Developstate Limited v Alexander Luxury (Yorkshire) Limited [2026] EWHC 2170 (Ch)

[2026] EWHC 2170 (Ch)Case No CR-2026-LDS-000261IN THE HIGH COURT OF JUSTICEVenue BUSINESS AND PROPERTY COURTS IN LEEDSINSOLVENCY AND COMPANIES LISTDate Date: 14 August 2026Before: His Honour Judge Richard CarterDEVELOPSTATE LIMITED Respondent/Petitioning Creditor- and –ALEXANDER LUXURY (YORKSHIRE) LIMITED Applicant/Debtor Company
Between
DEVELOPSTATE LIMITEDRespondentALEXANDER LUXURY (YORKSHIRE) LIMITEDApplicantMr Lafferty (instructed by Arma) for ClaimantMs Parker (instructed by Hamlins) for DefendantHearing Hearing dates: 23 June 2026
JudgmentI direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic..............................
[1]The Applicant, Alexander Luxury (Yorkshire) Limited (“the Company”), issued an application on 23 March 2026 pursuant to rule 7.24 of the Insolvency (England and Wales) Rules 2016 to restrain the Respondent, Developstate Limited (“the Petitioning Creditor PC”), from advertising a winding up petition dated 11 March 2026, and further to strike out the petition. The Application was supported by a Witness Statement of Jamie Shephard dated 22 March 2026.[2]On 21 April 2026 HHJ Klein sitting as a Judge of the High Court made an interim order restraining advertisement and giving the Company permission to file and serve evidence in reply to a Witness Statement of Alex Hullah, filed by the PC by 17 April 2026.[3]The Application was listed for a half day hearing. A consent order was filed by the parties (dated 27 April 2026) as follows: UPON the agreement between the parties agreeing that there is a genuine dispute between the Creditor and the Debtor and agreeing to stay proceedings for alternative dispute resolution on the issue of costs. AND UPON the parties confirming that the petition has not yet been advertised. BY CONSENT IT IS ORDERED THAT:[1]The hearing listed for 28 April 2026 be vacated. 2. The proceedings be stayed from the date of this order to 26 June 2026 (the “Stay”). 3. Either party may apply to lift the Stay, provided that 7 days’ written notice of such application is given to the other party. 4. Costs in the case.[4]On 19 June 2026 the Company filed a Witness Statement of David Crockford which purported to adduce two reports prepared by GGA Chartered Building Surveyors and dated 16 April 2026. The basis of the late service of these reports was that they have been provided to the PC during negotiations (and therefore the PC was well aware of them) and that they supported the Company’s case that there was a genuine cross claim.[5]By an oral application at the hearing Ms Parker sought to rely on the WS and the reports. However, for reasons I gave in an ex tempore judgment I refused permission.

The Background

[6]The parties entered into a construction contract for the redevelopment of a property, 2 Southfield, Hessle, HU13 0EX (“the Property”). The Property was owned by the Company and the PC contracted to carry out the works and manage the development. Perhaps unusually no written contract was entered into, however the contract was entered into on the basis of an “elemental breakdown” of the works agreed in the sum of £367,246 plus VAT. It is the PC’s case that this was not a fixed price but a working estimate and that additional works would be agreed and invoiced as and when necessary.[7]No terms for payment were agreed (subject to the Company’s assertion about inspection) and 30 invoices were raised by the PC and paid by the Company. On 16 December 2025 the PC raised invoices 31 to 34 covering work and materials supplied to that date totalling £27,341.80. The invoices were not settled and on 24 December 2025 the PC served a statutory demand on the Company.[8]The SD was in the wrong company name and so was reissued on 8 February 2026 in the correct name. On 1 January 2026 Mr Shepherd of the Company responded as follows:
"For the avoidance of doubt, I am not refusing payment. However, several items are disputed, incorrect, or relate to works that were not agreed or authorised prior to being undertaken. These matters must be clarified before payment can be properly assessed. All undisputed sums will be paid promptly once the invoicing errors and disputed items are resolved."
[9]Some adjustments were made to Invoice 32 but no payment was made on the invoices. In the WS in support of the Application Mr Shepherd advanced two set-off claims totalling £83,361. Mr Hullah for the PC addresses these in his WS at 18 et seq. The second set-off claim is for defective works and was supported by a quote from FRF Construction Limited. Mr Hullah sets out in considerable depth the details of the allegations and the evidence which he says contradicts them.[10]The Company asserts that the £357,246 was agreed as the “…full extent of the liability that the Applicant would have to the Respondent for the entire works through to completion”. It also asserts that payment of the invoices would not be made until the works had been inspected (to enable the draw down of funds to cover the works). By a letter from the Company’s Solicitors dated 18 February 2026 the contract was terminated and no further works have been carried out by the PC.

