English court considers liabilities due far in the future when considering test for insolvency

The High Court granted a winding-up petition against MPB Developments Ltd (the Company) on the basis of liabilities falling due in 2029.

Background

The Company is an investment vehicle which owns various property holding and development subsidiaries. The Company owes unsecured loans totalling over £57 million to Cresta Estates Ltd (Cresta) and Luxor Properties Ltd (Luxor) which fall due in December 2029.

A petition was presented by Cresta and Luxor alleging that the Company is balance sheet insolvent. Unchallenged expert evidence showed that in December 2029 the Company’s liabilities will be £78.46 million and its assets will only be worth £4.3 million. 

Insolvency tests 

The tests for insolvency are:

• cash-flow insolvency: whether the company can pay its debts as they fall due
• balance sheet insolvency: whether its assets are less than its liabilities (including contingent and prospective liabilities).

Decision

The court noted that the balance sheet test is the only sensible test when considering circumstances beyond the near future, and a commercial view of prospective and contingent liabilities should be taken. 

The court found that:

• the Company's assets are significantly less than its liabilities (even applying a discount to contingent and prospective liabilities to discern their present day value) and it will likely fail the balance sheet test for insolvency at maturity of the loans in 2029
• the business plans submitted by the Company to support their defence were speculative and overly optimistic and did not demonstrate any real prospect of meeting future liabilities.

Key takeaways

The tests for insolvency are fact specific and, in respect of liabilities due far in the future, a company may be balance sheet insolvent even if it is presently able to pay its debts if it can be shown to have no reasonable prospect of discharging those liabilities at that future date.

Any business plans relied on by a company seeking to establish the future profit generating potential of its assets must be up to date and realistic to demonstrate any real prospect of meeting future liabilities.

Cresta Estates Ltd and other companies v MPB Developments Ltd and others [2025] EWHC 198 (Ch).

Find out more

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring and Insolvency team.