Invest Bank PSC v El-Husseini [2022] EWHC 894 (Comm)

Facts

  • Invest Bank PSC commenced proceedings against El-Husseini concerning transactions that allegedly occurred for less than market value before bankruptcy.
  • The transactions in question involved asset transfers where the consideration received was significantly lower than their market value.
  • The High Court examined expert statements, market data, and asset characteristics to determine if the transactions were undervalued.
  • The case required an assessment of the intent to prejudice creditors during the relevant transfers.
  • The court considered the timing of the transaction, the relationship between parties, and the bankrupt entity’s financial position.

Issues

  1. Whether the transactions constituted undervalue transactions under bankruptcy law.
  2. How intent to prejudice creditors can be established in the absence of direct evidence.
  3. What remedies are available when an undervalue transaction is established.

Decision

  • The High Court undertook a factual analysis to determine if there was a substantial undervalue.
  • The court found that the burden of proof lay with the party alleging an undervalue transaction.
  • Intent to prejudice creditors could be inferred from circumstances such as timing, party relationships, and financial context.
  • Upon a finding of an undervalue transaction, the court considered appropriate remedies, including reversal of the transaction or compensation orders.
  • The court emphasized the need for a tailored remedy based on the facts and type of transaction.

Legal Principles

  • An undervalue transaction arises when consideration is significantly below the market value of the transferred asset.
  • The party alleging an undervalue transaction bears the burden of proof.
  • Intent to prejudice creditors can be inferred from surrounding circumstances, not just direct evidence.
  • Remedies aim to restore lost value to the bankrupt’s estate and ensure fair distribution among creditors.
  • The court has discretion to fashion remedies appropriate to the circumstances, such as reversing the transaction or ordering payment.

Conclusion

The judgment in Invest Bank PSC v El-Husseini [2022] EWHC 894 (Comm) clarifies the evidentiary requirements and discretionary remedies for undervalue transactions in bankruptcy, particularly regarding proof of intent and asset valuation, serving as guidance for practitioners and future cases.

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