Invest Bank PSC v Ahmad Mohammad El-Husseini & Ors

The relevant issue as identified by the Judge at para. 18(3) was as follows:

“This question may therefore arise, namely: where an asset transferred at an undervalue is held by a company and an individual by whom it acts in respect of the transfer does so by virtue of his sole ownership or control of the company, is there, without more, and on the proper construction of s.423(1), a transaction entered into by the individual, either with his company or with the transferee (or both)?”

The Judge accepted the basic argument advanced on behalf of the Defendants by Mr Warents, as formulated at para. 20 of his judgment:

“That is because, Mr Warents argued, when the individual in question so acts, i.e. does no more than act as the instrument by which his company acts, he is not treating with his company, or directing or instructing it to act, he is his company. There is thus no transaction to which the individual, as distinct from the company, is privy.” (Emphasis in original)

The Judge described the contrary notion as the “self-dealing fallacy”, that is to say “the false notion that where an individual does no more than act as the instrument by which his company acts the individual enters into a transaction with the company, or with the party with whom, thus acting by the individual, the company deals.”

I would observe that what the Judge called the “self-dealing fallacy” in fact covered two types of situation: (1) where the individual, typically a director, enters into a transaction with the company; and (2) where the company (acting by that individual) deals with a third party. I would not myself describe the latter situation as amounting to “self-dealing”. At the hearing before this Court Mr McGrath made it clear that he was not relying on any notion of “self-dealing” in the first sense.

Mr McGrath’s argument is summarised as follows at para. 3 of the Bank’s skeleton argument:

“(a)

S.423 is a wide-ranging statutory provision, unconstrained by concepts of insolvency or company law, which should be given a purposive interpretation. Its plain protective purpose is frustrated by an interpretation which countenances sophisticated debtors stripping their holding companies of assets without their creditors having recourse to the remedial powers of s.423.

(b)

The expression ‘enters into’ has been construed very widely such that the relevant person need only to have “tak[en] some step or act of participation” which does not require the person to have made the transfer but only to “in some other way be party to or involved in the transaction in issue”, per Kitchin LJ in Hunt v Hosking [2014] 1 BCLC 291 at [32]. Thus, the analysis of whether a person has entered a transaction for s.423 purposes is far removed from the kind of rigid analysis applicable when considering whether a person is party to a contract. The debtor need not be privy to the formal act of asset transfer if it can be shown he took some step or act of participation or involvement in the transaction.

(c)

A proper analysis of the caselaw concerning personal liability of acts done on behalf of a company demonstrates that the analytical focus is on whether the person’s acts (and intentions) satisfy the requirements for that person to incur the relevant liability. Whether they do or not is in no way dependent on derogating from the well-established principle of separate legal personality of a company. Indeed, the answer does not differ whether the relevant conduct involves a corporate entity or an individual principal. The personal liability of directors for fraudulent misrepresentations made on behalf of a company is a powerful example of this.”

At the hearing before this Court Mr Warents relied upon, but did not develop, what he had submitted in the Defendants’ skeleton argument. He maintained that the Bank’s appeal simply should not arise because he ought to succeed in the Defendants’ appeal on the beneficial ownership issue, which I will address below. I will summarise what Mr Warents submitted in his skeleton argument.

Mr Warents accepts that the separate legal personality of a company is not an absolute rule but he submits that it is “the usual default position”. He points out that, where it chooses to do so, Parliament can make and has made express provision to impose legal consequences on individuals even when acting as the organ of a company but no such express provision has been made in the present context.

Furthermore, Mr Warents submits that the question whether personal liability arises where a person is acting as the organ of a company will depend on the context. He relies on what was said by Males LJ in Barclay-Watt v Alpha Panareti [2022] EWCA Civ 1169, at para. 75 (in the course of rejecting an argument that a director of a company should be held personally liable as an accessory to the company’s tortious conduct):

“Judges have … made clear that the question of personal liability can be a difficult (or ‘elusive’) question, requiring the balancing of competing principles. For that reason, judges addressing this question have been careful to make clear that statements of legal principle must be understood in the context in which they are made. That context necessarily includes the nature of the tort with which the courts have been concerned in any particular case. …”

I respectfully agree.