The Legal Framework

[11]When deciding to restrain the gazetting of a petition, the court is striking a policy balance between the competing considerations (per Re A Company [1995] 1 WLR 953 (at 960):
“…Where, on the other hand, the company applies only for a direction against advertisement, the court is not so much concerned with protecting its own process from abuse as with the need to strike a fair balance between two different aspects of public policy. One is the concern of the court to ensure that the proceedings are brought to the attention of all those who may be presumed to have an interest in resisting or supporting them — i.e. actual, contingent and prospective creditors, contributories, and those dealing or proposing to deal with the company in the ordinary course of its business. The other is an appreciation by the court of the serious consequences for the reputation and financial stability of the company to which advertisement of the petition may give rise: see In re Golden Chemical Products Ltd. [1976] Ch. 300 , 309 per Brightman J. The circumstances of each particular case — given the starting point that the onus is on the company to show sufficient reason to depart from the normal practice of advertisement (see Morritt J. in In re A Company (No. 007946 of 1993) [1994] Ch. 198)”
[12]The Applicant seeks to restrain the advertisement of the petition on the basis of alleged genuine disputes and/or on the basis of alleged cross claims.[13]The principles applicable to alleged genuine disputes are well known and have been summarised as follows in Angel Group ltd v British Trading Ltd [2013] BCC 265, [22]:
“[22] … a) A creditor’s petition can only be presented by a creditor, and until a prospective petitioner is established as a creditor he is not entitled to present the petition and has no standing in the Companies Court… b) The company may challenge the petitioner’s standing as a creditor by advancing in good faith a substantial dispute as to the entirety of the petition debt (or at least so much as will bring the indisputable part below £750). c) A dispute will not be “substantial” if it has really no rational prospect of success: in Re A Company (No.012209 of 1991) [1992] 1 W.L.R. 351 at 354B. d) A dispute will not be put forward in good faith if the company is merely seeking to take for itself credit which it is not allowed under the contract: ibid. at 354F. e) There is thus no rule of practice that the petition will be struck out merely because the company alleges that the debt is disputed… f) But the court will not allow this rule of practice itself to work injustice and will be alert to the risk that an unwilling debtor is raising a cloud of objections on affidavit in order to claim that a dispute exists which cannot be determined without cross-examination…; g) The court will therefore be prepared to consider the evidence in detail even if, in performing that task, the court may be engaged in much the same exercise as would be required of a court facing an application for summary judgment.”
[14]Equally, the principles applicable to cross claims are well known. In Re Bayoil [1999] 1 WLR 147, the court held that for a cross claim to amount to a basis to challenge a petition (at page 155, per Nourse LJ):
“…the cross claim must be genuine and serious or, if you prefer, one of substance; that it must be one which the company has been unable to litigate; and… it must be in an amount exceeding the amount of the petitioner’s debt”
[15]The Court of Appeal in Dennis Rye Ltd [2009] EWCA civ 372, held that the second matter noted in Re Bayoil (i.e. inability to litigate) did not mean that a failure to litigate a purported cross claim meant one was incapable of being used to contest a petition. However, the court went on to note:
“[19]… in deciding whether it is satisfied that the cross-claim is genuine and serious, the court is entitled to take into account all the relevant circumstances, such as the fact that a company has not even attempted to litigate the cross-claim”
[16]In Tallington Lakes Limited –v- South Kesteven District Council [2012] EWCA civ 443, Etherton LJ provided useful guidance as to when such an application may succeed:
“I have to emphasise, however, in this context that it is well established that the threshold for establishing that a debt is disputed on substantial grounds in the context of a winding up petition is not a high one for restraining the presentation of the winding up petition and may be reached even if, on an application for summary judgment, the defence could be regarded “shadowy”.”
[17]In Wagner v White (2018) EWCH 2882 (Ch) Mr.

