If you are or have been involved in divorce proceedings with a spouse who is insolvent, then an order made in the matrimonial court in respect of the matrimonial home is liable to be set aside by the insolvency court. This is shown in two recent cases.
In the case of Hill & Bangham v Haines 2007, heard by the High Court on appeal of a decision of the District Judge, a transfer of the matrimonial home to the wife in the course of divorce proceedings was set aside as a “transaction at an undervalue”.
Under the provisions of the Insolvency Act 1986, a Trustee in Bankruptcy may apply to the Court to set aside transactions at an undervalue which have taken place 5 years before the commencement of bankruptcy. Such transactions include transfers of property by someone subsequently made bankrupt for which the receiving party has given no consideration or consideration which is significantly less (in money or money’s worth) than the value of the property transferred.
In this case Mrs Haines contended that by foregoing her right to apply for ancillary relief in the divorce proceedings, she had given consideration (in money or money’s worth) for the transfer of the matrimonial home to her. After an analysis of legal precedents, the Court rejected her argument and held that any claims a divorcing party may have for ancillary relief are not capable of constituting consideration (in money or money’s worth) for the purposes of the Insolvency Act 1986 provision.
The case also confirmed that it is irrelevant whether a transfer of property takes place following an order made in matrimonial proceedings after a contested ancillary relief hearing or as a result of a compromise agreement between the parties.
Mrs Haines has been granted leave to appeal to the Court of Appeal, but it is not yet known whether the appeal will proceed.
That the interests of creditors is paramount is also shown in the case of Avis v Turner & Another 2007. In this case the Trustee in Bankruptcy of Mr Avis obtained Mr Avis’ one third share in the former matrimonial home upon his appointment as Trustee in Bankruptcy under the provisions of the Insolvency Act 1986.
The Trustee in Bankruptcy then applied for an order to sell Mr & Mrs Avis’s former matrimonial home to realise his interest, despite an order of the matrimonial court (“the Matrimonial Court Order”) which stipulated that Mr Avis could not force a sale of the property, but would only realise his share in the event of Mrs Avis remarrying, cohabiting, selling the property or if she died.
The District Judge hearing the Trustee in Bankruptcy’s application applied the provisions of the Insolvency Act 1986, namely that in dealing with an order for sale application “the court shall assume, unless the circumstances of the case are exceptional, that the interests of the creditors outweigh all other considerations”.
The District Judge hearing the Trustee in Bankruptcy’s application applied the provisions of the Insolvency Act 1986, namely that in dealing with an order for sale application “the court shall assume, unless the circumstances of the case are exceptional, that the interests of the creditors outweigh all other considerations”.
The Judge adjourned the hearing to allow Mr Avis to file evidence setting out any exceptional circumstances that might displace the assumption. Mrs Avis appealed the decision of the District Judge to the High Court stating that none of the events listed in the Matrimonial Court Order had occurred and that on that basis the application of the Trustee in Bankruptcy should have been dismissed. The High Court upheld the decision of the District Judge. A further appeal to the Court of Appeal was also dismissed and the matter was sent back to the District Judge to allow him to deal with the issue of “exceptional circumstances”.
For more information on any of the issues raised here, please contact either Petra van Dijk in the insolvency team or Gillian Jackson in the family team.
For an update on this case please click here
