Supreme Court hands down judgment confirming wide scope of s423 of the Insolvency Act 1986

In El-Husseiny and another v Invest Bank PSC [2025] UKSC 4, the Supreme Court has clarified that the scope of section 423 of the Insolvency Act 1986 (“the Act”) encompasses transactions where a debtor arranges for his or her company to transfer a valuable asset for no consideration or at an undervalue. By looking at both the language of section 423(1) and the purpose of the section, the Court concluded that a “transaction” for the purposes of section 423(1) is not confined to a dealing only involving an asset directly owned by the debtor as to do so would require reading exclusionary words into the section which are not there.  In dismissing the appeal, the Supreme Court agreed with the straightforward reading of the section adopted by the courts below. 

This decision confirms the wide scope of section 423 of the Act, and, given the analysis of the interrelationship between sections 423, 238 and 339 of the Act, also provides useful guidance as to how these provisions operate.  In doing so, the Court has emphasised the importance of giving effect to the purpose of the section of the Act of preventing attempts by debtors to defeat their creditors. 

In short, section 423 of the Act will be engaged whenever assets are moved beyond the reach of creditors, whether this is carried out directly by the debtor, or by his or her arrangement via a company which he or she owns and controls.  In addition, where the assets are transferred by a company, it will not be a defence for the debtor to claim there has been no transfer at an undervalue because they have not disposed of their shares in the company. A transfer at an undervalue that reduces the value of assets owned by a company and in turn reduces or extinguishes the value of the shares held by the debtor is an arrangement that prejudices the creditors’ ability to enforce their debts.  Accordingly, recourse will be available to creditors under section 423 and potentially other related sections of the Act, depending on the facts.

This judgment will be of interest to officeholders and creditors.  There is nothing new about the dance between debtors attempting to shield their assets from their creditors and make themselves judgment-proof, and the countervailing legal protections against this – the judgment traces this to Roman law and then down through many European legal systems.  In this decision, the Supreme Court continues to affirm that in England, modern tricks will not allow debtors to sidestep their obligations to their creditors under the law. 

Procedural History

Invest Bank PSC (the “Bank”) obtained a judgment amounting to approximately £20m against Ahmad Mohammad El-Husseini (“Mr El-Husseini”) in the United Arab Emirates (“the UAE”). The judgment had been obtained against Mr El-Husseini in connection with personal guarantees given by him regarding credit facilities provided by the Bank to two companies incorporated in the UAE (the “UAE Judgment”). The Bank separately succeeded in obtaining a judgment in the English courts that the UAE judgment could be enforced against assets in England and Wales.

Following the handing down of the UAE Judgment, the Bank alleged that Mr El-Husseini had transferred various assets within England and Wales to family members; principally his son, Ziad Ahmad El-Husseini. The assets consisted of two properties near Hyde Park, the proceeds of the sale of a third property and the shares of an English-company (the “Assets”). These transfers were alleged to have been carried out for minimal, and in some cases zero, consideration. Note that legal title to certain of the properties was not held by Mr El-Husseini; instead they were held by a company (Marquee Holdings Limited (“Marquee”)) which was itself beneficially owned and controlled by Mr El-Husseini.

The Bank subsequently commenced legal proceedings in England and Wales against Mr El-Husseini and the recipients of the Assets (together the “Defendants”), asserting that the transfers of the Assets were deliberate attempts by Mr El-Husseini to prevent enforcement of the UAE Judgment. The Bank sought a declaration that the transfers be set aside pursuant to section 423 of Act, on the basis that they were transactions at an undervalue which were designed and carried out to place the Assets beyond the reach of creditors.

First Instance Decision

In its judgment dated 13 May 2022, the High Court considered whether, even if the transfers of the Assets were transfers at an undervalue designed to defraud creditors, such transfers were capable of falling within the scope of section 423 of the Act. The reason this issue had to be considered was that, save for one of the properties, the transfers of the Assets were made by companies beneficially owned by Mr El-Husseini and not by Mr El-Husseini in his individual capacity.

In his judgment, Andrew Baker J determined that transfers of assets could fall within the scope of section 423 of the Act even if they were not personally or directly owned by the debtor at the time of the transfer. However, the court found that the transferor needed to be an individual for section 423 to apply; transfers of assets effected by the debtor on behalf of the company could not be treated as transactions at an undervalue for the purposes of section 423 of the Act unless the debtor had taken steps that go beyond those which amount to steps taken by the company.  This would depend on the facts.

