Disposing of assets – a marquee judgment for creditors

This week, the Supreme Court gave an important judgment for creditors and debtors alike, finding that disposal of an asset for less than its value will, in appropriate circumstances, be caught by insolvency law, even if the debtor does not personally own the asset that was disposed.

Facts

Section 423 of the Insolvency Act 1986 protects creditors from being defrauded. It applies in situations where debtors dispose of an asset for no value or for less than the asset is worth, and allows creditors to set aside such disposals.

In the case of El Husseiny v Invest Bank¹, Invest Bank had obtained a judgment for around £20 million against Mr El-Husseini. The bank wanted to enforce its judgment, in particular against a property owned by Mr El-Husseini in central London. This property was owned by Marquee Holdings, in which Mr El-Husseini held all of the shares. In 2017, Mr El-Husseini disposed of the property by transferring ownership to his son, Ziad, who paid nothing for the property to either Marquee or Mr El-Husseini.

The bank alleged that Mr El-Husseini had stripped Marquee of its only asset and had seriously prejudiced the bank’s ability to enforce its judgment. In response, Mr El-Husseini and his son said that section 423 applied only to assets which he held personally and that therefore did not apply here, as Marquee held the property in central London, rather than Mr El-Husseini. 

The Supreme Court’s decision

The Supreme Court rejected Mr El-Husseini’s argument and found that section 423 did apply to the disposal of assets that had been structured in this way. The Court found that a straightforward reading of this section was the appropriate approach, rather than the more convoluted and caveated approach argued by Mr El-Husseini.

The judgment decided that both the language of section 423 and the purpose of that section are clear: it applies to transactions entered into by a debtor for the purpose of putting assets beyond the reach of a creditor. The judgment establishes that a “transaction” within section 423 is not confined only to assets owned by the debtor, but instead extends to the type of transaction in this case, where the debtor had entered into an arrangement where a company owned by the debtor had transferred a valuable asset for no value or for less than the asset was worth. 

Consequences of the judgment

This judgment provides welcome clarification for creditors that the disposal of an asset under its value, even where the asset is not owned by the debtor, may still be caught by insolvency law. This will make it more difficult for debtors to dispose of their assets to try to make themselves ‘judgment-proof’ and provides a further boon for creditors that are seeking to enforce judgments.

Footnotes

1: Ahmad El-Husseini is the father, who owned shares in Marquee which, in turn, owned the property in central London. Ziad El-Husseiny is the son, to whom Marquee transferred the property. The lead appellant to the Supreme Court was Ziad El-Husseiny and the judgment takes his name, rather than his father’s name.