Further, Mr Warents submits that the Bank’s arguments have “a monomaniacal focus on one type of scenario” and have an unduly narrow perspective. He submits that the provisions of section 423 need to be understood in the context of the equivalent wording in sections 238 and 339 of the 1986 Act (which are all “clawback provisions”). He goes on to illustrate the difficulties which he submits would be caused by the Bank’s interpretation by reference to some worked examples of scenarios, which go beyond “one man” companies. He submits that it is important to appreciate that, if the Bank is right that a person acting as the organ of a company will always be treated as having personally entered into a transaction in which they were involved in some way in that capacity, then many activities which Parliament clearly intended to exclude from the scope of the clawback provisions in sections 238 and 339 would nonetheless come back within their scope.

The fundamental difficulty with that submission, in my view, is that it assumes that the wording of the three relevant provisions (sections 238, 339 and 423) must necessarily be interpreted in the same way. For reasons that I will explain when considering the Defendants’ appeal that assumption is incorrect.

Mr McGrath’s fundamental submission to this Court is that, in an appropriate context, the words of section 423(1) – “a person enters into such a transaction with another person” – can and should be interpreted to include “a person who causes a company (which he controls) to enter into such a transaction with another person”.

Before addressing that submission I should point out that, although the Judge accepted Mr Warents’ basic submission on this issue, he rejected the further arguments which he had made: see paras. 22-23 of his judgment, where he said:

“22.

However, Mr Warents took the argument further, submitting in effect that if an asset, transferred with a view to defeating creditors, is an asset of a company owned or controlled by the debtor, and the transfer will be and is effected by the company, acting by the debtor, then as a matter of law there cannot be a transaction entered into by the debtor within the meaning of s.423(1), whatever the surrounding facts and circumstances. That conclusion does not follow from the basic principle invoked by Mr Warents, and from which the authorities he cited flow, that companies are separate legal persons.

23.

His prior submissions are correct, leading me to answer the question I posed in the negative, because that question was whether, without more, the acts of the debtor which are the acts of the transferor company involve the debtor in entering into any transaction (see paragraph 18(3) above). If the debtor has taken steps going beyond those which amount to steps taken by his company under the doctrine invoked by Mr Warents, the character and legal effect of those other steps cannot be prescribed by that doctrine. That doctrine says that certain actions by the individual constitute the actions of his company, not dealing of any kind between the individual and the company or between the individual and the third party with whom, by those actions, the company deals. Whether everything the individual does that leads to or otherwise relates to a transfer of an asset at an undervalue by his company (acting by him) is an action of (the individual acting as) the company, under that doctrine, or whether, rather, some of it is action by the individual acting as such, on his own behalf and not as the company, must depend on the particular facts of any individual case.” (The judge’s emphasis)

I would emphasise that in that passage the Judge’s decision on this first issue of law was concerned only with the situation where the debtor acts as the instrument of the transferor company “without more”. If there is anything more, for example what Mr McGrath called before this Court the “kitchen table conversation”, such as that described by the Judge hypothetically at para. 24 of his judgment, then the Judge held everything “must depend on the particular facts of any individual case.” I agree with the Judge about that.

Where I respectfully differ from the Judge is that, in my view, he fell into the error of assuming that, because the company can only act through a human person, and because in law the act is treated as the act of the company, it could not also have some legal significance when it comes to the individual debtor. The Judge did not have the benefit of the detailed argument which this Court has had, in particular by Mr McGrath, who did not appear below.

The Judge relied, as he was invited to do on behalf of the Defendants, on the fundamental legal doctrine of the separate legal personality of a limited company: see Salomon v Salomon & Co Ltd [1897] AC 22. We were also reminded by Mr Warents that it is well-established in the authorities that the company’s assets are not owned in any sense by the shareholders. These propositions hold true even where there is a sole director and a sole shareholder.