In this case, Mr El-Husseini was not acting in a personal capacity when transferring the Assets; he was acting on behalf of the company, and for section 423 of the Act to be engaged there needed to be a transfer made in a personal capacity. The court therefore determined that the transfers of the Assets could not be challenged or set aside under section 423 of the Act.

Court of Appeal

Each of the parties sought to appeal the High Court’s judgment:

1. The Bank appealed on the issue of whether a transfer of assets at an undervalue by a company (rather than an individual) could fall within the scope of section 423 of the Act (the “First Issue”).
    
2. The Defendants appealed in respect of the question of whether there can be a transaction at an undervalue if the individual debtor has no beneficial interest in the relevant assets at the time of the transfer (the “Second Issue”).

Permission to appeal on these points was granted. 

In May 2023, the Court of Appeal handed down its judgment, in which it determined that:

1. In respect of the Second Issue, for section 423 of the Act to be engaged it was not required that the debtor have a direct or beneficial interest in the relevant assets. The provision could apply where there was a transaction at an undervalue, even where the debtor had no beneficial interest in the assets. The Defendants’ appeal was therefore dismissed.
    
2. Regarding the First Issue, the transfers of Assets held by companies beneficially owned by Mr El-Husseini were capable of being considered transactions at an undervalue by Mr El-Husseini within the scope of section 423 of the Act, even though the transfers were entered into by a company (controlled by Mr El-Husseini). The Bank’s appeal was consequently allowed. The Court of Appeal stressed that this was a narrow issue of law and amounted to no more than saying that the acts of a debtor are capable in law, without more, of falling within the terms of section 423 of the Act. Whether they do so, and whether there are other facts which are more than simply the fact that the company acts through its director, would have to be established at trial.

Supreme Court

Issue to be determined

On 18 October 2023, the Defendants were granted permission to appeal the decision of the Court of Appeal on the First Issue to the Supreme Court.

The singular issue for the Supreme Court to determine was whether the Court of Appeal was correct to determine that there could be a transaction at an undervalue, for the purposes of section 423 of the Act, when the assets subject to the transfer were not owned by the debtor, but by a company beneficially owned or controlled by him. In considering that issue the Supreme Court referred to, as a representative example, the transfer of one of the properties held by Marquee (“9 Hyde Park”).

The appeal was heard in May 2024. Subsequently in November 2024, and therefore unknown to the Supreme Court at the time of hearing the appeal, the High Court handed down a judgment (in separate proceedings) determining that on the evidence, Mr El-Husseini had not transferred the Assets with the intention of making it more difficult for the Bank to enforce the UAE Judgment. Notwithstanding this, the Supreme Court continued to hand down its judgment in order to provide clarity on the scope of section 423 of the Act.

Judgment

Judgment was handed down by the Supreme Court on 19 February 2025. The justices were unanimous in their decision to dismiss the appeal, with Lady Rose and Lord Richards giving the leading judgment.

Following an analysis of section 423, the Supreme Court determined that on a straightforward reading of the provision, there was no requirement for the asset subject to the transfer to be owned by the debtor. On the facts, Mr El-Husseini had arranged with the third party (his son, Ziad) that his company (Marquee) would transfer 9 Hyde Park for no consideration. For the purposes of section 423 of the Act, this constituted Mr El-Husseini entering into a transaction (through his beneficially owned company) with a third party on terms whereby he received no consideration.

The Supreme Court went on to consider whether the transfer of 9 Hyde Park by Marquee did in fact put Mr El-Husseini’s assets beyond the reach of his creditors, as required by s.423(3)(a) of the Act. The Court determined that a transfer of assets by a company (such as Marquee) for inadequate consideration would have the effect of reducing that company’s assets and therefore reducing or extinguishing the value of the debtor’s shares in that company. The transfer would also remove an asset of the beneficially owned company that creditors may seek to enforce against. The Court therefore determined that a transfer of assets to third parties for no consideration, such as that procured by Mr El-Husseini through his company, was “an obvious way in which a debtor may seek to defeat his creditors” ([36]). It was held that the transfer either put assets beyond the reach of creditors (see section 423(3)(a) of the Act), or otherwise undoubtedly prejudiced the interests of creditors (see section 423(3)(b) of the Act).

Based upon the analysis above, the Supreme Court reached the same conclusion as the High Court and Court of Appeal; that in the event a debtor procures a beneficially-owned company transfer assets to third parties for no or inadequate consideration, with the intention of placing assets beyond the reach of the debtor’s creditors, this will constitute a transaction at an undervalue. Put more simply, section 423 of the Act will be engaged irrespective of whether the assets subject to the transfer are owned by the individual debtor, or by a company beneficially owned and controlled by the debtor. The Defendants’ appeal was therefore dismissed.