In El-Husseiny v Invest Bank PSC [2025] UKSC 4, the Supreme Court considered whether section 423 of the Insolvency Act 1986 extended to a transaction involving a company owned by a debtor transferring a valuable asset for no consideration or at an undervalue.
The bank sought to enforce Abu Dhabi judgments against Mr El-Husseini, the debtor, in the UK for around £20 million in respect of credit facilities granted by the Bank to two companies connected with him. The bank alleged that Mr El-Husseini had arranged for assets (including a property at 9 Hyde Park Garden Mews) in the UK to be transferred to one of his sons (Ziad El-Husseini) in order to put them beyond the bank’s reach, or to reduce the value of his shares in the companies which owned them. Legal and beneficial title to the property was transferred to Ziad for no consideration. As such, Mr El-Husseini’s shareholding was correspondingly reduced in value, and the bank’s ability to enforce the judgments was adversely affected to the tune of £4.5 million.
The bank sought a remedy under section 423. This grants wide discretionary powers in respect of a individual who enters into transactions at an undervalue (or no value) for the purpose of putting assets beyond the reach of their creditors or other persons who are making, or may make, a claim against it. Unlike most of the vulnerable transaction measures (e.g. transactions at an undervalue and preferences), this remedy applies regardless of whether a company is in administration or liquidation, or not.
The issue on appeal was whether the transfer of the assets - belonging to, and effected by, the company owned and controlled by Mr El-Husseini - cannot be a “transaction” within the meaning of section 423(1) due to the separate legal personality.
Lady Rose and Lord Richards dismissed the appeal (with whom Lord Hodge, Lord Hamblen and Lord Stephens agreed). The Supreme Court held that there can be a “transaction”, under section 423, even though the assets were not beneficially owned by the debtor. Thus, it can extend to a type of transaction in which the debtor arranges for a company owned by him to affect the transfer for no consideration or at an undervalue.
In my view, this was an easy appeal. The approach of Lady Rose and Lord Richards (hereafter Lady Rose) was the preferred approach. Mr Daniel Warents, appearing for the appellants, had a very difficult take. He produced creative arguments focusing on minutiae which were ultimately specious for failing to account for the bigger picture and Occam’s razor.
The plain language of section 423
As a matter of statutory construction of the language of section 423, Lady Rose had no difficulty in finding that Mr El-Husseini’s transfer was within the broad definition of a “transaction” under section 423(1). Section 436(1), in turn, made clear a very broad conception vis-a-vis a “transfer”. It also did not help counsel of the appellants - including Mr Graham Virgo - that there was no express requirement for the debtor to dispose of property belonging to him. Furthermore, Lady Rose held (at [37]) that section 423 had to be understand in light of the mischief being addressed.
To my mind, it was very straightforward that the interpretation would be inconsistent with the appellant’s appeal, both purposive and textual. Afterall, the transfer did plainly prejudice the creditor’s ability to enforce the judgment (s. 423(3)(b)) and/or put the assets beyond the reach of the bank (s. 423(3)(a)).
The three textual contortions within sections 423—425
Mr Warents submitted three interesting textual analysis arguing the section 423 required the disposal of property belonging to the debtor.
Firstly, Mr Warents - relying on Spellman v Spellman [1961] 1 WLR 921 - sought to argue that the scope of “transaction” under section 423 ought to be understood as (1) a “person making a gift”; and, consequently, (2) like a gift, involved the transfer of a proprietary interest by the debtor. This was a difficult submission to make.
Lady Rose held (at [43]) that narrowing the concept of a “transaction” to a gift (giving rise to its particular legal significance) was a strained reading which was unsupported by authority or academic commentary. In my view, Her Ladyship was right to point out that there was no sense to forcing the notion of a “transfer” within the conceptual framework of gifts in law. Indeed, Her Ladyship noted that the reality was precisely the opposite. Relying on Goode and Rebecca Parry’s Transaction Avoidance in Insolvencies, Her Ladyship (at [43]) noted that ”while a gift, by definition, involves the transfer of an asset, transactions which provide for the debtor to receive no consideration do not necessarily entail the transfer of an asset”. This is plainly correct. The surrender of an interest in property must be a transaction too.
