El-Husseiny and another (Appellants) v Invest Bank PSC (Respondent) UKSC/2023/0080

Section 423 (Transactions defrauding creditors) and by extension s238 and s339 (Transactions at an Undervalue) of the Insolvency Act 1986 (‘IA86’), are intended to include transactions that involve any assets that a debtor or company has control over and is not limited to those owned personally by the debtor or specifically by the company.

Practical application

This judgment clarifies that a “transaction” within the meaning of these legislative provisions, is not confined to dealings with assets owned directly by the party in question. Instead, they extend to an arrangement under which the debtor or an entity owned by him/her, transfers a valuable asset for no or inadequate consideration.

Background

• Invest Bank PSC (Bank) obtained a judgment in Abu Dhabi for circa £20m (Judgment) against Mr Ahmad El-Husseini (Ahmad) the father of the Ziad El-Husseini (Ziad) (together the Appellants).

• Significant UK assets were identified against which the Bank wanted to enforce the Judgment, including properties and shares

• For the purpose of considering the legal point on appeal, one asset (Property) was considered although several asset transfers were included within the claim.

• The Property in question was legally and beneficially owned by Marquee Holdings Limited (Marquee) and worth about £4.5 million.

• Ahmad was the beneficial owner of all the shares in Marquee (Shares).

• Ahmad arranged with Ziad for Marquee to transfer the Property to Ziad (Transfer)

• The Transfer took place for no consideration to either Marquee or Ahmad

• The Bank alleged that the Transfer had the effect of putting the Property beyond the reach of the Bank’s ability to enforce the Judgement and subsequently sought relief under s423 of IA86.

Decision

The High Court (HC) held that the Bank’s case, as pleaded, failed because the steps taken by Ahmad amounted to steps taken by Marquee and not in his own personal capacity (Capacity Point).

It was further held that whether assets were owned personally by the debtor, or by a company owned or controlled by them, it did not prevent the transfer from being included in the scope of s423 of IA86 (Ownership Point).

The Appellants appealed the HC’s ruling on the Ownership Point against the HC’s decision on the Capacity Point.

The Court of Appeal (CoA) dismissed the Appellants’ appeal and allowed the Bank’s appeal:

• Capacity Point – the Bank was permitted to amend its case to include steps taken by Ahmad in his personal capacity (rather than as an officer of Marquee)

• Ownership Point – there was no reason to restrict the meaning of the word “transaction” in s.423 IA86 to only those involving assets that are owned by “the debtor” (as defined in s.423(5) IA86.

The Appellants appealed the CoA decision on the Ownership Point.

The appeal to the Supreme Court (SC) concerned the question of whether s423 of IA86 can apply to a transaction where the debtor procures an entity that he/she controls, to transfer its asset, or whether the transaction falls outside of the scope of s423 of IA86 as the asset is not owned by the debtor directly.

The appeal was unanimously dismissed, confirming that the language and purpose of s.423(1) of IA86 clearly indicates that a transaction is not confined to assets owned by the debtor directly, but extends to the type where the debtor procures an entity owned by him/her to transfer the asset.

The SC found that s.423(1) of IA86 contained no requirement that a transaction must involve a disposal of property belonging to the debtor; a depletion or diminution of assets may occur through a transaction that does not involve the disposal of the debtor’s own property. A transfer by a 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 this instance, the value of Ahmad’s Shares had been diminished as a result of the Transfer.

Furthermore, since ss.238 and 339 of IA86 apply to transactions which are defined in substantially the same terms as s.423 of IA86, the SC was of the view that a transfer by an entity which is owned by an insolvent company or individual would also fall within those sections.

Judgement

El-Husseiny and another (Appellants) v Invest Bank PSC (Respondent) UKSC/2023/0080