English court widens scope of transactions defrauding creditors

The English Court of Appeal has widened the scope of transactions defrauding creditors under section 423 of the Insolvency Act 1986 in a recent case, Invest Bank PSC v El-Husseini and others (Invest Bank).

Under s.423, the court will only make an order if it is satisfied that a transaction at an undervalue was entered into by a debtor for the purpose of putting assets beyond the reach of a person who may make a claim against them or otherwise prejudicing their interests in relation to such claim.

The court was required to determine a key preliminary issue: whether there can be a “transaction” even though the asset which is alleged to have been disposed of at an undervalue was not beneficially owned by the “debtor”.

Decision

The court held that:

• "Transaction" is broadly defined. and it can be one defrauding creditors where the relevant assets are owned and disposed of by a third party, including a company, under the debtor's control.
• Assets do not need to be beneficially owned by the debtor for a transaction to qualify as a transaction defrauding creditors.

Key takeaways

• This judgment is likely to be a significant point of reference for many claims alleging that a debtor has entered into a transaction defrauding creditors and widens the scope for such claims to be made.

Invest Bank PSC v El-Husseini and others [2023] EWCA Civ 555 (19 May 2023)