Before this Court Mr McGrath made it clear that he does not quarrel with any of those fundamental propositions. He submits, however, that the analysis which was accepted by the Judge is wrong in law because it commits what has being called the “disattribution heresy”: see Neil Campbell and John Armour, ‘Demystifying the Civil Liability of Corporate Agents’ [2003] Camb LJ 290, at 292. The authors of that article suggest that there is an important distinction which must be drawn between the “identification doctrine” (a technique for attributing an agent’s acts to a company) and “disattribution” of those acts from the agent. They point out that the identification doctrine was originally developed as a means of attributing the acts or knowledge of senior management to a company. It served a useful purpose but they suggest that it was articulated in problematic terms. The doctrine asks whether the agent is acting “as the company”, implying that it is possible for a person to “identify with” a corporate persona more completely than simply acting as an agent. They suggest that this language, coupled with the artificial nature of corporate personality, gives rise to a “metaphysical” notion in which an agent identified with the company is seen as “embodying” the company. They suggest that this “heretical” notion has been dispelled by the decision of the House of Lords in Standard Chartered Bank v Pakistan National Shipping Corpn (Nos 2 and 4) [2002] UKHL 43; [2003] 1 AC 959.

That analysis of the potential personal liability of company directors is also supported by Bowstead and Reynolds on Agency (22^nd Edition), at para. 9-119. It is noted there that it was thought for a short period that the position of company directors was different from that of agents in general in relation to torts and other wrongs because they were to be identified with the company and not personally liable. Reference is made to the decision of this Court in Standard Chartered Bank but it is noted that this was reversed by the House of Lords. The authors continue:

“Where tortious liability turns on an assumption of responsibility, it may be found that directors, like other agents, have not assumed any personal liability, but rather have acted solely on behalf of the company, their principal. Otherwise, directors can be liable in tort in the same way as anyone else.”

To similar effect is the academic commentary of Peter Watts, ‘The company’s alter ego – an impostor in private law’ (2000) 116 LQR 525.

As Lord Hoffmann made clear in Standard Chartered Bank, at para. 22, the director in that case was not being sued for the company’s tort. He was being sued for his own tort and all the elements of that tort were proved against him. The tort relied upon was deceit. Lord Hoffmann went on to explain, at para. 23, that the doctrine in Salomon, and indeed company law generally, had nothing to do with the case. He analysed the earlier decision of the House of Lords in Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830, which was about negligent mis-statement, as turning on whether the elements for that tort (in particular an assumption of responsibility by the agent) had been satisfied. As Lord Steyn had made clear in Williams, the decision had nothing to do with company law but turned on application of the law of principal and agent to the requirement of assumption of responsibility. Lord Steyn said that it would have made no difference if Mr Williams’ principal had been a natural person.

Applying that principle to the context of Standard Chartered Bank, Lord Hoffmann continued:

“So one may test the matter by asking whether, if Mr Mehra had been acting as manager for the owner of the business who lived in the south of France and had made a fraudulent representation within the scope of his employment, he could escape personal liability by saying that it must have been perfectly clear that he was not being fraudulent on his own behalf but exclusively on behalf of his employer.”

In my judgement, 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. Clearly he has as a matter of fact. The question which then arises is whether those factual acts have any legal significance. Sometimes they will have significance because there may be a personal legal wrong committed by the director, which was not the case in Williams but was in Standard Chartered Bank. But, in my opinion, the significance of those factual acts may be that some other legal consequence is to be attached to the doing of those acts, depending on what the context is.

Here the context is whether the debtor’s acts can fall within the terms of section 423 of the 1986 Act. In my judgement they are capable of doing so. The language is very broad. The Bank’s interpretation would also better serve the purpose of the legislation, which could otherwise be easily frustrated through the use of a limited company to achieve the debtor’s purpose of prejudicing the interests of his creditors.

Accordingly, I would allow the Bank’s appeal. I would stress, however, that this is on a narrow issue of law. It amounts simply to saying that the Judge was wrong to prevent the Bank from pursuing its claim as pleaded on this issue. It amounts to no more than saying that such acts of a debtor are capable in law, without more, of falling within the terms of section 423 of the 1986 Act. Whether they do so, and whether there are other facts (as the Judge himself recognised there may be) which are more than simply the fact that the company acts through its director, would have to be established at a trial on the whole of the evidence. None of that is in issue before this Court at this preliminary stage.

The Defendants submit that the Judge should have refused the Bank permission to amend and re-amend its Particulars of Claim in relation to the section 423 applications concerning 9HP, 18HP, the shares in Global Green and shares in Commodore Netherlands. They submit that the Judge should have declared that the court had no jurisdiction in respect of those claims as against them because he erred in his ruling on the beneficial ownership issue.

