INVEST BANK P.S.C. v AHMAD MOHAMMAD EL-HUSSEINI & ORS.

For the purposes of Insolvency Act 1986, a debtor does not enter into a transaction merely because a company acts through him. The separate legal personality of the company remains significant. However, the debtor may personally enter into a transaction where he takes additional steps, such as agreeing an arrangement with a transferee or other participant, pursuant to which the company transfers an asset at an undervalue. Section 423 is not confined to assets beneficially owned by the debtor. It may apply to an arrangement concerning an asset owned by a company controlled by him, provided the debtor personally entered into the relevant transaction and had the statutory purpose. The merits threshold for interlocutory applications is assessed by reference to the pleaded case, unless an essential factual allegation is demonstrably untrue or unsupportable.

The Bank pursued claims arising from alleged UAE judgment debts against Ahmad Mohammad El-Husseini and related claims concerning London properties, company shares and money. It sought declarations of beneficial ownership, relief under section 423 of the Insolvency Act 1986, permission to amend, permission to serve out of the jurisdiction, and related jurisdictional or summary judgment orders.

The applications concerned whether the pleaded claims raised a serious issue to be tried. The central questions included whether Ahmad had entered into transactions where companies controlled by him transferred assets at an undervalue, whether section 423 could apply to company-owned assets, and whether the pleaded trust claims were arguable.

1. Outcome. The court granted permission to amend only a limited section 423 claim concerning the alleged transfer of up to US$15 million by Medstar to Mistar. The section 423 claims concerning 9HP, 18HP, the alleged transferred Marquee shares, the UK Shares and the Commodore Netherlands shares did not raise a serious issue to be tried. Trust claims concerning 32HP and 9HP were arguable in limited forms; the trust claim concerning the UK Shares was not.
2. The applicable merits threshold was whether the claim had a real rather than fanciful prospect of success. The court examined the claim as pleaded or proposed, except where an essential factual allegation was demonstrably untrue or unsupportable. The Bank could not rely on an unpleaded alternative case merely because it might later formulate one.
3. Company ownership or control alone did not make a company’s transfer a transaction entered into by its shareholder or controller. Where the individual merely acted as the company’s instrument, the transaction was the company’s. But additional personal conduct, including an arrangement agreed with a transferee or other participant, could amount to a transaction entered into by the individual. Section 436’s inclusion of an agreement or arrangement supported that conclusion.
4. Section 423 was not limited to assets beneficially owned by the debtor. The statutory language, including the available relief under section 425 and the protection for good-faith recipients of interests acquired from persons other than the debtor, permitted arrangements concerning assets owned by a company controlled by the debtor. The debtor nevertheless had to have personally entered into the relevant transaction.
5. The pleaded allegations that transfers occurred because companies were owned or controlled by Ahmad, or were caused or directed by him on that basis alone, were legally insufficient. The alleged family or other arrangements were not adequately particularised for the property and share claims. The limited US$15 million allegation was sufficiently arguable because the attempted payment, the incorporation and ownership of Mistar, the surrounding asset-protection allegations and the unexplained failure of the first payment route together supported a realistic inference of a later transfer by arrangement.
6. The 32HP and 9HP trust claims could proceed only on the basis of inferred express trusts declared by the transferees, with the statutory writing requirement relevant to 32HP. The UK Shares claim lacked a credible basis for inferring that the Sons agreed to hold the shares for Ahmad.