Justice Nugee stated in relation to the test to be applied where a debt is said to be disputed:

“What is common ground is that the Court will not exercise its powers under r 6.5(4) unless satisfied that there is a genuine triable issue. There has been some debate in the authorities whether that test is precisely on all fours with the test of whether there is a real prospect of success for the purposes of resisting summary judgment under CPR Pt 24, but in Ashurst v Newnote Ltd [2007] EWCA Civ 793 at [33] Lawrence Collins LJ said that it seemed to him that that was a sterile and largely verbal question and that there was no practical difference between the two, and certainly not in that case. It has not been suggested that there is any practical difference in the present case either. That enables Mr Millett to rely on the jurisprudence under CPR Pt 24, among which is the well-known statement by Lord Woolf MR in Swain v Hillman [2001] 1 AER 91 to the effect that a real or realistic prospect of success is to be contrasted with a fanciful one. For his part, Mr Curl, who appeared for Mr White, did not take issue with any of that, although he referred me to the statement by Arden LJ in Collier v P & M J Wright (Holdings) Ltd [2007] EWCA Civ 1329 at [21] where she too concluded that there was no material difference on disputed factual issues between the tests of "real prospect of success" and "genuine triable issue", but made the point that it is not enough to succeed in an application to set aside a statutory demand to point to an arguable dispute. There has to be something to suggest that the assertion is sustainable, and it is open to the Court to reject the applicant's version of events if it is inherently implausible or if it is contradicted, or not supported, by contemporaneous documentation.”

Company’s Position

[18]Ms Parker set out the following basis for advancing that there was a genuine dispute on substantial grounds: i) The disputed invoices were not submitted in accordance with the contract. It was an agreed term that there would be an inspection before the invoices became payable, and that had applied throughout the contract. ii) Works were paid for which were never completed. At §44 she asserts that “As the contract is now at an end these works will never be carried out and the sums are owed to A by R” iii) Works have been charged for which were not agreed under the Contract – or subsequently. iv) Negligent works.[19]The Company also points to the “admission” in the Consent Order that there was a genuine dispute.