The key issue of principle which arises is whether, on the proper interpretation of section 423, 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”.

The way in which the Defendants’ argument was summarised at para. 9 of their skeleton argument was as follows:

“(1)

Clarkson v Clarkson [1994] BCC 921 (CA) is binding authority in this Court for the proposition that a ‘transaction’ in this context must involve the giving away of property which would otherwise have formed part of the debtor’s bankruptcy estate as defined in s.283 IA 1986.

(2)

Corporate assets belonging beneficially to a company do not belong beneficially to its shareholder and so would not fall within the scope of its shareholder’s bankruptcy estate for the purposes of s.283 IA 1986. Nor are any powers that the shareholder may have (whether qua director or qua shareholder) capable of falling within the scope of s.283 IA 1986.”

In his oral submissions Mr Warents put the argument more broadly. He submits that it cannot be said that a person “enters into a transaction” within the meaning of section 423(1)(a) of the 1986 Act unless the subject matter of the transaction is the transfer of assets which are beneficially owned by that person.

I have reached the conclusion that the Defendants’ interpretation of section 423 is wrong.

First, it requires reading words into section 423 which are not there. Parliament has not used the word “property”. It does not even use the word “assets” until one gets to the purpose provision in subsection (3)(a). Even then limb (a) is an alternative to limb (b):

“otherwise prejudicing the interests of such a person in relation to the claim which he is making or may make.”

That is very broad language and does not appear to require the transfer of any assets, let alone assets of which the debtor is the beneficial owner.

Secondly, the word “transaction” is defined broadly in the interpretation provision at section 436(1). There it is provided that “transaction” “includes a gift, agreement or arrangement, and references to entering into a transaction shall be construed accordingly.” Not only is that definition a non-exhaustive one on its face, the words “agreement or arrangement” are far broader than “gift”. Even if Mr Warents is correct in his submission that the concept of a “gift” inherently requires that the donor must be the beneficial owner of the property which is the subject of the gift, there is no reason to give a restrictive meaning to the broad terms “agreement or arrangement”.

Further, it is important to note that the opening words of section 436(1) are that the definitions set out there apply “except insofar as the context otherwise requires…”. In the present context, I have reached the conclusion that section 423 does require that a broader interpretation should be given to the phrase “enters into a transaction” than might be the case under section 238 or section 339 of the 1986 Act. I will explain later why I do not accept Mr Warents’ submission that the decision in Clarkson, which is a decision on section 339, is binding on this Court when interpreting section 423.

Thirdly, an important part of the context in which subsection (1) of section 423 must be construed is subsection (3). While it is correct that the purpose provision in subsection (3) cannot determine the issue, and there is a logically prior requirement which needs to be satisfied in subsection (1), that a person enters into a relevant transaction with another person at an undervalue, the purpose provision in subsection (3) is not irrelevant to the proper interpretation of subsection (1). It can inform that interpretation. In particular, this Court should not interpret subsection (1) in a way which would easily defeat the purpose of section 423 when read as a whole.

Fourthly, Mr Warents did not submit that there was any obvious policy reason why Parliament should have enacted legislation which would be as restrictive as he submits it is. He makes the simple submission that that is what Parliament has enacted and, if it is thought to be deficient in some respect, then it is a matter for Parliament to amend the legislation. But the fact that there is no good policy reason why the legislation should be interpreted in such a restrictive way, whereas there is a good policy reason why it should be interpreted in a way which would better give effect to the purpose of the provision, is a telling reason why the Judge’s interpretation should be favoured.

Fifthly, the provisions of section 423 are to be found in Part XVI of the 1986 Act, which is headed ‘Provisions Against Debt Avoidance’. This part of the 1986 Act is not in truth confined to insolvency at all, although it finds its place in an Act which is concerned with insolvency. The historical fact is that the predecessor to section 423 was to be found in section 172 of the Law of Property Act 1925 (“the 1925 Act”). That was not an Act concerned with bankruptcy or insolvency but was of broader reach. Before 1986 there were provisions which applied in an insolvency, in particular section 42 of the Bankruptcy Act 1914, which was the predecessor to section 339 of the 1986 Act. There was no equivalent to section 238: addressing that mischief was one of the recommendations made by the Cork Report, which was accepted by Parliament, to which I will return below. Section 238 applies to corporate insolvency as section 339 applies to individual bankruptcy.

