S423 of the Insolvency Act 1986 (IA 1986) provides a route for office holders to challenge transactions where a person deliberately transfers assets at an undervalue to put them beyond the reach of creditors. The Supreme Court in El-Husseiny and another (Appellants) v Invest Bank PSC (Respondent) [2025] UKSC 4 recently confirmed what is meant by “transaction” in the context of s423 – and that the same meaning should be given to “transactions” caught by s238 and s339 of the IA 1986.
Claims under s423 can be more difficult to establish than claims under s238 of the IA 1986 because although both claims require there to have been a transaction at an undervalue (or for no consideration) s423 also requires an office holder to prove that there was an intention to put assets beyond the reach of creditors. An office holder is therefore more likely to bring a claim under s238 than s423, and for that reason, this judgment is helpful because it broadens the types of transactions that might fall within the definition of “transaction”.
Transaction is defined in s436 to include “a gift, agreement or arrangement” and the Supreme Court was not prepared to restrict the meaning of this and decided that a “transaction” includes assets not directly legally or beneficially owned by the debtor.
It is helpful to know the facts of this case to give some context to the particular transaction the court had to consider.
Facts and Decision
The s423 claim was brought in this case by Invest Bank in their capacity as a creditor of the appellants’ father, Mr Mohammad El-Husseini (not as an officeholder – but the findings apply equally to office holder claims).
Invest Bank had successfully obtained a judgment against Mr El-Husseini in Abu Dhabi for circa £20m, and they identified UK based assets against which they could enforce the judgment. Invest Bank argued Mr El-Husseini had transferred assets (most notably a property in London) to put them beyond the reach of Invest Bank.
While there were multiple assets caught by the s423 claim, the judgment focused on the transfer of the London property.
Before the London Property was transferred, it was legally and beneficially owned by a Jersey company, Marquee Holdings Limited (“Marquee”). It was worth about £4.5 million. At the time of the transfer, Mr El-Husseini was the beneficial owner of all the shares in Marquee.
Mr El-Husseini arranged with one of his sons, Ziad Ahmad El-Husseiny (“Ziad”), that he would cause Marquee to transfer the legal and beneficial ownership of the London property for no consideration.
In June 2017, Mr El-Husseini caused Marquee to transfer the legal and beneficial title to the London property to Ziad. Ziad did not pay any money or provide any other consideration either to Marquee or to Mr El-Husseini in return for the London Property.
The effect of the transfer was that Mr El-Husseini’s shareholding in Marquee was now significantly reduced, prejudicing Invest Bank’s ability to enforce its judgment against him.
The issue on appeal was whether s423 could apply to a transaction such as this – where a debtor procures a company which he owns to transfer a valuable asset owned by the company for no consideration or at an undervalue which has the effect of reducing or eliminatating the value of the debtor’s shareholding in the company, or whether such a transaction is not caught because the debtor does not personally own the asset.
The court at first instance held that the fact that the London property was not directly owned by Mr El-Husseini did not prevent the arrangement being a “transaction” for the purposes of s423. The point was appealed, and the Court of Appeal agreed with findings of the court at first instance. Ultimately as the issue raised an important point of statutory construction the Supreme Court considered the point and judgment was given.
The Supreme Court upheld the findings of the High Court and the Court of Appeal regarding the meaning of a “transaction”. The language and purpose of s423(1) is not confined to dealing with an asset that is legally or beneficially owned by the debtor but extends to this type of transaction. Restricting transactions to those that directly involve property owned by a debtor would not only require an implied restriction to be read into the provision but doing that would also seriously undermine the purpose of s423.
Concluding Comments
Despite the Bank’s claim not succeeding in this case (it was unable to demonstrate that Mr El- Husseini had the requiste intention when transferring the London property), the decision is nonetheless helpful to insolvency practitioners, as it confirms the wide meaning of the word “transaction” within s423, s238 and s339.
It also helpfully confirms that a debtor does not need to legally or beneficially own an asset for a transaction to be caught under those provisions. The most obvious example where this is likely to be the case is in situations such as those considered in this case – where a debtor owns shares in a company and causes that company to transfer valuable assets thereby reducing the value of the shareholding.