Invest Bank P.S.C v Ahmad Mohammed El-Husseini & Ors

Section 423 of the Insolvency Act 1986 requires proof of a transaction at an undervalue and a subjective purpose of prejudicing an actual or potential creditor. The purpose must be established separately for each transaction. Foreseeable prejudice is insufficient unless it was also intended.

Where the case depends on inference and alleges serious or discreditable conduct, the primary facts must be clearly pleaded and proved by cogent evidence. Objective financial circumstances may be important evidence of the debtor’s subjective state of mind. A party’s absence or failure to disclose documents does not justify a generalised adverse inference.

The claimant bank brought claims under section 423 of the Insolvency Act 1986 concerning transfers of shares, property and money by Ahmad Mohammed El-Husseini to family members, companies and a discretionary trust. The bank alleged that the transfers were made at an undervalue to put assets beyond the reach of claims under Ahmad’s personal guarantees for facilities provided to Tadamun UAE and Commodore UAE.

The principal issues were whether the bank’s pleaded case permitted it to rely on alleged financial difficulties at Commodore UAE in late 2016 and early 2017, whether adverse inferences could be drawn from Ahmad’s non-participation, and whether the statutory purpose was proved for each transaction.

The claim was dismissed against all defendants. Virtue Trustees (Switzerland) A.G. had no liability to the bank.

1. Section 423 of the Insolvency Act 1986 imposes three cumulative requirements: a transaction entered into by the debtor, a transaction at an undervalue, and the statutory purpose of putting assets beyond the reach of a claimant or otherwise prejudicing its interests. The purpose is subjective, must be proved separately for each transaction, and need not be the sole or dominant purpose. Prejudice which is merely a consequence is insufficient.
2. The bank’s case was inferential and alleged serious wrongdoing. It therefore had to plead the primary facts said to support the inference and prove them by cogent evidence. The bank could not introduce, through a reply or closing submissions, a new case that Commodore UAE was balance-sheet insolvent or suffering a liquidity crisis. That would have required further pleading, disclosure and expert evidence.
3. The objective financial position of Commodore UAE was relevant evidence of Ahmad’s likely state of mind. The court found that Commodore UAE was not shown to be insolvent or in serious financial difficulty in 2016 or early 2017. The bank continued lending, upgraded its credit rating and treated the account as standard. Tadamun benefited from Commodore UAE’s financial support.
4. An adverse inference is a factual inference, not a penalty. The court must identify the precise inference, find a reasonable evidential basis for it, and assess all relevant circumstances, including availability of the witness, the evidence expected, other evidence and the issue’s significance. Ahmad’s non-participation did not justify the general inference sought.
5. The bank failed to prove the statutory purpose in respect of the Commodore Netherlands and Global Green shares, 32 Hyde Park, the Meribel proceeds, the Marquee arrangements, or the Medstar/Mistar transaction. The evidence instead supported tax, estate-planning, family, or concerns relating to Sheikh Tahnoon. The Category 2 claims were also unsustainable.