The Court of Appeal has, in a judgment handed down this afternoon in Invest Bank PSC v El Husseini and others  EWCA Civ 555, rejected an interpretation of s423 of the Insolvency Act that would have enabled debtors to use corporate vehicles to defraud their creditors. Section 423 enables the court to give appropriate relief in respect of transactions entered into by a debtor for the purpose of putting assets beyond the reach of creditors, or otherwise prejudicing their interests. The defendants argued that s423 only applied to assets owned by the debtor and not to assets owned by the debtor’s company. Such an interpretation would have seriously undermined the purpose of the section.
At the same time, the Bank successfully appealed the ruling of the Commercial Court that a debtor acting as director of his company was not by itself enough for the debtor to have entered into the transaction within the meaning of s423. The Bank submitted that this was an example of the “disattribution heresy” and that, as the Court of Appeal accepted, while the separate legal personality of the company has to be respected, the director has still carried out factual acts, the legal significance of which could be sufficient for the purposes of s423. To have found otherwise would leave a loophole in the Act that would enable sophisticated debtors to defraud their creditors.