El-Husseiny v Invest Bank: Appeal dismissed

Today (19 February 2025) the Supreme Court has dismissed the appeal in the case of El-Husseiny and another (Appellants) v Invest Bank PSC (Respondent).
 

Background

In this case, the Respondent Invest Bank PSC (“Invest Bank”) is a public shareholding company established in the UAE. Invest Bank claims that it is a creditor of Mr Ahmad Mohammad El-Husseini pursuant to two alleged guarantees given by Mr El-Husseini in connection with credit facilities granted to two UAE companies. The Appellants, Alexander Ahmad El-Husseiny and Ziad Ahmad El-Husseiny, are two of Mr El-Husseini’s sons.

Invest Bank obtained judgments in Abu Dhabi against Mr El-Husseini of approximately £20 million. Invest Bank identified assets in the UK which it wanted to enforce against, including valuable property in London. It alleged that Mr El-Husseini had arranged for those assets to be transferred away in order to put them beyond the reach of Invest Bank or to reduce the value of the companies which owned them. Invest Bank issued proceedings in England seeking, amongst other things, relief under s.423 of the Insolvency Act 1986 (“IA”).

The Supreme Court focussed on one particular transfer as an example to test the legal principles. This was the transfer of a valuable London property owned by Marquee Holdings Limited (“Marquee”). Mr El-Husseini owned all of the shares in Marquee at the time, and it was alleged that he arranged with one of his sons (Ziad) that Marquee would transfer the ownership of the property to Ziad. Ziad paid nothing to Marquee or to Mr El-Husseini, and so, in effect, Ziad received a valuable house in central London for free. The share price of Marquee was effectively eliminated, and Invest Bank’s ability to enforce against Mr El-Husseini was compromised.

The High Court held that the fact that the relevant assets were not legally or beneficially owned by Mr El-Husseini himself but instead by a company owned or controlled by him did not stop the transfer from falling within the scope of s.423 IA (but refused Invest Bank’s pleaded case to proceed on a different ground, which was that Mr El-Husseini had not acted in his personal capacity but only on behalf of Marquee). The Court of Appeal allowed Invest Bank’s appeal against this latter ruling, and there was no appeal on that issue. The Court of Appeal dismissed the cross-appeal against the ruling that s.423 could apply where Mr El-Husseini had procured Marquee to transfer the property for no consideration.

Issues for the Supreme Court

The issues for the Supreme Court were whether the Court of Appeal correctly interpreted s.423 IA by determining that: (1) a person can 'enter into' a transaction where they act on behalf of a company; and (2) there can be a 'transaction' for the purposes of s.423 where the asset which is alleged to have been disposed of at an undervalue was not legally or beneficially owned by the debtor.

Decision

The Supreme Court unanimously dismissed the appeal. A “transaction” within s.423(1) is not limited to a dealing with an asset owned by the debtor but extends to the type of transaction in this case. s.423 may be engaged where a debtor procures that their company transfer away an asset owned legally and beneficially by the company.

Conclusion

The Supreme Court went ahead with this judgment partly because it felt it was important to clarify the point of law raised by the appeal. This is despite the fact that a High Court judge held in November 2024 that Mr El-Husseini had not arranged for the transfer with the purpose of making it more difficult for Invest Bank to enforce its judgment.

This judgment makes clear that a debtor cannot rely on the fact that they still hold their company shares as an answer to a s.423 IA claim, if there has been a transaction at an undervalue procured by the debtor that extinguishes the value of those shares.

Interestingly for insolvency practitioners, the Supreme Court said that this broad interpretation of a “transaction” would also apply to s.238 IA (which applies to transactions at an undervalue in the case of a company which has entered administration or gone into liquidation) and s.339 IA (which applies to transactions at an undervalue in circumstances where an individual is made bankrupt). The Supreme Court said  that “[w]e find it impossible to think of circumstances in which a transaction was held to be within section 423(1) when it would not also appropriately fall within section 238 or 339. In any event, we see no reason as a matter of policy or purpose why a transfer by a company owned by an insolvent company or individual shall not fall within those sections.”

S.423 IA has always been thought of as a particularly useful provision in asset recovery because it does not require there to be an insolvency. However, it does require the mental element set out in s.423(3) IA, namely that the transaction was entered into for the purpose of putting assets beyond the reach of creditors or potential creditors. In contrast, the remedies under ss.238 and 339 IA are triggered by objective criteria, in particular that the transactions were entered into within specified periods before the commencement of the relevant insolvency process. The Supreme Court’s comments will be helpful to insolvency practitioners, who can consider these alternative sections to pursue asset recovery under this broad interpretation of “transaction”. 

The text of the full judgment is available here.

about the author

Marieta specialises in all aspects of contentious corporate and personal insolvency and advises officeholders, debtors, directors, companies, creditors, and other stakeholders in insolvency estates.