El-Husseiny and another v Invest Bank PSC

A transaction at an undervalue under section 423 of the Insolvency Act 1986 need not dispose of property owned by the debtor. It includes an arrangement under which the debtor procures a company owned by the debtor to transfer a valuable asset for no consideration or at an undervalue.

The transaction must diminish the value of assets available to meet creditors’ claims. The claimant must also prove the debtor’s subjective purpose of putting assets beyond a claimant’s reach or otherwise prejudicing the claimant. The purpose requirement informs the construction of the transaction requirement but does not replace it.

The Bank obtained judgments in Abu Dhabi against Mr El-Husseini for approximately £20 million. It alleged that he had arranged for valuable assets to be transferred beyond its reach and sought relief under section 423 of the Insolvency Act 1986.

On the assumed facts, Mr El-Husseini owned all the shares in a company which owned a London property. He arranged for the company to transfer the property to his son for no consideration, thereby reducing the value of his shares.

Andrew Baker J held that section 423 did not require the transferred asset to be beneficially owned by the debtor: [2022] EWHC 894 (Comm). The Court of Appeal upheld that conclusion: [2023] EWCA Civ 555. The central issue was whether section 423 could apply when the debtor procured an owned company to transfer its asset, although the debtor did not personally own that asset.

1. The appeal was dismissed unanimously. A transaction within section 423(1) of the Insolvency Act 1986 is not confined to a dealing with an asset owned by the debtor. Lady Rose and Lord Richards gave the joint judgment, with which Lord Hodge, Lord Hamblen and Lord Stephens agreed.

2. Section 436(1) defines a transaction broadly to include a gift, agreement or arrangement. On the assumed facts, the debtor entered into an arrangement with his son by agreeing to procure his company to transfer its property without consideration. The debtor’s undertaking was valuable consideration provided by him. Had the son promised to pay full value to the company, that reciprocal undertaking could have constituted equivalent consideration provided to the debtor for section 423 purposes.

3. A transfer by a solvent company of a valuable asset without adequate consideration necessarily reduces, and may destroy, the value of the debtor’s shareholding. There must be a depletion or diminution in the value of assets available to meet claims against the debtor. That requirement does not mean that the transaction must directly dispose of the debtor’s own property.

4. Section 423 requires two elements. Section 423(1) identifies the transaction at an undervalue, while section 423(3) requires the debtor’s subjective purpose of putting assets beyond a claimant’s reach or otherwise prejudicing the claimant. Each element must be established independently. The statutory purpose expressed in subsection (3) nevertheless informs the proper construction of subsection (1), and does not justify reading an unstated proprietary limitation into it.

5. The references to gifts, consideration and the protections for purchasers in section 425(2) did not imply that the debtor must transfer personally owned property. Transactions for no consideration extend beyond gifts and may include a gratuitous forbearance or waiver of debt. The wide remedial discretion also permits appropriate protection or compensation where a transferee has provided value.

6. The substantially similar descriptions of transactions at an undervalue in sections 238, 339 and 423 should bear a common meaning. Clarkson v Clarkson was confined to its unusual facts and did not establish that every such transaction must concern property belonging to the debtor. The statutory regimes governing transactions at an undervalue and preferences are distinct, although one transaction may fall partly within both.

1. United Kingdom Supreme Court: Dismissed the appeal and affirmed the Court of Appeal’s conclusion that section 423 was not confined to transactions involving assets owned by the debtor: [2025] UKSC 4.
2. Court of Appeal: Dismissed the appellants’ appeal on the beneficial-interest issue and allowed the Bank’s appeal on the separate capacity issue: [2023] EWCA Civ 555, [2024] KB 49.
3. High Court: Andrew Baker J held that ownership of the transferred asset by a company rather than the debtor did not prevent section 423 from applying, but ruled against the Bank on the capacity issue: [2022] EWHC 894 (Comm), [2022] BPIR 1503.
4. Subsequent Commercial Court trial: Calver J dismissed the Bank’s claims because the alleged creditor-prejudicing purpose had not been proved. That later decision did not determine the construction issue before the Supreme Court: [2024] EWHC 2976 (Comm).