The PC’s position

[20]The PC’s primary position on the unpaid invoices is that the Court has no jurisdiction to go behind the invoices as no Pay Less notices were served by the Company. Mr Lafferty refers to R&S Fire & Security Service Ltd v Fire Defence [2013] EWHC 4222 (Ch):
“[8]. The key provisions of the 1996 Act for present purposes are to be found in sections 110A-111 , which emanate from the 2009 Act. Section 110B specifies circumstances in which a contractor can give (or is to be regarded as having given) notice to his employer that he considers that a sum is due to him (“a Default Notice”). Section 111(3) allows the employer to give the contractor notice that he intends to pay less than the notified sum (“a Pay Less Notice”). In the absence, however, of a Pay Less Notice, “the payer must pay the notified sum (to the extent not already paid) on or before the final date for payment”: see section 111(1)…” [12]. In the circumstances, I agree… that the debt on which the petition against R&S is founded is not itself open to dispute.”
[21]That was approved by the Court of Appeal in Wilson and Sharp Investments Ltd v Harbour View Development Ltd [2015] EWCA Civ 1030:
“[42] … the first issue which arises for determination on this appeal is whether the proposed petition debt is disputed on substantial grounds. Miss Lee correctly accepted that the fact that the appellant now contends that the respondent and/or GA overvalued the work for the purposes of the interim certificates, and intends to dispute liability for the sums stated in the certificates at a later stage, did not in itself (in the absence of any Pay Less Notice served at the relevant time) provide any basis for contending that the debt itself was disputed. That concession is in line with cases such as In Re a Company (No 1299 of 2001) supra; Rupert Morgan Building Services (LLC) Ltd v. Jervis (2004) 1 WLR 1867 at 1872 (per Jacob L.J); and R & S Fire and Security Services Ltd v. Fire Defence Plc (2013) EWHC 4222 at paragraphs 7 – 12 (per Newey J).”
[22]Beyond that Mr Lafferty points to the WS of Mr Hullah and the documentation which shows, he submits, that the majority of the work in the disputed invoices can be shown to have been carried out.[23]As to the allegations of work not having been completed but charged for and work not being authorised but charged, this falls on the same grounds as the disputed invoices – that no payless notices were served at the time the invoices were presented for payment (and were paid). Once again however he goes on to identify that the works charged for reflect the terms of the contract as varied and as supported by the correspondence between the parties.[24]Mr Lafferty accepts that a genuine cross claim can be pursued by the Company outside the limitations of the Construction Act – see §13 of R&S: 13. Turning to whether R&S has a cross-claim, Mr Wheater accepted that the provisions of the 1996 Act do not preclude the Court from considering this question. The authorities confirm that he was correct to make this concession. In Re a Company (1299 of 2001), Mr Donaldson, having noted the Court of Appeal’s reference to “special circumstances” in Bayoil, said that “the fact that the debt falls within the 1996 Act cannot … be a ‘special circumstance’ in favour of a winding up order”. Judge Weeks QC, sitting as a Judge of the High Court, arrived at a similar conclusion in Medlock Products Ltd v SCC Construction Ltd [2006] CILL 2384. That view of the law is also consistent with Shaw v MFP Foundations & Piling Ltd [2010] EWHC 9 (Ch), [2010] 2 BCLC 85, which concerned decisions of adjudicators. Judge Stephen Davies, sitting as a Judge of the High Court, concluded (in paragraph 50) that “there is a clear difference between enforcing an adjudicator’s decision in the Technology and Construction Court, which itself will provide the platform for the usual panoply of enforcement proceedings, and seeking to use that decision and/or the enforcement judgment itself to found bankruptcy proceedings even where there is a genuine and substantial cross-claim which the debtor is actively pursuing or for genuine reasons has been unable to pursue thus far”.[25]However, he questions the genuineness of the Company’s case that the works are defective. He points to the following: i) The complaints about the works post date the Unpaid Invoices and no issue was raised about defective works until the end of 2025. ii) The Company asserts that the payment of invoices could only be made once works were inspected and been signed off by the funder (although he noted there was no evidence of this). iii) The work was subject to Building Inspector control throughout the currency of the contract. iv) The Company has sought to inflate the claim by including works which were outwith the contract (ie drainage works). v) The FJF quote was from a competitor.

