The Court of Appeal decision in Haines –v- Hill [2007] EWCA CIV 1284 was handed down on 5 December 2007 and means that trustees in bankruptcy will now have great difficulty in arguing that property transfers made within divorce proceedings can be set aside as transactions at an undervalue.
Background
This case involved the transfer of Mr Haines’ beneficial interest in his property pursuant to a consent order in ancillary relief proceedings. At first instance the trustee in bankruptcy sought a declaration that the transfer of the beneficial interest was a transaction at an undervalue pursuant to section 339 of the Insolvency Act 1986.
On 10 January 2007 the District Judge dismissed the application, however the trustees in bankruptcy successfully appealed and His Honour Judge Pelling sitting in the high Court made an order in their favour. The High Court Judge broadly stated that the terms of section 339 of the Insolvency Act 1986 were satisfied and that the transfer of the property to Mrs Haines despite being the result of matrimonial proceedings was at an undervalue pursuant to these provisions, because no consideration had been given for the transfer.
Mrs Haines was granted the right to appeal this decision and the Court of Appeal found in her favour stating that HHJ Pelling had erred in law in his finding. It was held that a spouse’s compromise of their ability to make claims under the Matrimonial Causes Act had a value and could be offered as consideration and therefore the provisions of section 339 were not satisfied.
The Court of Appeal went on to say that orders made in ancillary relief proceedings were capable of being challenged under section 339 but only if there had been collusion between the parties with a view to prejudicing the spouse’s creditors or if there was evidence of fraud, mistake or misrepresentation.
The effect of this decision excludes the operation of section 339 of the Insolvency At 1986 in relation to property transfers made in divorce proceedings save where the order is vitiated by a factor such as fraud, collusion, mistake or misrepresentation.
The trustees were widely expected to appeal this decision. We understand that an application for permission to appeal to the House of Lords was made but was refused.
Implications to Insolvency Practitioners
It seems that trustees will now have an uphill struggle in overturning such orders and it will only be in circumstances where it can clearly be shown that there has been either fraud, misrepresentation or collusion that it will be possible to set aside an ancillary relief order as a transaction at an undervalue. Family lawyers and divorcing couples will welcome the news as it provides them with certainty that final orders may not be set aside in the future should there be a subsequent bankruptcy.
For more information or advice on the challenges to matrimonial orders as undervalues, please contact
Andrew Harris.
