Transactions entered into at an undervalue

El-Husseiny and another v Invest Bank PSC – what does the case tell us about the remit of ‘transactions entered into at an undervalue’

The recent case of El-Husseiny and another v Invest Bank (19 February 2025) provides an insight into the interpretation of Section 423 of the Insolvency Act 1986 (“IA 1986”) where liquidators are investigating transactions defrauding creditors. In particular, the case focuses on the remit of ‘transactions entered into at an undervalue’.

We have summarised the facts of the case and the outcome, below.

What are the facts of the case?

Invest Bank PSC (“the Bank”) claimed it was a creditor of the Appellants father (“Ahmad”). The Bank obtained judgment in Abu Dhabi against Ahmad for approximately £20 million. The Bank claimed that Ahmad transferred multiple assets to the Appellants at an undervalue through a limited company that he was the legal and beneficial owner of. As such, the Bank tried to obtain relief under Section 423 of the Insolvency Act 1986 by setting aside the transactions, arguing that Ahmad had purposefully put the assets out of reach of the creditors.

The issue arose as to the wording of the legislation and whether a transaction can be entered into where the debtor is acting on behalf of a company. Essentially, if an asset is owned by a company, can the beneficial owner of the company be liable as the person entering into the transaction?

What were the issues in this case?

The issue arose as to the wording of the legislation. In particular, there were two issues:

1. Whether a person can ‘enter into’ a transaction when they only act on behalf of a company; and
2. Whether there can be a ‘transaction’ where the asset disposed of is not legally or beneficially owned by the debtor (but instead the company that the debtor is the legal or beneficial owner of).

The Supreme Court ruled that a straightforward reading of the wording in Section 423 of the Insolvency Act 1986 would not achieve its desired outcome or be in the public interest. It was ruled that a ‘transaction’ is not confined to dealing with assets owned by the debtor. Where an asset is owned by a company, a transaction entered into can extend to the beneficial owner of the company.

In turn, this means that a debtor who is the beneficial owner of a company can ‘enter into’ a transaction when they act on behalf of a company. After all, there are real people behind every company decision!

What does this mean for you?

Insolvency practitioners should note that the court appeared to confirm that this broad interpretation of 'transactions' can apply equally to section 238 (transactions at an undervalue in an insolvent corporate context) and section 339 (transactions at an undervalue in an insolvent individual context) of the Insolvency Act 1986.