Invest Bank v El Husseini: the final piece of the puzzle

Although the long-running trial of Invest Bank v El Husseini (in which the Debenhams Ottaway Dispute Resolution team acted for the winning defendants [Debenhams Ottaway’s litigation team secure huge section 423 win in the Commercial Court – Debenhams Ottaway Solicitors]) finished last summer, the Supreme Court’s decision on s423 of the Insolvency Act 1986 remained outstanding, until today.

Section 423 refers to “transactions at an undervalue” and provides that a person is involved in a transaction at an undervalue if they give a gift or make a deal for little or no consideration. If the court believes the transaction was meant to hide assets from creditors or harm their interests, it can make orders to restore the position or protect the interests of victims.

The question before the Court of Appeal, and then the Supreme Court, was whether:

1.  A person can ‘enter into’ a transaction where they act on behalf of a company.
2. There can be a ‘transaction’ for the purposes of section 423 where the asset which is alleged to have been disposed of at an undervalue was not beneficially owned by the ‘debtor’.

Today, the Supreme Court answered ‘yes’ to both these questions.

As a result, debtors cannot use corporate structures to shield themselves from their creditors. While the Supreme Court upheld the separate legal status of companies, it has also preserved a pathway for creditors to take effective enforcement action when corporate structures are exploited.