Mr McGrath points out that the 1986 Act is structured in the following way. The “Second Group of Parts” is concerned with insolvency of individuals; bankruptcy. It is in that group of provisions that section 283, the definition of a bankrupt’s estate, is to be found. In contrast, sections 423-425 are to be found in the Third Group of Parts.

The important point for present purposes is that, although section 423 finds itself in the same Act as those provisions which are concerned with bankruptcy or corporate insolvency, its scope is wider. There is no need for there to be any insolvency. The unfortunate reality of life is that even very wealthy debtors are sometimes unwilling, rather than unable, to pay their debts. They may well make strenuous efforts to use various instruments, including a limited company, for the purpose of putting their assets beyond the reach of a person who is making, or may make, a claim against them; or otherwise prejudicing the interests of such a person.

Mr Warents’ fundamental submission is a simple one. Since the language of sections 339(3)(a) and 423(1)(a) of the 1986 Act is materially identical, when it refers to a person who “enters into a transaction”, he submits that this Court is bound by the way in which that language was interpreted in Clarkson.

It is well-established that this Court is generally bound by its own previous decisions, subject to well-known and limited exceptions (none of which are relevant in this case): see Young v Bristol Aeroplane Co Ltd [1944] KB 718, at 729-730 (Lord Greene MR). It is important, however, to understand when that doctrine will apply. At page 725, Lord Greene distinguished between four classes of case. It is only the first class with which the Court was then concerned and with which it is concerned in the present case. He described that class as follows:

“… cases where this Court finds itself confronted with one or more decisions of its own … which cover the questions before it and there is no conflicting decision of this Court or of a court of co-ordinate jurisdiction.”

The binding rule of law which is contained in an earlier decision has traditionally been described as its “ratio decidendi”. The ratio is the legal principle which is necessary to explain the outcome of that earlier case on its facts: see e.g. Jazztel plc v HMRC [2022] EWCA Civ 232; [2022] Ch 403, para. 136 (Singh LJ). That this Court should be bound by its own previous decisions in that sense is important, not least because it serves the interests of certainty and stability in the law, but this Court is not bound by statements that have been made in earlier cases where they do not form part of the ratio.

Mr Warents submits that the way in which the relevant language was interpreted in Clarkson is that what was required was a beneficial interest in property on the part of the debtor. In particular, at page 930, Hoffmann LJ said:

“… The power of appointment itself conferred upon the bankrupts no beneficial interest in any property at all. It was a power to deal with the fund which they held as trustees and it was vested in them in their capacity as trustees.”

Hoffmann LJ went on to summarise the argument that was made by counsel in that case: that the power of appointment fell within the concept of property in section 283(4) of the 1986 Act. Hoffmann LJ rejected that submission for several reasons. The pertinent one for present purposes is that, even assuming that section 283(4) brought the power within the meaning of “property” for the purposes of section 283(1), it would be excluded from the definition by section 283(3)(a), which says that subsection (1) does not apply to property held by the bankrupt in trust for any other person. In Clarkson itself, Hoffmann LJ said, the powers were given to the trustees in their capacity as such and so they held them in trust for all the persons interested or potentially interested under the settlement just as much as they held the fund itself. He went on to say that the concept of such a power being a part of the bankrupt’s estate, which he owes a duty to his creditors not to bargain away except for adequate consideration, seemed to him “bizarre.”

In my view, it is clear that the decision in Clarkson turns upon the meaning of “property” in the context of a bankrupt in section 283 of the 1986 Act. That is what the “question” (to use Lord Greene’s word in Young) was in Clarkson. That is not the question which is before this Court now. The fundamental reason for this is that section 423 of the 1986 Act is not concerned with insolvency at all. It is not therefore concerned with what is the relevant property which falls within a bankrupt person’s estate. Those are simply not relevant questions which have to be decided in considering and applying section 423.

Accordingly, I reject the submission that this Court is bound by Clarkson to decide this appeal in favour of the Defendants.

In my view, the history of the 1986 Act lends some support to the interpretation of section 423 which I consider to be correct. That Act was enacted in response to the Report of the Committee on Insolvency Law and Practice, chaired by Sir Kenneth Cork GBE (Cmnd 8558), which was published in June 1982 (“the Cork Report”).

