On 19 February 2025, the Supreme Court delivered judgment on the matter of El-Husseiny and another v Invest Bank PSC [2025] UKSC 4, dismissing the appeal. The decision has offered valuable clarity on the interpretation of section 423; 238 and 339 of the Insolvency Act 1986 (“the Act”).
Background
This matter concerned Mr. Ahmad El-Husseini and his sons, Ziad Ahmad El-Husseiny and Alexander Ahmad El-Husseiny; and Invest Bank PSC. The Bank obtained judgments in Abu Dhabi against Mr. El-Husseini for AED 96 million (approximately £20 million) due to guarantees he provided for credit facilities granted to companies connected with him.
The Bank sought to enforce these judgments in the UK, identifying valuable assets, including properties in London, which they claimed Mr. El-Husseini had transferred to others to evade the debt.
The Bank issued legal proceedings at the Commercial Court, a division of the High Court in London. The claims included an allegation that the transfer of a property at 9 Hyde Park Garden Mews, London (“the Property”), valued at approximately £4.5 million, to Mr. Husseini’s son, Ziad, for no consideration, constituted a transfer at an undervalue. It was claimed that this transaction was carried out with the intent of placing assets beyond the reach of Mr. Husseini’s creditors, contrary to section 423 of the Insolvency Act 1986 (“the Act”).
Mr Husseini held no legal or beneficial interest in the Property. The Property was owned by Marquee Holding Limited. Mr. El-Husseini did however own all the shareholding in the company and as shareholder caused the company to effect the transfer to his son. The Bank argued that the transaction effectively wiped out the value of Mr. Husseini’s shareholding in Marquee, to the detriment of his creditors. Mr Husseini’s case was that the transaction fell outside the scope of section 423, because he did not transfer any property that he himself owned. The Bank’s response was that no such requirement was set out in the Act and therefore the transaction could be caught by the regime.
Section 423 of the Insolvency Act 1986
Section 423 of the Act provides that the court may unwind a transaction that has defrauded creditors. Such a transaction must first be determined to be at an undervalue, namely that either (a) They make a gift or receive no consideration for the transaction; (b) The transaction is in consideration of marriage or civil partnership; (c) The consideration received is significantly less than what they provided. If this is proved, the court will then only make an order under this section if it can be proven that the purpose of the transaction was to: (a) Put assets beyond the reach of a potential claimant, or (b) Prejudice the interests of such a person regarding their claim.
High Court Decision
The Commercial Court found that the fact that the assets were not held by Mr Husseini did not itself mean that the transaction fell outside of the scope of section 423; however the court refused to allow the Bank’s pleaded case to proceed on a different ground – that Mr Husseini had not acted in his personal capacity but rather only on behalf of Marquee. The Bank appealed this decision. The question for the Court of Appeal was whether the transfer of assets at an undervalue by a company, rather than an individual, could fall within the scope of section 423.
Court of Appeal Decision
The Court of Appeal upheld the Bank’s appeal. It also dismissed the Respondents’ cross-appeal challenging the application of s.423. The question raised by the cross-appeal was whether there can be a transaction at an undervalue if the debtor had no beneficial interest in the relevant asset at the time of the transfer. Mr Husseini et al. appealed.
Supreme Court Issues
The Supreme Court examined whether the Court of Appeal correctly interpreted section 423 by analysing the following issues (1) whether a person can ‘enter into’ a transaction on behalf of a company; and (2) whether a ‘transaction’ under s.423 can involve an asset not legally or beneficially owned by the debtor.
Supreme Court Decision
The Supreme Court unanimously dismissed the Husseini appeal. It clarified that a “transaction” under s.423(1) is not limited to dealings with assets owned by the debtor but includes transactions such as the one highlighted in this case. Section 423 can apply when a debtor arranges for their company to transfer an asset owned by the company.
Conclusion
This judgment clarifies that a debtor cannot use the retention of company shares as a defence against a section 423 claim if they procured an undervalued transaction that devalues those shares.
Rose LJ and Richards LJ also provided the following: “We find it impossible to think of circumstances in which a transaction was held to be within section 423(1) when it would not also appropriately fall within section 238 or 339. In any event, we see no reason as a matter of policy or purpose why a transfer by a company owned by an insolvent company or individual shall not fall within those sections.” It follows that this broad interpretation of “transaction” also applies to section 238 of the Act (transactions at an undervalue for companies in administration or liquidation) and section 339 of the Act (transactions at an undervalue for individuals in bankruptcy).
This decision offers clarity on the interpretation of these sections. Importantly for insolvency practitioners and creditors, it eliminates a potential loophole that sophisticated debtors might have otherwise exploited to conceal their assets.
How we can help
IWG’s insolvency team act on behalf of directors and insolvency practitioners on all aspects of the company and bankruptcy insolvency process, including investigations by Insolvency Practitioners on transactions of the kind outlined in this article. For further information and assistance, please contact Michael Clinch on 020 7845 7400 or email michaelclinch@iwg.co.uk Ingram Winter Green has offices in London.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.