Closing loopholes to further protect creditors: Section 423 Insolvency Act 1986 and El-Husseiny

The much-anticipated UK Supreme Court decision in El-Husseiny and another v Invest Bank PSC [2025] UKSC 4 was released recently, providing much-needed clarity to creditors and officeholders about the application of section 423 Insolvency Act 1986 to transactions involving debtors and company structures. Creditors and officeholders alike will be pleased with this decision, as the Court determined that the language and purpose of section 423 are such that a ‘transaction’ is not confined to dealing with an asset owned by the debtor. It also extends to transactions where the debtor arranges for a company which they own to transfer a valuable asset for no consideration or at undervalue.

Facts

In July 2021, Invest Bank PSC (the Bank) commenced High Court proceedings against Mr Ahmad El-Husseini (Mr El-Husseini) to enforce judgments obtained against him in Abu Dhabi equating to approximately £20m. The judgment debt arose in connection to guarantees that Mr El-Husseini gave in respect of credit facilities granted by the Bank to two companies (to which he was connected).

The Bank identified several assets in England that it wished to enforce the judgments against, including a property in central London and the company that owned it (the London Property). It sought relief under section 423 Insolvency Act 1986 alleging that Mr El-Husseini had arranged for these assets to be transferred to others (some to one or more of his sons and some to companies or trusts) for no consideration at all, in order to put them beyond the Bank’s reach (the Claim).

Section 423 Insolvency Act 1986 provides that a court may grant relief where a debtor has entered into a transaction at undervalue (most commonly by making a gift to another or on terms in which the debtor receives no consideration or on terms in which the debtor receives significantly less than the value, in money or money’s worth, of the consideration they themselves provided) on the application of a victim of the transaction or officeholder. The court must be satisfied that the debtor entered into the transaction for the purpose of putting assets beyond the reach of creditors or to otherwise prejudice their interests. The court has wide powers to (i) restore the position to what it would have been had the transaction not occurred and (ii) protect the interests of those who are victims of the transaction.

Mr El-Husseini and two of his sons applied to set aside service of the Claim on the ground that it did not raise a serious question to be tried.

In respect of the London Property, they said that its transfer could not fall within section 423 because Mr El-Husseini did not own it; it was owned, and transferred, by the company that owned it, Marquee Holdings Limited (Marquee). Mr El-Husseini was, however, the beneficial owner of all the shares in Marquee at the time of the transfer.

Trial at first instance

Mr Justice Baker determined two points of law relating to the interpretation of section 423.

First, the fact that assets were not legally or beneficially owned by a debtor but instead by a company owned or controlled by the debtor does not, in law, prevent the transfer from falling within the scope of section 423.

Second, a debtor does not enter into a transaction for the purposes of section 423 when all their actions are carried out in their capacity as a director or other organ of the company which owns and transfers the assets.

Mr El-Husseini appealed against Andrew Baker J’s decision on the first point, whilst the Bank appealed against it on the second point.

Court of Appeal

Singh, Males and Popplewell LJJ dismissed Mr El-Husseini’s appeal and allowed the Bank’s appeal. The Court held:

First, section 423 does not require a transaction to involve a transfer of assets which are beneficially owned by the debtor.  

Second, Mr El-Husseini’s acts are capable of falling within the terms of section 423 whose language is very broad. Moreover, the Bank’s interpretation would also better serve the purpose of the legislation, which could otherwise be easily frustrated through the use of a limited company to achieve the debtor’s purpose of prejudicing the interests of his creditors.

Mr El-Husseini appealed to the Supreme Court only on the first point.

Supreme Court decision

Hodge, Hamblen, Stephens, Rose and Richards LJJ dismissed Mr El-Husseini’s appeal.

On the assumed facts, Mr El-Husseini had arranged with his son that he would procure Marquee to transfer the London Property to his son, who would give no consideration for the transfer.

The Court held that, on a straightforward reading of section 423(1), together with the definition of “transaction” in section 436(1), the transaction involving the London Property fell within the terms of section 423 and “that there was no requirement for Mr El-Husseini himself to dispose of property belonging to him” ([33]).

It further held that a “transfer by a solvent company owned by a debtor of a valuable asset for no or inadequate consideration necessarily results in a diminution in the value of the debtor’s shares in the company […] [and] it prejudices the creditor’s ability to enforce the judgment. It also removes an asset of the company that might otherwise have become available for enforcement of the judgment debt against the debtor” ([35]). The Court concluded this to be “an obvious way in which a debtor may seek to defeat his creditors” ([36]).

What this decision means for creditors and officeholders

Creditors and officeholders can be confident that section 423 Insolvency Act 1986 is not limited to transactions involving debtors transferring assets directly or beneficially owned by them. It applies also to transactions where a debtor uses a company structure to transfer assets (which the debtor themselves may not own) at an undervalue or with the intention of putting those assets beyond the reach of creditors.

It also serves as a warning to such debtors who think they may successfully evade the law’s grasp by such creative corporate arrangements.

For more information, please contact the authors