John Hooper & Co

Solicitors

Newsletter 11 – Bankruptcy and its effect upon a divorce

BANKRUPTCY – FAMILY LAWYERS BREATHE A SIGH OF RELIEF

Regular readers will recall the report of the case of Hill and Another -v- Haines referred to in Newsletter 7. In matrimonial financial proceedings in 2003, the Court made an Order which transferred all of the husband’s interest in the matrimonial home to the wife. Two years later, the husband petitioned for his bankruptcy. The Trustees in Bankruptcy applied to set the Order aside on the basis that the wife had given no consideration for the husband’s interest in the house. Judge Pelling sitting in the High Court, supported the Trustees’ argument. This decision caused great consternation to matrimonial lawyers because they were unable to assure their clients that an Order, once made could not be overturned (save in the case of fraud, duress or non-disclosure). That decision was reported in August 2007 and with remarkable alacrity the Court of Appeal considered the decision in December 2007. The Court of Appeal allowed the appeal (to the great relief of all except Trustees in Bankruptcy and the bankrupt’s creditors). The Court rejected Judge Pelling’s view that there had been no consideration. The Court of Appeal took the view that it would be entirely contrary to the concept of a clean break order if the husband’s creditors could later seek to recover in bankruptcy property which had been transferred within ancillary relief proceedings.

Finally, the Court stressed that it would make no difference to their decision whether the Order was made by consent, or after a contested hearing, save that in the latter case, there would be less prospect of a successful application to set aside the Order on the basis of dishonesty or collusion between the parties in order to defeat the creditors.

A second bankruptcy case, Whig –v- Whig was decided by Mr Justice Munby in July 2007. The wife had pursued matrimonial financial (ancillary relief) proceedings. Just before the hearing the husband had petitioned by bankruptcy. The wife sought to have the bankruptcy order set aside on the basis that the husband had submitted his petition deliberately to defeat her claims. Mr Justice Munby said that the Court must apply the same principles when considering a bankruptcy case in matrimonial proceedings as it would in the High Court or County Court. In family cases, the Judges had a good deal of discretion, given to them by the Matrimonial Causes Act but that discretion did not extend to other proceedings which were to be considered at the same time as the ancillary relief proceedings.

March 2008

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