Does section 423 of the Insolvency Act 1986 extend to a transaction where a debtor arranges for a company he owns to transfer its assets to a third party for no consideration? In El-Husseiny v Invest Bank PSC [2025] UKSC 4, the Supreme Court unanimously held that it does. The decision confirms that the statutory machinery for unwinding transactions defrauding creditors cannot be defeated by the simple interposition of a corporate personality.
The facts were egregious. The respondent bank sought to enforce judgments of approximately £20 million against the appellant debtor, Mr El-Husseiny. The bank alleged that the debtor had arranged the transfer of valuable assets to his son, Ziad. Crucially, the legal and beneficial title to these assets resided not in the debtor personally, but in companies he owned and controlled. The transfer was effected by those companies for no consideration. The economic result was a diminution in the value of the debtor’s shareholding in the companies, thereby prejudicing the bank’s ability to enforce its judgment against him to the tune of £4.5 million.
The issue was whether such an arrangement constituted a “transaction” within the meaning of section 423(1). The appellant argued that the section required the disposal of property beneficially owned by the debtor himself.
Lady Rose and Lord Richards (with whom Lords Hodge, Hamblen and Stephens agreed) dismissed the appeal. They held that the statutory definition of “transaction” is broad enough to encompass an arrangement where a debtor causes a company he owns to transfer assets at an undervalue.
It is suggested that this conclusion is manifestly correct. The appellant’s case relied on a series of textual contortions which, had they succeeded, would have introduced an incoherent lacuna into the insolvency regime.
The textual analysis
The appellant’s primary submission - that a “transaction” under section 423 implies a gift, and therefore requires the transfer of a proprietary interest by the donor - was rightly rejected. As Lady Rose observed, forcing the statutory definition into the common law framework of gifts is a strained reading unsupported by authority (at [43]). As noted in Goode on Principles of Corporate Insolvency Law, while a gift involves a transfer, a transaction for no consideration need not. A surrender of rights or the release of a debt falls equally within the mischief of the section.
The appellant further argued that the bona fide purchaser defence in section 425(2) presupposed a transfer by the debtor personally. The defence protects a person who acquires an interest “from a person other than the debtor”. The appellant contended this created a logical conundrum: if the debtor never owned the asset, the recipient (Ziad) would technically be acquiring it from “a person other than the debtor” (the company), potentially triggering the defence even if he gave no value. Lady Rose correctly dismissed this as a drafting quirk rather than a definitional limit. In any event, on the facts, Ziad gave no consideration and thus could not avail himself of the defence (at [52]).
Purpose and prejudice
The Court’s analysis of the statutory purpose was equally robust. The requirement in section 423(3) is that the transaction be entered into for the purpose of putting assets beyond the reach of a claimant or prejudicing their interests. The appellant sought to read in an implied requirement that the “assets” in question must be property of the debtor.
The Court rightly accepted the submission of Mr Paul McGrath K.C. that the relevant “prejudice” is the diminution in the value of assets available for enforcement - in this case, the debtor’s shareholding. Whether the debtor strips value from his estate by disposing of personal assets or by hollowing out a company he owns is economically indifferent. To distinguish between them would be to elevate form over substance in a manner the statute does not compel.
The wider context
The decision aligns the statutory remedy with the common law’s treatment of corporate evasion. In Prest v Petrodel [2013] UKSC 34, the Supreme Court held that the corporate veil may be pierced where a person under an existing legal obligation deliberately frustrates enforcement by interposing a company under his control. El-Husseiny confirms that section 423 operates as a statutory parallel to the evasion principle, ensuring that the sophisticated debtor cannot hide behind the corporate structure to defraud creditors. The judgment is a salutary warning that the court will look to the economic reality of value extraction, not just the legal mechanics of the transfer.
