The UK Supreme Court’s landmark judgment in Invest Bank PSC v El-Husseini, handed down on 19 February 2025, represents one of the most significant insolvency decisions in recent years. The ruling provides important clarification on the interpretation of section 423 of the Insolvency Act 1986, broadening the scope of transactions that may be challenged where creditors have been prejudiced.

For insolvency practitioners, litigation funders and recovery specialists, the decision strengthens the available tools for recovering value and pursuing claims against those seeking to place assets beyond the reach of creditors.

The case also highlights the increasing importance of obtaining specialist legal advice and appropriate litigation funding when pursuing complex insolvency claims.

A Landmark Supreme Court Decision

In the Supreme Court proceedings, Marc Delehanty appeared for the successful respondent bank, undertaking a substantial portion of the oral advocacy. He was led by Paul McGrath KC of Essex Court Chambers.

The Supreme Court dismissed the appeal and upheld the Court of Appeal’s earlier decision, but its reasoning went considerably further, providing wider guidance on the interpretation of section 423 than many practitioners had anticipated.

The judgment is expected to influence insolvency litigation, civil fraud claims and asset recovery proceedings for years to come.

What Does Section 423 of the Insolvency Act Do?

Section 423 enables the court to reverse transactions entered into by a debtor where the purpose is to:

• Put assets beyond the reach of creditors;
• Otherwise prejudice creditors’ interests; or
• Defeat future enforcement.

Unlike some other insolvency provisions, section 423 does not depend upon formal insolvency proceedings and can be used even where bankruptcy or liquidation has not commenced.

It has therefore become one of the most effective statutory tools available in civil fraud and asset recovery litigation.

The Issue Before the Supreme Court

The appeal centred on an important question of statutory interpretation. The appellants argued that section 423 could only apply where a debtor had transferred an asset that they personally beneficially owned.

The Supreme Court rejected that argument.

Instead, it held that section 423 can also apply where:

• A debtor owns shares in a company; and
• The debtor procures that company to transfer away its own assets

Although the debtor has not transferred their own property directly, the transaction may significantly reduce the value of the shares owned by the debtor, thereby prejudicing creditors who could otherwise enforce against those shares.

The Court concluded there was nothing within the wording of section 423 restricting its application solely to transfers of assets beneficially owned by the debtor.

Wider Implications for Insolvency Practitioners

The judgment substantially broadens the reach of section 423 and provides welcome certainty for insolvency practitioners investigating complex asset structures.

The Supreme Court also made several observations.

Wider application across the Insolvency Act

The Court stated that the same broad interpretation may equally apply to:

• Section 238 (transaction at an undervalue involving companies); and
• Section 339 (transactions at an undervalue before individual bankruptcy).

This observation may significantly influence future challenges involving pre-insolvency asset transfers.

A transaction does not need to involve property transfers

The Court clarified that a “transaction” under section 423 is not limited to transferring assets.

Examples may include:

• Releasing debts;
• Surrendering leases;
• Giving up valuable contractual rights; or
• Other actions that prejudice creditors.

This considerably expands the potential circumstances in which claims may arise.

Guidance on consideration

The Supreme Court also provided useful clarification regarding the assessment of consideration in multi-party transactions.

Importantly, consideration under section 423 should not automatically be analysed using traditional contract law principles, recognising the different statutory purpose of the legislation.

Protection for bona fide purchasers

Finally, the Court considered how the statutory defence available under section 425(2) may apply where property has been transferred from a company controlled by the debtor rather than directly from the debtor themselves.

This guidance provides greater certainty for both claimants and innocent third parties involved subsequent transactions.

Why this matters

The decision strengthens the ability of insolvency practitioners to pursue claims where debtors attempt to shield value through corporate structures.

Modern asset protection strategies often involve the movement of assets between connected companies rather than straightforward personal transfers.

The Supreme Court has made clear that section 423 should not be interpreted narrowly where creditors suffer genuine prejudice.

For office holders investigating transactions, this wider interpretation could unlock additional recovery opportunities that may previously have been considered unavailable.

Insolvency Litigation Funding Options

While the Supreme Court’s decision expands potential claims, pursuing insolvency litigation remains expensive. Appropriate litigation funding can therefore play a vital role in enabling insolvency practitioners to maximise recoveries while managing financial risk.

After-the-event (ATE) legal insurance – ATE insurance is commonly used to protect against adverse costs exposure and security for costs applications. Rather than facing the risk of paying a successful defendant’s legal costs, the claimant effectively transfers that risk to an insurer.

Depending on the policy, there may be no upfront premium or only a modest initial payment, with the insurer receiving a success-based premium if the claim succeeds. ATE insurance is particularly valuable where office holders are required to preserve estate assets while still pursuing meritorious claims.

Third party litigation funding – Third-party litigation funders may finance legal costs in return for an agreed share of any damages recovered. This can enable insolvency practitioners to pursue substantial claims without committing estate funds.

Funding is frequently combined with ATE insurance to provide comprehensive protection against both own-side costs and adverse costs exposure.

There are more recent models of funding that can unlock much lower value claims, and should be explored before writing something off as uneconomic to pursue.

Assignment of litigation – Certain insolvency claims may also be assigned to third parties. Assignment can provide an immediate financial return together with a share of future recoveries while removing litigation risk from the insolvency estate.

Although assignment may be particularly suitable for lower-value disputes, larger or more complex matters often benefit from retaining greater control over proceedings.

Independent advice can help practitioners compare available funding structures and document the decision-making process appropriately, to satisfy both regulators and creditors.

How Annecto Legal Can Assist

The expansion of section 423 following the Supreme Court’s judgment is likely to encourage more insolvency claims involving complex corporate structures and asset recovery strategies.

Selecting the right funding solution is often just as important as identifying the legal merits of a claim. At Annecto Legal, we work with a broad network of insurers, litigation funders and claim purchasers to help practitioners fulfil their statutory duties while protecting insolvency estates from unnecessary financial risk.

Our team provides independent written reports comparing available insolvency litigation funding options, enabling practitioners to demonstrate that appropriate consideration has been given to funding and risk management.

Whether you are investigating an insolvency claim, pursuing asset recovery proceedings or defending insolvency litigation, Annecto Legal can help you identify the most suitable funding solution and maximise the prospects of a successful outcome.