Chapter 28 of the Cork Report dealt with ‘Recovery of Assets Disposed of by the Debtor’. It set out the history, in particular the Fraudulent Conveyances Act 1571, usually referred to simply as the ‘Statute of Elizabeth I’. That statute was repealed and replaced by section 172 of the 1925 Act. As the Report noted at para. 1202, the principle on which both of those pieces of legislation proceeded “is that persons must be just before they are generous and that debts must be paid before gifts can be made.” The Cork Committee was well aware that the scope of section 172 of the 1925 Act was not confined to an insolvency situation but nevertheless it does appear to have thought that “the remedy is seldom if ever invoked unless the debtor has in fact become insolvent” (para. 1204). If that was the case in 1982, it certainly does not appear to have been the case in more recent times. One only has to look at many of the authorities which are reported in this area of law, indeed the facts of the present case as alleged in the pleadings.

Mr Warents submits that, where the Cork Committee wished to recommend that there should be express and specific provisions relating to the concept of “connected persons”, it did so in terms: see in particular Chapter 21. It made recommendations, not all of which were accepted by Parliament in the 1986 Act as eventually enacted, but what both the Report and the subsequent Act did do was to set out in express terms those circumstances in which the acts of a company could be regarded as being so closely connected to a debtor that they should be within the scope of the relevant provisions.

The difficulty with that submission is that, while Parliament did do that in relation to insolvency, for example in section 240 of the 1986 Act, the Cork Report itself recognised that the statutory provisions dealing with insolvency situations are directed “at an altogether different objective from that at which section 172 … were directed”: see para. 1209. The Report continued that the latter were designed to protect creditors from fraud, whereas the bankruptcy code is directed towards achieving a pari passu distribution of the bankrupt’s estate among his creditors. The justification for setting aside a disposition of the bankrupt’s assets made shortly before his bankruptcy is that, by depleting his estate, it unfairly prejudices his creditors; and even where the disposition is in satisfaction of a debt lawfully owing by the bankrupt, by altering the distribution of his estate it makes a pari passu distribution among all the creditors impossible. Those policy considerations simply do not apply in the same way to a situation which is outside the field of insolvency but where a creditor is seeking to defraud or prejudice his creditors.

Although Clarkson forms the mainstay of Mr Warents’ submissions, he also relies on a large number of other authorities. In my view, none of them decides the question of law which arises on this appeal and none is binding on this Court. I hope that it will do justice to Mr Warents’ argument if I refer only to the main authorities he cited.

First, he relies on the judgment of David Richards LJ in BTI 2014 LLC v Sequana SA [2019] EWCA Civ 112; [2019] 2 All ER 784. Mr Warents is entitled to point out that that case, like this one, was about section 423 of the 1986 Act, although the facts and the issue were very different: it involved the interpretation of the word “gift” in section 436.

Mr Warents emphasises that, at para. 54, David Richards LJ made express reference to the decision of this Court in Clarkson with apparent approval. In particular, David Richards LJ observed that, like section 238, section 339 enables recovery to be made if the debtor or company has entered into a transaction at an undervalue within a specified period for the bankruptcy order at a time when the debtor was or thereby became insolvent. Mr Warents emphasises in particular the following sentence:

“The test for a transaction at an undervalue is the same as in section 423.”

Of course the language is materially the same but one always needs to be careful not to take statements made in a judgment out of context. One has to bear in mind what the precise issue was, both factually and legally, which was being determined by a court on an earlier occasion.

Furthermore, the way in which David Richards LJ described the rationale of section 423 is consistent with the interpretation that I would give it: at para. 60, he described it as “the development of a remedy designed to deal with transactions deliberately designed by debtors to prejudice the interests of actual or potential creditors.” In similar vein, at para. 29, he said that section 423 “is a wide-ranging provision designed to protect actual and potential creditors where a debtor takes steps falling within the section for the purpose of putting assets beyond their reach or otherwise prejudicing their interests.”

