El-Husseiny & Anor v Invest Bank PSC

Factual and Procedural Background

Company A obtained Abu Dhabi judgments worth approximately £20 million against Appellant 1 (the judgment-debtor). Seeking to enforce those judgments in The City, Company A alleged that Appellant 1 had organised a series of asset transfers designed to defeat enforcement. Relief was sought under section 423 of the Insolvency Act 1986 (“IA 1986”).

The proceedings began in July 2021 in the High Court. Company A secured a domestic freezing order and default judgment confirming Appellant 1’s liability. Appellant 1 and two of his sons (Appellant 2 and Appellant 3) applied to set aside service of the section 423 claim, raising two preliminary points:

• Beneficial Interest Point – whether section 423 applies only to assets beneficially owned by the debtor.
• Capacity Point – whether steps taken by the debtor solely in a director’s capacity are excluded.

Judge Baker rejected the Beneficial Interest Point but upheld the Capacity Point. Both rulings were appealed. The Court of Appeal (Judge Singh, Judge Males and Judge Popplewell) dismissed the appeal on the Beneficial Interest Point and overturned the Capacity Point. Permission to appeal to the Supreme Court was granted to the appellants on the Beneficial Interest Point alone.

For illustration the Supreme Court focused on one transaction: Appellant 1, sole shareholder of Company B, procured Company B to transfer a London property (“[Property 1]”) worth about £4.5 million to Appellant 2 for no consideration, thereby reducing the value of Appellant 1’s shareholding and prejudicing Company A’s ability to enforce its debt.

Legal Issues Presented

1. Does section 423 IA 1986 apply only where the debtor disposes of property that he beneficially owns?
2. Can section 423 capture a transaction in which a debtor procures his wholly-owned company to transfer an asset for no or inadequate consideration, thereby diminishing the value of his shares and prejudicing creditors?

Arguments of the Parties

Appellants' Arguments

• Section 423 implicitly requires a transfer of an asset owned by the debtor; the wording “gift” and the use of “otherwise” in section 423(1)(a) import ownership as a prerequisite.
• The section’s references to receiving consideration “for him” and provided “by himself” indicate that the consideration must pass directly to or from the debtor.
• The bona fide purchaser protection in section 425(2) assumes the first recipient acquires property from the debtor, reinforcing the ownership requirement.
• A restrictive reading aligns sections 423, 238 and 339, ensuring consistent treatment of transactions at an undervalue across the statute and preventing overlap with preference provisions.
• Authorities such as the decision reported at [1994] BCC 921 support the view that only the debtor’s own property is within scope.

Company A's Arguments

• The statutory text contains no requirement that the debtor transfer his own property; “transaction” is broadly defined in section 436 to include any “agreement or arrangement”.
• Section 423(3) reveals the legislative purpose: to defeat schemes that prejudice creditors, irrespective of technical ownership.
• A diminution in the value of the debtor’s assets (e.g., shares) is sufficient; the court’s wide remedial powers and the limited bona fide purchaser defence guard against injustice.
• Comparative statutory provisions and case law show no policy reason to read in an ownership limitation.

Table of Precedents Cited

Court's Reasoning and Analysis

The Supreme Court (Judge Rose delivering the opinion concurred by Judge Richards, Judge Hodge, Judge Hamblen and Judge Stephens) adopted a text-first approach:

1. Statutory Language. Section 423(1), read with the expansive definition of “transaction” in section 436, covers any “agreement or arrangement”. There is no express requirement that the debtor dispose of his own property.
2. Purpose. Sub-section (3) makes clear that Parliament aimed to prevent schemes that prejudice creditors, whether or not legal title rests with the debtor. Implied limitations that defeat that purpose should not be inserted.
3. Rejection of Textual Arguments. The references to “gift”, “otherwise”, and “consideration” do not confine the provision to property held by the debtor. Nor does the structure of the bona fide purchaser defence in section 425(2).
4. Comparative Provisions. Sections 238 and 339 share the same wording for “transaction at an undervalue”. Reading ownership into section 423 would create unnecessary divergence and hinder the unified statutory scheme.
5. Precedent Distinction. Earlier authorities relied on by the appellants involved very different facts and did not articulate a universal ownership prerequisite.
6. Practical Effect. The transfer by Company B for no consideration indisputably diminished the value of the debtor’s shares, thereby prejudicing enforcement. Such arrangements are squarely within the mischief addressed by section 423.

Holding and Implications

APPEAL DISMISSED.

The Supreme Court confirmed that section 423 IA 1986 is not limited to disposals of assets beneficially owned by the debtor. Arrangements in which a debtor procures a controlled company to transfer assets for no or inadequate consideration fall within the statutory regime. The decision clarifies the scope of creditor-protection remedies and affirms a broad, purposive construction of section 423. The immediate effect is that Company A may continue to pursue section 423 relief in respect of the challenged transfers; more broadly, the judgment provides authoritative guidance for future avoidance actions but does not alter the statutory text or create new procedural requirements.