthy.

The Costs Consequences – Non-Party Costs Order

The Application

Following the winding-up, the petitioning creditors sought a non-party costs order against directors Hilton and Welsh, as the company was insolvent and unable to pay its legal costs.

Legal Framework

Non-party costs orders are exceptional remedies, not made “in the ordinary run of cases.” The jurisdiction must be exercised justly and sparingly, requiring compelling circumstances to pierce the corporate veil and impose personal liability.

The Court’s Key Findings

1. Self-Interest Over Company Interest

• The directors defended the petition primarily to protect their own interests.
• They sought to leverage a settlement agreement personally beneficial to them.
• Each continued to draw £240,000 per year in salary during the 20-month litigation.
• Documentary evidence showed explicit discussions about protecting their personal positions.

2. Impropriety and Lack of Genuine Belief

• The directors acted improperly by advancing a speculative defence.
• They had no genuine belief in the company’s solvency.
• They failed to critically assess unrealistic business plans.

3. “Real Parties” to the Litigation

• Hilton and Welsh were the true controllers of the litigation.
• They instructed solicitors against the wishes of another director.
• They personally funded parts of the defence.

4. Unreasonable Conduct

Their conduct was deemed unreasonable, including:

• Failing to disclose key documents;
• Failing to provide expert valuation or accounting evidence;
• Threatening to cross-examine creditors but failing to follow through;
• Continuing to defend even after their lawyers withdrew.

The Final Order

The Court ordered Mr Hilton and Mr Welsh to personally pay:

• The creditors’ costs of the winding-up petition; and
• The costs of related proceedings.

Legal Significance and Implications

Precedential Value

This case significantly develops the law on non-party costs orders against directors, establishing that:

1. Personal Liability Risk: Directors who unreasonably defend insolvency proceedings for personal benefit face substantial personal costs exposure.
2. Conduct Standards: Courts will scrutinise whether directors act in the company’s best interests.
3. Evidence Requirements: Speculative business plans without expert support will not shield directors.
4. Corporate Governance: The ruling reinforces directors’ duties to creditors when insolvency is near.

Practical Warnings for Directors

The judgment sends a clear message:

• Defending winding-up petitions without genuine belief in solvency is risky.
• Personal interests cannot override fiduciary duties.
• Expert evidence and realistic business plans are essential.
• Unreasonable litigation conduct has serious financial consequences.

Wider Commercial Impact

This decision will likely:

• Make directors more cautious about contesting insolvency petitions;
• Encourage earlier and more realistic assessments of financial health;
• Strengthen creditors’ positions in insolvency disputes; and
• Influence how directors manage duties in financially distressed companies.

Conclusion

Cresta Estates Ltd & Ors v MPB Developments Ltd & Ors [2025] EWHC 1291 (Ch) is a landmark judgment reinforcing the personal accountability of company directors in insolvency contexts.

It confirms that the corporate veil offers no protection to directors who use their position to pursue self-interest at the expense of creditors or sound corporate governance. The personal cost orders imposed serve as a powerful deterrent and a reminder that with directorial power comes personal responsibility, particularly when a company approaches insolvency.

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