Section 423 of the IA1986 should be interpreted widely and purposively

At first instance it was held that, in respect of a transfer to a third party of an asset owned by a company which is owned and controlled by the borrower, at an undervalue, where the transfer is caused by the borrower (acting with the purpose of prejudicing his creditors), section 423 is not applicable as he had acted as the instrument of his company. The bank appealed on the basis that this was an error of law.

On appeal, it was found that the correct legal position is that, while the separate legal personality of a company must be respected, and while the shareholders have no ownership of the company's assets, it does not follow that the director has not done anything at all. This would be a matter of fact, and which then raises the question of whether those factual acts (including the context in which they took place) have any legal significance. In this instance, the court found that the borrower's acts were capable of falling within the terms of s.423. It was noted that the language of s.423 is very broad and should be given a purposive interpretation. If interpreted narrowly, the purpose of the legislation could be easily frustrated allowing debtors to use limited companies to prejudice the interests of their creditors.

In addition to considering the bank’s appeal, the Court of Appeal also considered an appeal by some of the defendants. At first instance, the court had found that a "transaction" can be entered into within the meaning of s.423 where the assets are not beneficially owned by the debtor. The appealing defendants suggested that this was wrong. Their appeal was dismissed.

The Court of Appeal considered whether Parliament had intended for s.423 to be a way to lift the corporate veil. The Court considered that ss.423-425 of the IA1986 create a discretionary judicial regime, which is broad and flexible enough to determine each case on its own facts.

Invest Bank PSC v El-Husseini [2023] EWCA Civ 555