Discussion

[26]Prior to hearing submissions on the cross-claim/genuine dispute I dealt with the issue of the Consent Order. I concluded that it was not a binding agreement by the PC to compromise the Application/Petition but that it could be considered as a factor within the assessment of whether there was a genuine dispute which exceeded the petition debt. However, the weight I attach to that document is limited as I do not know what if any other side agreements had been reached by the parties (for instance an agreement to pay the invoices). It would be wrong in my judgment to allow that document to restrict the PC’s right to challenge the Company’s assertion in those circumstances.[27]As to the Company’s position that the invoices are genuinely disputed and/or that it has been charged for works which have not been done or for works which have not been agreed, I am satisfied that there is no genuine dispute. The provisions of the Construction Act apply to this contract (it was not realistically suggested that it did not) and therefore where an invoice is presented the paying party must serve a Pay Less notice if it wishes to dispute the payments due. It is not open absent such a notice to argue that the invoices are dispute on substantial grounds. I do not therefore need to consider whether the various items challenged by the Company in their evidence stand up to scrutiny.[28]However, I do bear in mind the following: i) The Company has sought to advance as a basis for this application a dispute on the invoices which has no merit. That in itself suggests that the Company is prepared to put before the Court unmeritorious arguments. ii) The challenges made by Mr Lafferty and set out in the WS of Mr Hullah also show that the Company is willing to make assertions about disputes which are either unevidenced, or are clearly wrong. So, for instance, it is clear that there was an unexpected issue with the steelwork which required substantial changes to the works (84). Those changes were required by a structural engineer and the drawings were sent to the PC to carry out the new works. The Building Inspector approved the changes and the works. It is hard to see how the Company could realistically assert this was work which was not approved (or indeed that it fell within the initial contract price). Similar points were made about the insulation works and the extra brick work courses.[29]I therefore approach the Company’s assertion that it has a valuable claim for defective work against the PC particularly with considerable scepticism.[30]In deciding whether the cross claim is genuine I consider the following: i) The report from FJF Construction (333) is dated 16 March 2025 and purports to identify £25,936 of corrective works. However, it includes drainage works which fall outside the contracted works. Further, despite the Company being aware of the alleged defects, no step to complain about the alleged defective works or to require remedial works or issue a Pay Less notice was taken until the disputed invoices. In her submissions Ms Parker suggested that as there was an informal relationship between the two people involved in these companies, the complaints were oral. I can accept that initially that may have been the case but Mr Shepherd in his WS at §13 simply makes a bare assertion and provides no detail about those complaints. ii) Although the Company asserts it has obtained further reports, they were not (formally) provided until a few days before the hearing. They are not Part 35 compliant. However, the Company had the chance to file such evidence pursuant to HHJ Klein’s order which would have enabled the Court properly to assess its genuineness. It is notable that Ms Parker’s skeleton was predicated on the works identified by FJF. iii) The Company’s case that it would not pay invoices until the works had been passed does not sit with its assertion that there are now defects in the work. Ms Parker did make the point that defects can be latent and only come to light later on. However, such an argument cannot apply when the basis of the asserted cross claim is that the defects were apparent in March 2025 and identified in a report at that time. iv) As an example, the Company complains about defective flooring in its WS (£6850 for extension flooring works – 336 FJF report). However, as Mr Lafferty noted this was recorded as satisfactorily completed in the inspection report dated 19 July 2025 (i.e. after the FJF report) – see Building Inspector’s report at 169. v) Ms Parker challenged the PC’s case that the invoice tracker (which the PC says showed all the work being done and to which there was no challenge) was available to the Company. However, the tracker was first raised in Mr Hullah’s WS (§78) and no evidence was adduced by the Company to challenge his position either in line with the Order of HHJ Klein or even within the last-minute statement of Mr Crockford. That is a surprising omission if this is such an important part of the Company’s case on the works.[31]I accept of course that there is a low bar for establishing that there is a genuine dispute on a petition debt. However as has been frequently said by the Courts it is not sufficient simply for a debtor to raise a dispute – “There has to be something to suggest that the assertion is sustainable, and it is open to the Court to reject the applicant's version of events if it is inherently implausible or if it is contradicted, or not supported, by contemporaneous documentation.”[32]For the reasons I have set out above I reject the Company’s case that these works are defective and that it has a cross claim sufficient to extinguish the petition debt. That view is supported by the limited costs of the remedial works, particularly when works falling outside the contract are removed. The assertion that Ms Parker makes that: “The current total of this set off is £29,076 but it is evident from the inspections that have been taking place that this will rise considerably higher” is not in my judgment sufficient.[33]Ms Parker also raised the Company’s concerns that the PC might not be able to pay any award of damages made against it (if the cross claim was to prove valid) as it is said to be an SPV with no other assets. No evidence has been adduced to support either of these points, but in any event the PC’s financial position is not a relevant factor in determining the Company’s application.

Conclusion

[34]I therefore dismiss the Company’s application. I would invite the parties to agree a form of order so that following receipt of any corrections I can hand down the judgment by email and approve the order. If agreement cannot be reached, then the parties should include with their corrections list a time estimate for any consequentials hearing and availability for a hearing. If the only disputed issue is the principle, basis or summary assessment of costs then I am happy to receive written submissions only.