Supreme Court Rejects Ownership Defence in Undervalue Transaction Transfers

The Supreme Court’s recent decision in El-Husseiny v Invest Bank PSC [2025] UKSC 4 is a significant decision for lawyers and insolvency practitioners considering bringing undervalue transaction claims pursuant to section 423 of the English Insolvency Act 1986 and section 146 of the BVI Insolvency Act 2003 (as amended).

In the recent decision of El-Husseiny v Invest Bank PSC [2025] UKSC 4, the Supreme Court examined the scope of Section 423 of the Insolvency Act 1986 (“Section 423”), which addresses transactions defrauding creditors. The court had to determine whether a debtor who caused one of his companies to transfer assets to third parties was caught by the section. The judge at first instance said no, the Court of Appeal disagreed, and the Supreme Court agreed with the Court of Appeal.

The Facts

The facts were straightforward. Invest Bank PSC (“the Bank”), a public shareholding company based in the UAE, sought to enforce a foreign judgment for US$20 million against Ahmad Mohammad El-Husseini (“Ahmad”) in the UK, targeting assets located there. These assets included two London properties, shares in a UK-registered company, and proceeds from the sale of a third property. The assets were owned by companies wholly owned by Ahmad, not by him personally. The Bank alleged that in 2017, Ahmad transferred these assets from his companies to his family members – his sons and ex-wife, who were also defendants in the proceedings – at an undervalue, with the intent of putting them beyond the reach of his creditors (“the Transaction”).

The Questions

The case involved two main questions regarding Section 423:

1. Can a debtor “enter into” a transaction at an undervalue under Section 423 if they act as a director or agent of a company, rather than in their personal capacity (“the Capacity Point”)?
2. Does Section 423 apply to a “transaction” where the asset disposed of at an undervalue is not beneficially owned by the debtor (i.e., in this case, owned by a company they control) but where the transaction diminishes the value of the debtor’s assets, i.e. the value of Ahmad’s shares in the company (“the Beneficial Interest Point”)?

First Instance Decision of the High Court

The first instance judge found as follows:

1. The Capacity Point: The High Court found that Ahmad, acting as a director of his company, did not “enter into” the transaction personally because his actions were legally those of the company. This finding favoured Ahmad, not the Bank.
2. The Beneficial Interest Point: The High Court held that the Transaction could fall within Section 423 even if the assets were not owned by the debtor personally but by a company he controlled. This finding favoured the Bank.

The Court of Appeal Decision

The Bank appealed the Capacity Point ruling, while Ahmad’s sons appealed the Beneficial Interest Point. The Court of Appeal delivered the following unanimous judgment:

1. The Capacity Point: Appeal allowed. A director can “enter into” a transaction under Section 423 when acting as the controlling mind of a company, provided they personally take steps to effect the transaction with the intent to defraud creditors.
2. The Beneficial Interest Point: Appeal dismissed. The Court of Appeal found that a “transaction at an undervalue” includes situations where a debtor causes a company they control to transfer assets for little or no consideration, thereby reducing the value of the debtor’s own assets. This aligns with Section 423’s purpose of protecting creditors from transactions that prejudice their interests.

The Supreme Court

Ahmad appealed the Court of Appeal’s judgment to the Supreme Court. The Supreme Court endorsed the Court of Appeal’s approach to both the Capacity Point and the Beneficial Interest Point.

Takeaways

The Bank’s position prevailed: Ahmad “entered into” the Transaction by directing his company’s actions, despite not personally owning the assets. The corporate veil will not shield debtors who use companies to frustrate creditors. This decision strengthens creditors’ ability to challenge sophisticated asset-shielding schemes, a common tactic in high-value disputes.