Friday, 30 April 2010

Cork Materials: Competing Interests of Spouses and Creditors: Minutes of the Meeting of the Working Group (14/02/1980)


The minutes of the fourth meeting of the Working Group 2 of the Insolvency Law Review Committee constitute a remarkable prescient memorandum on the development and convergence of the claims of spouses and creditors to legal and beneficial interests in the insolvent’s matrimonial home, as well as the inevitable conflict between the Family Division and the Insolvency Court. It is surprising that the views of the members indicate the most equitable outcomes in the most probable cases yet it took Courts more than a decade to appreciate the importance of the family home to the debtor’s family’s physical and emotional wellbeing. Mr Goldman of the Working Group had advised that priority should be given to the family but a distinction should be made between the spouse and dependent children given that the former may be involved in the events leading up to the insolvency. Mr Taylor agreed but posited that the rights of the children should be the primary concern and it was important to have guidelines for discretion for their protection for a reasonable period during which the insolvent could make suitable alternative arrangements.


Nonetheless, the primary concern of the Insolvency Act 1986 was the rights of creditors and cases like Re Citro (Bankrupts) [1991] Ch. 142, C.A. showed little understanding of the innocent family’s predicament. It is true that the Insolvency Law Review Committee’s recommendation of a reasonable period for suitable alternative arrangements was sanctioned with a one-year-reprieve following the appointment of a trustee, which may be extended in “exceptional circumstances.” However, the family’s suffering was not remitted because the term “exceptional” was held not to include a “distressing” predicament: Re Citro (Bankrupts). Equally, the innocent family’s predicament was given little consideration where the power conferred by section 73(3) of the Matrimonial Causes Act 1973 to a wife to set aside dispositions such as those of a husband that had sought to defeat her rights by disposing property was deemed not to apply to a charge of the bank that provided the money for the purchase of the property; although the bank was fully aware of the wife’s rights: Ansari v Ansari (Bank of Scotland plc intervening) [2008] ECWA Civ 1456. Equally, a trustee was allowed to enforce a trust for sale of a family home held jointly by a couple under a property adjustment order made twenty years earlier: Turner and Another v Avis (2007) Times Law Reports. Nonetheless, it would be unfair to say that decisions have always been detrimental to the innocent family. Lewis and another v Metropolitan Property Realisations Ltd [2009] EWCA Civ 448 ordained that "a bankrupt's interest in property that had formally vested jointly in him and his wife revested in him on the third anniversary of his bankruptcy despite his trustee in bankruptcy having assigned that interest to a creditor." In Everitt v Budhram (a bankrupt) and another [2009] WLR (D) 167, it was held that the "needs" of a bankrupt under section 355A (2) of the Insolvecy Act 1986 include “financial, medical, emotional and mental needs.” The Home Owner and Debtor Protection (Scotland) Bill introduced in the Scottish Parliament on the 1st of October 2009 will also restrict the creditor’s rights to sell or enter into possession of security subjects only to cases where the residential property has been voluntarily surrendered (an affidavit will be required to this effect).


The convergence of the claims of spouses and creditors to legal and beneficial interests in the insolvent’s matrimonial home and the inevitable conflict between the Family Court and the Insolvency Court discussed by members of the Working Group materialised in Hill and another v Haines [2007] EWHC 1012 (Ch). Following divorce proceedings, an Order was made transferring the family home to the wife. The husband subsequently became bankrupt and the trustee argued that the transfer was at an undervalue and sought to restore the parties to the position they would have been had the transaction not been made. The District Judge disagreed with the trustee but surprisingly he received a statement of acquiescence from the High Court. There was a disquieting conflict between the Family Court’s prerogative to ensure that parties to a marriage receive an equitable share of the property and that of the Insolvency Court to protect the interests of the creditors. An incidental question to this issue is that of whether the contributions made by one spouse to the emotional and mental wellbeing of the other spouse do not constitute sufficient consideration? One also wonders whether the Insolvency Act is impervious to the rights of innocent family members. It may be important to make a survey of families affected by bankruptcy in order to determine the extent to which the rights of innocent members have been disregarded. However, given that the views of the Insolvency Law Review Committee shaped (in part) this Act, the minutes of the fourth meeting of the Working Group attest to the fact that the rights of the innocent family members were always the primary concern. In this light, the Court of Appeal held that a transfer to a spouse following the breakdown of a marriage is not a transaction at an undervalue except in circumstances where both spouses colluded and/or there were elements of fraud.

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