Case comment: Invest Bank PSC v El-Husseini & Ors [2023] EWCA Civ 555

07 Jul 2023

Invest Bank PSC v El-Husseini & Ors [2023] EWCA Civ 555


Section 423 is a somewhat lesser-known provision of the Insolvency Act 1986. Forming part of that Act’s general provisions against debt avoidance, section 423 is titled ‘transactions defrauding creditors’ and is in materially identical terms to those providing for transactions at an undervalue in corporate insolvency (section 238) and individual bankruptcy (section 339).  However, unlike these latter two provisions, section 423 is not confined to the insolvency context but has a wider application.

Section 423 lay at the heart of the recent appeal in Invest Bank PSC v El-Husseini & Ors [2023] EWCA Civ 555 which raised novel issues at the intersection of insolvency, company, and property las.  In this case, the Claimant Bank (“the Bank”) had brought primary debt claims in England and Wales seeking to enforce a UAE judgment obtained against the First Defendant, a Lebanese businessman; and secondary claims against other defendants for relief relating to assets against which the Bank wished to assert an entitlement to enforce the First Defendant’s liability to it (“the Claim Assets”).  The appeal focused solely on the secondary claim.

In brief, the Bank’s case was that the First Defendant had taken steps in 2017 in relation to the Claim Assets to disguise his beneficial interest in them and/or caused them to be transferred with a view to putting them beyond the reach of his creditors.  Accordingly, the Bank sought relief under section 423 of the Insolvency Act 1986, which provides:

“(1) This section relates to transactions entered into at an undervalue; and a person enters into such a transaction with another person if –

(a) he makes a gift to the other person or he otherwise enters into a transaction with the other on terms that provide for him to receive no consideration;

(c) he enters into a transaction with the other for a consideration the value of which, in money or money’s worth, is significantly less than the value, in money or money’s worth of the consideration provided by himself.

(2) Where a person has entered into such a transaction, the Court may, if satisfied under the next subsection, make such order as it thinks fit for –

(a) restoring the position to what it would have been if the transaction had not been entered into, and

(b) protecting the interests of persons who are victims of the transaction.”

The Judge below (Andrew Baker J) had concluded that transactions between a company which was owned and controlled by the First Defendant could not be challenged under section 423, but granted permission to the Bank to amend and re-amend its Particulars of Claim in relation to its claim under section 423 in respect of Claim Assets of which the First Defendant was not the beneficial owner.

Two issues of law were considered by the Court of Appeal (Singh LJ, with whom Males and Popplewell LJJ agreed) in relation to section 423: (1) whether a transfer to a third party by a company owned and controlled by a debtor can be challenged as defrauding creditors (the Bank’s appeal); and (2) whether there can be a “transaction” at an undervalue if the debtor does not have a beneficial interest in the asset that is the subject of the “transaction” (the Defendants’ appeal).

Issue 1: The Acts of a Company and the Acts of an Individual Debtor

The Judge below (Andrew Baker J) had identified the relevant issue in relation to whether the First Defendant had entered into a transaction at an undervalue in the following terms (cited at [32]):

“Where an asset transferred at an undervalue is held by a company and an individual by whom it acts in respect of the transfer does so by virtue of his sole ownership or control of the company, is there, without more, and on the proper construction of s 423(1), a transaction entered into by the individual, either with his company or with the transferee (or both)?”

Andrew Baker J concluded that an individual in these circumstances is acting on behalf of the company and not in his personal capacity; he essentially “is” the company itself. Thus, there is no transaction to which the individual, as distinct from the company, is himself privy. Accordingly, Andrew Baker J held that section 423 is not applicable to

a transfer at an undervalue to a third party of an asset owned by a company, even though the company is owned and controlled by a debtor, unless the debtor acted separately in a personal capacity and not only as the instrument by which his company acted.

On the Bank’s appeal, Singh LJ emphasised at [44] that Andrew Baker J had addressed the situation where the individual acts as the instrument of the transferor company ‘without more’, and agreed that if there is in fact ‘anything more’, “everything must depend on the particular facts of any individual case.”  Singh LJ nevertheless considered at [45] that Andrew Baker J had erred in assuming that ” because the company can only act through a human person, and because in law the act is treated as the act of the company, it could not also have some legal significance when it comes to the individual debtor.”

To the contrary, Singh LJ referred to a distinction between the technique of attributing agent’s acts to a company (known the ‘identification doctrine’); and the ‘disattribution’ of those acts from the agent as an individual. Notwithstanding the unfortunate metaphysical terminology often employed to attribute the acts of an agent to a company, the ‘heretical’ notion that an agent thus identified with a company loses all individual identity in ’embodying’ the company itself had finally been dispelled by the House of Lords in Standard Chartered Bank v Pakistan National Shipping Corpn (Nos 2 and 4) [2002] UKHL 43.

Accordingly, Singh LJ concluded that although the separate legal personality of a company must be respected, it does not follow that a director’s factual acts have no legal significance. In particular, he stated (at [52]):

…while the separate legal personality of a company must be respected, and while the shareholders have no ownership of the company’s assets, it does not follow that the director has not done anything at all. Clearly he has as a matter of fact. The question which then arises is whether those factual acts have any legal significance. Sometimes they will have significance because there may be a personal legal wrong committed by the director, which was not the case in Williams [v Natural Life Health Foods Ltd [1998] 1 WLR 830] but was in Standard Chartered Bank. But, in my opinion, the significance of those factual acts may be that some other legal consequence is to be attached to the doing of those acts, depending on what the context is.