Secondly, Mr Warents observes that the decision of this Court in Agricultural Mortgage Corp plc v Woodward [1994] BCC 688 also concerned section 423 of the 1986 Act but Sir Christopher Slade placed express reliance on the judgment of Millett J in Re M C Bacon Ltd [1990] BCC 78, even though that was a decision on section 238(4)(b). He points out that the lower judge in Woodward had sought to distinguish Millett J’s judgment on the ground that he had to consider a different section of the 1986 Act but Sir Christopher Slade did not regard this as a valid reason for making that distinction: see page 695. Furthermore, Sir Christopher Slade observed that the relevant passage from Millett J’s judgment in M C Bacon had been approved by this Court in Menzies v National Bank of Kuwait [1994] BCC 119, which held that “on the facts of that case” his analysis of section 238(4)(b) applied mutatis mutandis to section 423(1)(c) of the 1986 Act. I would emphasise the words “on the facts of that case.”

Also at page 692, Sir Christopher Slade referred to Millett J’s judgment in M C Bacon as containing “some helpful guidance”. It is clear from page 692 that what that guidance consisted of was the following analysis given by Millett J (at page 92): the transaction must be (1) entered into by the company; (2) for a consideration; (3) the value of which measured in money or money’s worth; (4) is significantly less than the value; (5) also measured in money or money’s worth; (6) of the consideration provided by the company. As Millett J said, it requires a comparison to be made between the value obtained by the company for the transaction and the value of consideration provided by the company. Both values must be measurable in money or money’s worth and both must be considered from the company’s point of view.

I would accept that guidance is also helpful in the context of section 423 but it does not follow that the meaning of “transaction” and “enters into” which may have to be adopted under section 238 of the 1986 Act must necessarily be applied to section 423 irrespective of the facts.

Thirdly, Mr Warents places emphasis on what was said by Arden LJ in Inland Revenue Commissioners v Hashmi [2002] EWCA Civ 981; [2002] BCC 943, at paras. 21-23. In particular he emphasises that, at para. 22, Arden LJ described section 423(3) as “a carefully calibrated section forming part of a carefully calibrated group of sections.” She also said that under section 423 “the stricter requirements of section 423(3) must be satisfied.” In my view, there is only so far that such dicta can be taken. Again, I emphasise that the precise issue which this Court now has to decide was simply not before the Court in Hashmi. Furthermore, I note that, at para. 23, Arden LJ observed that “it is not necessarily helpful to apply the construction placed on similar words in different provisions …”.

I am fortified in this approach by the judgment of Trower J in Re Fowlds (a bankrupt) [2021] EWHC 2149 (Ch); [2022] 1 WLR 61, at para. 69, where he said that “some care has to be taken in transposing principles established by the cases on section 423 of the Act into the context of a statutory clawback claim under section 339 … of the Act.”

There are at least the following differences between the structure of sections 238 and 339 on the one hand and section 423 on the other. First, the time limits in sections 238 and 339 do not apply in section 423. Secondly, as I have stressed earlier, the application in section 423 is not confined to an insolvency situation and therefore there is no need to be focussed on the precise meaning of “property” which falls within the bankrupt person’s estate. Thirdly, defences may be available under section 238 and/or section 339 which are not available under section 423. Fourthly, the “purpose” provision in section 423(3) has no counterpart in sections 238 and 339. As I have said at para. 63 above, that provision is important in arriving at the true interpretation of section 423 read as a whole.

I am also fortified in that view by what was said by Jonathan Parker LJ in Feakins v Department for the Environment, Food and Rural Affairs [2005] EWCA Civ 1513; [2007] BCC 54, at para. 76, that “the wide definition of ‘transaction’ in the context of section 423 is entirely consistent with the statutory objective of remedying the avoidance of debts …”

At paras. 76-78 Jonathan Parker LJ also emphasised, as would I, that the meaning of “transaction” in section 436 is broad and includes any “arrangement”. Furthermore, he did not find other decisions, such as Woodward, to be of assistance in identifying the relevant “transaction” in that case “since every case must turn on its own facts.”

That broad interpretation of “transaction” was also emphasised by Kitchin LJ in Re Ovenden Colbert Printers Ltd [2013] EWCA Civ 140; [2014] 1 BCLC 291, at para. 32:

“As I have explained, the term ‘transaction’ is widely defined in s 436 as including a gift or arrangement. If it were necessary for the purposes of this decision, I would therefore be disposed to find it is broad enough to encompass a payment made by a company or by an agent of the company acting within the scope of his authority. But to focus unduly on the term ‘transaction’ risks obscuring the need for the second and vital element, namely the requirement that the transaction be something that the company has ‘entered into’. This expression connotes the taking of some step or act of participation by the company. Thus the composite requirement requires the company to make the gift or make the arrangement or in some other way be party to or involved in the transaction in issue so that it can properly be said to have entered into it, and of course it must have done so within the period prescribed by s 240.”

