Invest Bank PSC v Ahmad Mohammad El-Husseini & Ors

The Court of Appeal considered two preliminary legal issues under section 423 of the Insolvency Act 1986: (1) whether a debtor can be regarded as having "entered into" a transaction for the purposes of s.423 where the relevant acts were performed by a company which the debtor owned or controlled; and (2) whether a "transaction" under s.423 can exist where the subject-matter disposed of was not beneficially owned by the debtor. The court held that the language of s.423 is wide enough to permit a person who causes a company which he controls to effect a transfer at an undervalue to be treated as having entered into a transaction for the purposes of s.423, subject to the facts of the individual case and proof at trial. The court also held that s.423 is not confined to transfers of assets beneficially owned by the debtor and that the statutory language, purpose and context do not require such a restrictive reading.

This is an appeal from the Commercial Court (Andrew Baker J, [2022] EWHC 894 (Comm)). The Bank sought primary debt claims against Mr Ahmad and secondary remedies in respect of certain assets (two London properties, the proceeds of sale of a third London property, UK company shares and cash) alleged to have been transferred or concealed so as to place them beyond the Bank's reach. The Bank pleaded declarations of beneficial ownership in respect of some assets and orders under s.423 of the Insolvency Act 1986 in the alternative or in addition.

The proceedings were at a preliminary stage and concerned applications to amend pleadings and service out of the jurisdiction and related jurisdictional and reverse summary judgment challenges. The trial judge decided two pure points of law: (i) whether a debtor can be treated as having entered into a transaction under s.423 where the transfer was effected by a company he owned and controlled but he acted only as the instrument of the company; and (ii) whether s.423 requires that the subject-matter of the transaction be beneficially owned by the debtor.

The Court of Appeal addressed statutory construction and the purposive approach. It concluded:

• On issue (i): the term "enters into" in s.423(1) can cover cases where a person causes a company which he controls to enter into a transaction at an undervalue; the separate legal personality of a company does not automatically prevent the debtor's factual acts from having legal significance for s.423. Whether the particular factual acts amount to the debtor having "entered into" a transaction is a question of fact for trial.
• On issue (ii): the text, context and purpose of s.423 do not require that the disposed property be beneficially owned by the debtor. The statutory definition of "transaction" (s.436) is broad and the purpose of Part XVI (debt avoidance) supports a wide construction so as not to frustrate the statute's protective purpose. The Court rejected reliance on authority about the scope of a bankrupt's estate (notably Clarkson) as determinative of s.423's reach.

The result is that the Bank's appeal on the first issue was allowed (it may pursue its pleaded case that a debtor who causes his company to transfer assets can be treated as having entered into a transaction under s.423), and the Defendants' appeal on the beneficial ownership point was dismissed.

Allowed in part. The Court allowed the Bank's appeal on the point that the words of s.423 can, in an appropriate factual context, cover a person who causes a company which he controls to enter into a transaction at an undervalue; whether the facts in any case satisfy that test is a matter for trial. The Court dismissed the Defendants' appeal that s.423 requires the subject matter of the transaction to be beneficially owned by the debtor, holding that the statute is not so confined and should be read purposively.

On appeal from the High Court (Commercial Court), Andrew Baker J, [2022] EWHC 894 (Comm). This Court (EWCA Civil) delivered judgment on 19 May 2023, allowing the Bank's appeal on the first legal issue and dismissing the Defendants' appeal on the beneficial ownership issue.