Secondly, Mr Warents then submitted that section 423(1)(a) can only properly operate in circumstances whereby property belonging to the debtor, as the subject matter of the transaction, was being transferred. He submitted that the operation of that section entailed a situation in which the property transfer did not “provide for him” to have received any consideration. This, he submitted, meant that “consideration” under this section could not apply in the general contractual sense (apropos good consideration provided to third parties). Thus, section 423(1)(a) was said to only operate if there was no consideration moving to the debtor which, in turn, required property only belonging to the debtor as being the subject of the transfer.
Lady Rose held (at [47]) that a “transaction” under section 423(1) may include unenforceable promises (agreeing slightly with Mr Warents). Therefore, Her Ladyship rationalised that the undertaking by Mr El-Husseini to transfer the property to Ziad for no consideration, as an unenforceable promise, was consideration (for the purposes of section 423).
Thirdly and finally, Mr Warents then submitted that the bona fide purchaser defence under section 425(2) necessarily entailed an assumption that the relevant transaction involved the transfer of an asset by the debtor. This is because the defence was limited to (1) an interest in property acquired “from a person other than the debtor” (s. 425(2)(a)) and (2) to a person who was not “a party to the transaction” with the debtor (s. 425(2)(b)). This presented a logical conundrum in the instant case. On the facts, Ziad could, if he had paid full value, have relied on the bona fide purchaser defence because Mr El-Husseini did not pass the property. And yet, as the most proximate person to the original transfer, it was submitted that the provision could only logically operate under the assumption that it required a transfer of asset by the debtor.
This was a subtle and clever argument. However, Lady Rose noted (at [52]) that if such an assumption was entertained by the drafter, then it would have been made expressly. To my mind, this seems to sidestep a lacuna. Her Ladyship did recognise that it “put a third-party recipient in a more favourable position than someone who receives property directly.” Yet, on the other hand, if full consideration were rendered, then the bank would have secured the value of the shares held by Mr El-Husseini against his debt. Those shares would reflect the property sale on the balance sheet. Therefore, as Her Ladyship pointed out (at [52]) “given that Ziad did not pay anything for the house, he is not in any position to mount a defence under section 425(2).” Perhaps not much of a lacuna then?
The purpose of section 423
With respect to the purpose under section 423(3), it must be shown to either (a) put “assets beyond the reach of a person who is making ... a claim against him”, or (b) “prejudicing the interests of such a person in relation to the claim”. Mr Warents read into section 423(1) an implied restriction to its purpose apropos the mischief being targeted. Lady Rose noted, (at [60]) the appellant’s statements of case initially “required a transfer of an asset beneficially owned by the debtor.”
With respect to the necessity of assets being transferred as a purpose, it was “diluted”, in the words of Lady Rose (at [60]), in respect of “the release of debt owed to the debtor or the surrender of an interest in property, whether gratuitously or at an undervalue” despite not being “property”. This has to be plainly correct.
With respect to the need of a transfer of property belonging to the debtor as a purpose, Lady Rose accepted Mr Paul McGrath’s KC submission on this point. The purpose had to account for the diminution in the value of assets available for enforcement of claims against the debtor (i.e. his shareholding). The plain reading of sections 423-425 did not expressly stipulate property belonging to the debtor as a prerequisite, and the fact that most cases will invariably entail such a transfer was not sufficient reasoning to justify a limitation in respect of all cases.
The purpose can easily be satisfied in a transaction which does not dispose of the debtor’s own property - but has that effect. Why should the law not realise that? Such a statutory approach is similarly reflected in the common law’s balancing of the corporate personality. In Prest v Petrodel [2013] UKSC 34, the “evasion principle” was held to justify the piercing of the corporate veil. Under that exception, the individual debtor is under an existing legal obligation or liability which they deliberately evade or whose enforcement they deliberately frustrate by interposing a company under their control.