Fourthly, Mr Warents relies upon the decision of this Court in Lemos v Lemos [2016] EWCA Civ 1181; [2017] BPIR 716, in particular at para. 24, where Longmore LJ said that the only issue was “whether he had any beneficial interest in the property of that time”. In my view, however, Longmore LJ was not purporting to set out any general principle of law; he was simply identifying what the only issue was on the facts of that particular case.

Fifthly, Mr Warents places reliance on the decision of this Court in Re Mathieson [1927] 1 Ch 283, in particular at pages 295-296 in the judgment of Atkin LJ. But, as with the case of Clarkson, it seems to me that that decision is not on point in the present case. That case was concerned with section 42 of the Bankruptcy Act 1914. Again therefore it was concerned with the scope of the concept of “property”. As I have already explained, the issue in the present appeals is different.

Sixthly, Mr Warents places particular reliance upon a passage in the judgment of Mummery LJ in National Westminster Bank plc v Jones [2001] EWCA Civ 1541; [2002] 1 BCLC 55, at para. 27:

“The fact that the two transactions caused the shares in NGF to increase in value is irrelevant to the question as to what was the relevant transaction and what was the relevant consideration. The increase in the value of the shares was the consequence of the transactions, which increased the value of the assets of NGF.”

However, in my view, that passage cannot be read out of context. The increase in the value of the shares was not relevant on the facts of that particular case. As Mummery LJ said at paras. 25-28, there are three questions which must be answered under section 423.

The first question is: what are the relevant transactions? The answer in that case was the tenancy agreement and the sale agreement.

The second question is: what is the consideration for the transaction? The consideration in that case did not include the issue of the shares in NGF to Mr and Mrs Jones.

The third question is: was the value of the consideration provided by the transferee “significantly less” than the value provided by the transferor?

In the present case, in contrast, Mr McGrath submits on behalf of the Bank that the relevant transaction was the diminution in the value of Ahmad’s shares in the company. That was the whole point of the steps which were alleged to have been taken in order to put certain assets beyond the reach of creditors. In other words, the question in the present case is Mummery LJ’s first question: what is the relevant “transaction”? As I have already emphasised, the meaning of “transaction” in section 436 is very broad and includes any “arrangement”. In the present case, the steps that the debtor took to diminish the value of his shares in a company can be regarded as being such an arrangement.

Finally Mr Warents points out that, where Parliament wishes to do so, it has enacted express provisions which have the effect of lifting the veil of incorporation and treating the disposition of a company as being that of its shareholders: see e.g. section 94 and its associated provision in the Inheritance Tax Act 1984. In that context Parliament has also expressly defined what is a “close company” for the purposes of inheritance tax. Since Parliament has not enacted any equivalent express provisions in the present context, Mr Warents submits that this Court should not in effect fill the breach.

I reject that submission. I accept Mr McGrath’s submission that tax law is materially different from the present context. A tax is inherently a confiscation of property. Accordingly, it is of very great importance that Parliament should spell out in terms in what circumstances a taxpayer is liable to be taxed. In contrast, sections 423-425 of the 1986 Act create a discretionary judicial regime. It is a broad and flexible jurisdiction but with judicial safeguards. What section 423(1) and (3) do is to set out the gateways which will enable that jurisdiction to exist. It does not follow, however, that the Court will be bound to exercise that jurisdiction, still less in what precise way it will do so. That will depend on the circumstances of a particular case.

In the present case the Judge followed the decision of Gwyneth Knowles J in Akhmedova v Akhmedov [2021] EWHC 545 (Fam); [2021] 4 WLR 88. This Court has had the benefit of fuller arguments on the beneficial ownership issue but, in essence, I agree with what Gwyneth Knowles J said in that case at paras. 79 and 329.

Accordingly, I would dismiss the Defendants’ appeal.

For the reasons I have given I would allow the Bank’s appeal but dismiss the Defendants’ appeal.