Bankruptcy – matrimonial home – claims for ancillary relief – transactions prejudicial to creditors – sections 339, 340 and 432IA 1986
The bankrupt, Mr Singh, had registered charges over his house in favour of his father and sister in respect of alleged loans made to him. Shortly thereafter, an unpaid contractor issued proceedings against him. Mr Singh’s wife subsequently filed for divorce and sought ancillary relief and, by a consent order and trust deed, Mr Singh agreed to hold the house on trust for their two children, with his wife retaining exclusive occupation. Mr Singh was then adjudged bankrupt.
In proceedings brought by Mr Singh’s trustee in bankruptcy, Newey J held that the father’s charge was a sham and so a nullity. However, the sister’s charge was in respect of a genuine loan and did not represent a preference within section 340 of the Insolvency Act 1986.
Newey J held that the trust deed and consent order should not be set aside as a transaction at an undervalue under section 339 of the 1986 Act or a transaction defrauding creditors under section 423 of the 1986 Act. Giving up a claim for ancillary relief under Pt II of the Matrimonial Causes Act 1973 constituted consideration within the meaning of section 339. An order disposing of such a claim would not be open to challenge under section 339(3)(a) or, ordinarily, under section 339(3)(c). The value of the claim for ancillary relief would generally be regarded as equivalent to the value of the money and property transferrable under the order. That principle applied to both consent orders and orders made after contested hearings. Trustees in bankruptcy might nonetheless be able to set aside a Pt II order if they could show a vitiating factor, such as collusion between the spouses (applying Hill v Haines [2008] Ch 412). In this case there was no direct evidence of collusion and the circumstantial matters were not persuasive.
Creditors and trustees in bankruptcy should be aware that consent orders and related relief arising out of a bankrupt’s matrimonial proceedings will not be set aside as transactions at an undervalue for the purposes of section 340 of the Insolvency Act 1986 unless there is a vitiating factor such as collusion between the spouses.
