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News:
BANKRUPTCY ALERT
Three recent cases have sent tremors (and in
the case of Hill and another –v- Haines) shockwaves
through the family lawyers’ fraternity.
First there was Nicholls –v- Lan where Paul Morgan
QC sitting as a Deputy High Court Judge rejected Mrs Nicholls’
arguments that to order sale of the former matrimonial home which she
occupied, and of which she was a joint owner, was contrary to Article
8 of the European Convention for the Protection of Human Rights etc.
This decision followed a line of earlier cases and so was not too remarkable
(although it is the first reported case of the use of the Human Rights
legislation in this context).
The second case is something of a bombshell and a time bomb all rolled
into one. In Hill and Another and Haines, the wife (Mrs Haines) petitioned
for divorce in 2003. Within those proceedings the court made an Order
transferring all of her husband’s interest in the matrimonial
home to the wife. Two years later the husband petitioned for his bankruptcy.
The Trustees (Mr Hill and Mr Bangham) applied to set the Order aside
on the basis that the wife had given no consideration (i.e. not paid
for) the husband’s interest in the house. In the first hearing,
the District Judge dismissed the Trustees’ application but undaunted,
the Trustees appealed – successfully.
Judge Pelling sitting in the High Court said that the words of Section
339 Insolvency Act 1986 which referred to “money or money’s
worth” meant that the Court Order should be regarded as a transaction
at an undervalue and as this had occurred within 5 years of the date
of bankruptcy, the Trustees’ application must succeed, the house
would have to be sold and the proceeds split equally between the wife
and the Trustees.
The frightening thing about this case is that the husband (as it generally
is) does not have to be insolvent or even in a weak financial position
at the time the matrimonial Order is made. He could suffer a major unforeseen
problem which affects his solvency, up to 5 years after the date of
the Order. Clearly it is impossible to know whether such an issue might
arise but solicitors should advise of the risk very clearly both verbally
and in writing.
The possible good news is that an appeal is pending – watch this
space.
The third case, as yet unreported, appeared recently in the Daily Telegraph.
It was heard in the Court of Appeal. Here, Mrs Avis was awarded two
thirds of the matrimonial home and her former husband retained the other
third. Mrs Avis was allowed to remain in the property and so long as
she did not cohabit or remarry, Mr Avis could not force her to sell.
In 1989 Mr Avis was made bankrupt over a debt due to Inland Revenue
(which he said was no more than £3,000). He paid £2,500
of the debt but after administrative fees and expenses the sum claimed
by the Trustee in Bankruptcy had risen to £73,000!
The Trustee again successfully obtained an Order for sale.
All 3 cases demonstrate that the interests of the creditors of a bankrupt
will prevail over those of a former spouse, regardless of whether there
is a Court Order in that spouse’s favour or not. Great care must
be taken to try to anticipate the future, particularly where one (or
both) of the spouses is self-employed or has his or her own business.
For those matrimonial causes which have already been decided and which
have involved the transfer of property from a person who has subsequently
been made bankrupt to a spouse, Trustees in Bankruptcy across the country
may well be in the process of giving very careful consideration to an
application to the court to seek to recover monies for the benefit of
the creditors of the bankrupt.
August 2007
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Solicitors