In the recent case of Cresta Estates Ltd & Ors v MPB Developments Ltd & Ors [2025] EWHC 1291 (Ch), the High Court ordered the directors of a company to personally pay the costs of the creditors' successful winding up petition, and related proceedings.

What does it take for the court to exercise this "exceptional jurisdiction" on costs, and what should directors take on board from the decision?

In this article, we explore the key legal principles and what directors should keep in mind when facing insolvency proceedings.

The winding up petition

H and W were directors and shareholders of the Company, along with a third corporate director and 50% shareholder, Stanbreck. Two of the Company's creditors, who had lent over £52 million to the Company, brought a winding up petition on the basis that the Company was balance-sheet insolvent and would be unable to repay their loans at maturity in 2029. Stanbreck also brought a separate winding up petition as contributory, together with an unfair prejudice petition. Stanbreck's petitions were adjourned until determination of the creditors' winding up petition.

In January 2025, the court granted the creditors' winding up petition, finding that the value of the Company's assets was very significantly less than the amount of its liabilities, and the Company's business plans showed no real prospect of the Company being able to repay the creditors' loans in 2029.

Following the grant of their petition, the creditors made an application to court seeking an order that H and W personally pay the creditors' costs of the winding up petition and Stanbreck's petitions.

Costs orders against non-parties

Although H and W were in fact parties to the proceedings, it was common ground between the parties that the order sought was analogous to a non-party costs order and that the court should exercise its discretion accordingly.

The court made clear that the power to make a non-party costs order is an "exceptional jurisdiction", highly fact-specific and that the only immutable principle is that the jurisdiction must be exercised justly.

Following two key cases on the exercise of this discretion, there were two important questions for the court in determining if a non-party costs order would be appropriate:

  • Is the non party the "real party" to the litigation?
  • Is there some other reason it would be just to make a costs order against the non-party?

Answering yes to either of these questions would justify the grant of a non-party costs order.

The "real party" to the litigation

Another way of phrasing the question is whether the director was seeking to benefit personally by conducting litigation on behalf of the company. In this case, the judge was satisfied that H and W were the "real parties" to the litigation as they had defended the petition against the Company in pursuit of their own interests. Relevant factors included:

  • They controlled the defence of the petition, and had used their majority to instruct solicitors to defend it (against the wishes of the third director and 50% shareholder, Stanbreck).
  • H and W funded the defence personally to the tune of £77,000.
  • By defending the petition for 20 months, H and W continued to receive directors' salaries and so derived personal benefit of £240,000 each.
  • Documents in evidence recorded them talking about looking after their own interests (rather than those of the Company).
  • Defence of the petition was apparently in order to negotiate settlement with creditors. Those settlement negotiations all included terms which were advantageous to H and W, including substantial payments and the release of claims.

The judge also rejected the submission that, even if the actions were in H and W's interests, they were also in the best interests of the Company. She rejected the submission that H and W honestly (but mistakenly) believed the company was solvent and that they relied on the advice of professionals. She found that business plans which H and W used to argue the Company would be able to repay the loans were created in response to the petition, and bore little resemblance to reality. H and W should have looked at the business plans with a critical eye rather than accepting their bullish projections. She did not accept they genuinely believed the Company would be able to repay the loans in 2029.

Some other reason

Although finding that H and W were the "real parties" to the litigation was sufficient justification to order them to pay the creditors' costs, the judge went further. She found that not only were H and W acting for their own purposes, and not those of the Company, but they had also done so with impropriety, by pursuing a highly speculative defence to the petition where they had no genuine belief in the Company's solvency. H and W had acted unreasonably in the conduct of litigation which they had no intention of defending at trial, including by:

  • failing to give disclosure on key issues;
  • failing to provide expert valuation or accounting evidence;
  • indicating they wanted to cross-examine the creditors; and
  • continuing to defend the petition after their lawyers ceased acting for them.

This conduct caused the creditors to incur significant legal costs, only for H and W to withdraw the Company's defence on day one of the trial. This was plainly not in the Company's best interests.

In all the circumstances, the judge considered H and W to have been the real parties to the litigation and that, at all times, they were operating in their own interests and without appropriate propriety. Accordingly they were ordered to pay the creditors' costs of the winding up petition and Stanbreck's two adjourned petitions.

Key considerations for directors - whose interests?

While the court's discretion to make a costs award against a non-party is an exceptional jurisdiction and rarely exercised, company directors should consider carefully how to respond to winding up petitions. As painful as the threatened insolvency of a company can be, directors must stand back and consider if defending the petition is in the best interests of the company. To paraphrase the judge in this case, a winding up petition is not contrary to the company's interests if it is hopelessly insolvent, and unreasonably defending a petition in those circumstances (particularly if seeking to leverage personal benefit) may well lead to personal liability for petitioners' costs.

For more information on dealing with winding up petitions see our related article: 10 things for companies to consider if served with a winding up petition.

For advice on insolvency related matters, please contact Jason Freedman.