Invest Bank sought to enforce judgments against Mr El-Husseini, alleging he arranged transfers of valuable properties owned by his companies to his sons to defeat creditors. The Supreme Court held that section 423 of the Insolvency Act 1986 applies to such arrangements, even where the debtor does not personally own the transferred assets.
Facts
Invest Bank PSC obtained judgments in Abu Dhabi against Mr Ahmad El-Husseini for approximately £20 million arising from personal guarantees. The Bank sought to enforce these judgments in England against London properties allegedly transferred to defeat creditors. One key property, 9 Hyde Park Garden Mews (worth approximately £4.5 million), was legally and beneficially owned by Marquee Holdings Limited, a Jersey company whose shares were beneficially owned by Mr El-Husseini. He allegedly arranged for Marquee to transfer the property to his son Ziad for no consideration, thereby reducing the value of his shares in Marquee and prejudicing the Bank’s ability to enforce its judgment.
Procedural History
Andrew Baker J at first instance held that section 423 did not require the debtor to transfer his own property (the ‘Beneficial Interest Point’), but that steps taken solely as a company director would not constitute the debtor personally entering into a transaction (the ‘Capacity Point’). The Court of Appeal upheld the ruling on the Beneficial Interest Point and allowed the Bank’s appeal on the Capacity Point. The appellants appealed to the Supreme Court solely on the Beneficial Interest Point.
Issues
The central issue was whether section 423 of the Insolvency Act 1986 applies only where the transaction involves the transfer of an asset beneficially owned by the debtor, or whether it extends to arrangements whereby a debtor procures a company he owns to transfer assets at an undervalue.
Judgment
Statutory Construction
Lady Rose and Lord Richards, delivering the joint judgment with which Lord Hodge, Lord Hamblen and Lord Stephens agreed, conducted a detailed analysis of section 423 and its statutory context. They emphasised the breadth of the definition of ‘transaction’ in section 436(1):
Importantly, section 436(1) defines ‘transaction’ for the purposes of the IA 1986, except in so far as the context otherwise requires, as including ‘a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly’. In particular, the inclusion of an arrangement makes for a broad definition of ‘transaction’.
Straightforward Reading of Section 423
The Court held that a straightforward reading of section 423(1), together with the definition in section 436(1), supports the conclusion that Mr El-Husseini’s arrangement with his son fell within the statutory provisions:
On the assumed facts, Mr El-Husseini arranged with Ziad that he would procure Marquee to transfer 9 Hyde Park to Ziad who would not pay a price or provide other consideration for the transfer. Applying section 423(1)(a), Mr El-Husseini made an arrangement (‘entered into a transaction’) with Ziad on terms that provided for Mr El-Husseini to receive no consideration.
Purpose of Section 423
The Court stressed that the purpose of section 423 is evident from subsection (3), which identifies the fraudulent purpose required. The Court noted:
In circumstances where the mental element set out in section 423(3) is satisfied, where the transaction is well within the mischief at which section 423 is aimed, as that mischief appears from section 423(3), where the arrangement meets the terms of section 423(1), and where the section contains no express requirement for a disposal of any property belonging to the debtor (as the appellants accept), the application of well-established principles of statutory construction would seem to lead to the same analysis as Andrew Baker J and the Court of Appeal on this issue.
Rejection of Appellants’ Arguments
The Court rejected all textual arguments advanced by the appellants, including arguments based on the word ‘gift’, the requirement for consideration to be paid to the debtor, and the bona fide purchaser defence in section 425(2). The Court also distinguished Clarkson v Clarkson [1994] BCC 921 on its facts, rejecting it as binding authority for a property ownership requirement:
We reject the suggestion that Hoffmann LJ was laying down a test which must be satisfied in all cases brought under section 339, or sections 238 or 423. There was no question in Clarkson of any relevant ‘property’ being owned by anyone other than the bankrupts. He was focused on the particular and rather unusual facts of that case and was applying the relevant legal analysis to those facts.
Implications
This judgment significantly clarifies the scope of section 423, confirming that creditors may seek relief where debtors use corporate structures to defeat claims. The decision establishes that a ‘transaction at an undervalue’ is not confined to dealings with the debtor’s own property but extends to arrangements whereby a debtor procures transfers from companies he owns. The Bank accepted that diminution in the value of the debtor’s assets (here, shares in Marquee) is a necessary element, but this may occur through transactions not involving direct disposal of the debtor’s property.
The judgment has broader significance for anti-avoidance provisions in insolvency law, affirming that courts will not read implied restrictions into broadly drafted statutory language where doing so would undermine the protective purpose of the legislation. It provides important guidance for creditors seeking to challenge sophisticated asset-protection structures.
Verdict: Appeal dismissed. The Supreme Court unanimously held that section 423 of the Insolvency Act 1986 is not confined to transactions involving assets beneficially owned by the debtor, and extends to arrangements whereby a debtor procures a company he owns to transfer assets at an undervalue.