In the present case, the relevant context was whether a debtor’s acts, as director of a company, can fall within the terms of section 423. In Singh LJ’s opinion they were capable of doing so for two main reasons: (i)  the language used in the statute is very broad; and (ii) such interpretation would better serve the purpose of the legislation, “which could otherwise be easily frustrated through the use of a limited company to achieve the debtor’s purpose of prejudicing the interests of his creditors. ”

Thus, it could not be said that the First Defendant had not entered into a transaction at an undervalue for the purposes of section 423 simply because entering the relevant transaction was, in law, as the act of his company. The Bank’s appeal was therefore allowed.

 The Second Appeal: Transactions at the Undervalue Concerning Assets in which the Debtor Has No Beneficial Interest

In sum, the Defendant’s submissions before the Court of Appeal were that: (i)  Clarkson v Clarkson [1994] BCC 921 (CA) was binding authority for the proposition that a ‘transaction’ in this context must involve the giving away of property which would otherwise have formed part of the debtor’s bankruptcy estate as defined in section 283 Insolvency Act 1986; (ii) for the purpose of 423(1)(a) of the Insolvency Act 1986, a person cannot ‘enter into a transaction’ unless the subject matter of the transaction is the transfer of assets to which the person has a beneficial interest; and (iii) accordingly Andrew Baker J had erred in granting permission for to amend in relation to the Claim Assets that were not beneficially owned by the First Defendant and the Court did not have jurisdiction to grant relief under section 423.

Singh LJ accordingly identified the issue of principle to be (at [56]) whether, on the proper interpretation of section 423, there can be a “transaction” even though the asset which is alleged to have been disposed of at an undervalue was not beneficially owned by the “debtor”.

Singh LJ answered this question in the affirmative, primarily on the basis that, on a correct interpretation of the statutory provisions, the scheme in relation to section 423 is broad, and even broader than its counterparts in corporate insolvency (section 238) and in bankruptcy (section 339).

In relation to the construction of section 423 itself, Singh LJ was of the view that the interpretation contended for by Defendants  would require “reading words into section 423 which are not there”: section 423 as a whole is in “broad language that does not appear to require the transfer of any assets at all, let alone assets of which the debtor is the “beneficial owner.”  Such broad language is mirrored in the interpretation provision at section 436(1), which provides a non-exhaustive definition of “transaction” as: “includ[ing] a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly.”

This interpretation was of section 423 was not affected by Clarkson. That decision was concerned with the interpretation of section 339, despite it being in materially identical terms as section 423.  In Singh LJ’s view, Clarkson could be distinguished on the basis that, notwithstanding it also concerned a person who “enters into a transaction,” the decision itself had turned upon the meaning of “property” in the context of a bankrupt in section 283 of the Insolvency Act 1986.  As such, it did not have any bearing on the interpretation of section 423: the key distinction being the general application of section 423, as opposed to the application of section 339 in the context of insolvency.

Singh LJ considered there was further support in the legislative history of the Insolvency Act 1986 for interpreting two of its provisions in materially identical terms in different ways.  As noted in the Cork Report of 1982, the predecessor to section 423 of the Insolvency Act 1986 was section 172 of the Law of Property Act 1925; which, in turn, has its roots in the Fraudulent Conveyances Act 1571.  The Cork Committee recognised that both predecessor provisions were concerned with protecting creditors; and that section 172 of the Law of Property Act 1925 was not confined to insolvency, even if it thought that “the remedy is seldom if ever invoked unless the debtor has in fact become insolvent.”  Nevertheless, the Cork Report expressly recognised that section 172 of the 1925 Act addressed the policy of protecting creditors from fraud; whereas the statutory provisions dealing with transactions defrauding creditors in the context of insolvency aimed at an “altogether different objective”, namely, achieving a pari passu distribution fo the bankrupt’s estate amongst his creditors.

The key point for Singh LJ was, thus, that, although although section 423 “finds itself in the same Act as those provisions which are concerned with bankruptcy or corporate insolvency,” section 423 has a general scope: there is no need for there to be any insolvency.  In Singh LJ’s words (at [67]):

The unfortunate reality of life is that even very wealthy debtors are sometimes unwilling, rather than unable, to pay their debts. They may well make strenuous efforts to use various instruments, including a limited company, for the purpose of putting their assets beyond the reach of a person who is making, or may make, a claim against them; or otherwise prejudicing the interests of such a person.

Accordingly, Singh LJ was of the view that section 423 does require that a broader interpretation should be given to the phrase “enters into a transaction” than might be the case under section 238 or section 339.  In its own distinct sphere of application, section 423 does not require that the debtor have a beneficial interest in the assets that were the subject of the transaction entered into at an undervalue.  The Defendants’ appeal was, therefore, dismissed.


This sensible decision confirms that the Court has wide powers to prevent creditors being defrauded: transactions at undervalue can be challenged under section 423 even if the debtor is not party to a transaction or does not have a beneficial interest in the relevant asserts. Debtors therefore cannot use corporate structures to avoid their creditors. While the Court reaffirmed the separate legal personality of companies, it also kept open a means for creditors to take effective enforcement action where corporate structures are used.

Article by Joshua Griffin and Amy Held.


Joshua Griffin

Call: 2018


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