19.02.2025
Section 423 of the Insolvency Act 1986 provides protection for creditors from debtors putting assets beyond the reach of creditors, and has its origins in Roman law, as have many other similar provisions across Europe. In El Hussieny v Invest Bank PSC, the appellants sought to read into s423 restrictions that would have resulted in this long-standing protection for creditors being rendered toothless. It was contended that the section should only apply to assets beneficially owned by the debtor, the result of which would have been that a debtor could circumvent s423 by causing their company to dispose of the company’s assets to a relative or other third party.
In a judgment handed down on 19 February 2025, the Supreme Court dismissed the appeal, finding that the wording of s423 is sufficiently wide to apply when a debtor causes their company to transfer the company’s assets at an undervalue, resulting in the diminution of the value of the debtor’s shares. This is an important judgment for all asset recovery lawyers.
It is also of potentially wider importance to insolvency practitioners as the Court observed that there was no good reason for a different meaning of transaction at an undervalue to apply in relation to sections 238 and 339. Those are sections addressing the setting aside of transactions at an undervalue entered into in the period before individual bankruptcy and corporate insolvency. Thus, insolvency practitioners may well be able to look to set aside transactions under those sections even though the asset transferred is not beneficially owned by the bankrupt.
The successful respondent bank was represented by PCB Byrne (Trevor Mascarenhas, Tom Crisp, David Johnson, Eamon Khorsheed and Emily Hynes) instructing Paul McGrath KC of Essex Court and Marc Delehanty of Serle Court.
back to news and insights