Supreme Court Ruling in Support of Creditor Remedies

Jasmine Harland, Solicitor

The UK Supreme Court has confirmed in the case of El-Husseiny and another v Invest Bank PSC that creditors have remedies available to them in situations where transactions are entered into at an undervalue and/or have the purpose and effect of prejudicing claims that a creditor has against a debtor.

The case centred around an appeal as to how section 423 was to be interpreted, and whether it was limited to dealing with assets owned by the debtor or extended to transactions for the purposes of section 423, such as where an asset is not legally or beneficially owned by the debtor. Section 423 offers remedies to creditors where a debtor has taken steps to defeat or prejudice their claims by entering into a transaction.

The decision of the Supreme Court followed proceedings to enforce judgments of around £20million, obtained in Dubai. The Bank identified assets in existence, including houses in central London owed by companies against which it wished to enforce the Judgments. The Bank argued that El-Husseiny had deliberately arranged for the assets to be put beyond the reach of the Bank, by transferring them to others which would, in turn, reduce the value of the companies. Relief was therefore requested by the Bank under section 423.

The Supreme Court ruling highlights the wide scope of section 423, in that it has been recognised that debtors cannot simply transfer or sell assets for little or no value, even in situations where those assets are held through corporate vehicles. This is a welcomed development for creditors, as even if a debtor is entering into a transaction with a third party and their acts are regarded as those of a company which they control, there are still remedies available where it can be shown the transaction was made at an undervalue or was to prejudice the creditor. This was clearly the case when El-Husseiny took steps to transfer the properties to other people so that they were ‘out of the banks reach’ for the purposes of enforcing the Judgments.

The Supreme Court also noted that a ‘transaction’ is defined to include an ‘agreement’ or ‘arrangement’, of which both can be interpreted widely. It is therefore the case that there does not need to be a transfer of assets at all for protection to be offered to creditors under section 423. The Supreme Court acknowledged the overrising purpose of the legislation, which is to prevent prejudice against the interest of creditors, when coming to its decision.

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