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Bankruptcy
Case Law
An appeal against the
finding of HH Judge Pelling QC sitting as a deputy
High Court Judge that the transfer of the Bankrupt’s
beneficial interest in a farm pursuant to a consent
order in ancillary relief proceedings was a
transaction at an undervalue contrary to s.339 IA
1986.
Held: HHJ Pelling had erred in law in his
finding that because a compromise agreement in
ancillary relief proceedings could not give rise to a
contractual obligation (Xydhias v Xydhias [1999] 2 AER
386) and an applicant for ancillary relief had no
cause of action (McMinn v McMinn [2003] 2 FLR 823), an
applicant for ancillary relief could not give
consideration by entering into a settlement agreement
that was by definition not binding. Following Re Pope
[1908] 2 KB 169 an agreement to forbear from
matrimonial proceedings was “valuable consideration.”
An order of the court following contested or
compromised ancillary relief proceedings quantified
the applicant’ spouses interest in terms of money
and/or property. In the absence of the usual vitiating
factors of fraud, mistake or misrepresentation, a
transferee under property transfer order is to be
regarded as having given consideration of equal value.
The wife’s appeal was allowed.
This is good news and offers further protection for
the spouse (subject to certain conditions) following
ancillary relief
The applicant sought
annulment of a bankruptcy
order under s.282(1)(b) IA 1986.Payment was to be made from
funds provided by a commercial lender which were held in by her
solicitors who had undertaken to hold them in a client account
until the bankruptcy order was discharged by the court. The county
courts commonly accepted such undertakings but it was the practice
of the registrars in the High Court to refuse to annul based upon
such undertaking. In light of this divergence of practice the
matter was referred to the High Court for a ruling as to whether
'paid' within s282(1)(b) of the Insolvency Act 1986 included the
provision of security for a debt, so as to render the practice of
the county courts permissible.
Held: The word 'paid' in s 282(1)(b) did not encompass the
giving of security for a debt. The qualification 'to the
satisfaction of the court' in s.282(1)(b) governed the giving of
security. The practice of the county court was not within the
jurisdiction of the court. However, applying Engel v Peri [2002]
All ER (D) 285 (Apr), if the court thought fit to make an order
for annulment, it had the power to specify that the order should
not take effect until a later date or until conditions were
satisfied. Until such date it was an order, albeit its effect was
suspended. HHJ Jarvis QC accordingly ordered bankruptcy the
bankruptcy be annulled on condition that the annulment would not
take effect until the official receiver had notified the court
that the bankruptcy debts
had been paid and that security had been provided.
This is good news, as it means that
if you are relying on funds provided by a commercial lender (i.e.
remortgage ) the court can use it’s discretion and grant an
annulment subject to meeting all conditions. Prior to this
judgment it was a catch twenty two position i.e. the commercial
lender wouldn’t release the funds if the annulment wasn’t granted
and the Court wouldn’t grant the annulment unless the debts, costs
and expenses of the bankruptcy had been paid in full.
Mr Savage was made bankrupt on 24
April 1994, at which time his main asset was a half-share in a
property with negative equity. Three out of four creditors
submitted proofs in the bankruptcy. Mr Howard was appointed as
trustee in February 2005. By this time, the property had increased
in value and Mr Savage’s share was worth more than the bankruptcy
debts and expenses.
Mr Savage applied to
annul his
bankruptcy under section 282(1)(b) of the Insolvency Act 1986.
The district judge accepted an undertaking from Mr Savage’s
solicitors to hold his share of the net proceeds of sale to the
trustee’s order. He was satisfied that all known creditors of Mr
Savage would be paid or secured and granted the annulment.
The trustee appealed on the basis that there might be unknown
creditors. He also asserted that he should be entitled to an
indemnity out of the estate in respect of his legal costs and any
costs order to be paid to Mr Savage. He claimed that he held the
bankruptcy assets on trust for the benefit of creditors and that
in making the appeal, he was acting in their interests.
Mr Justice Lewison dismissed the appeal. The ground for annulment
under section 282(1)(b) was that the
bankruptcy debts and expenses had been either paid or secured
to the extent required by the rules. The judge considered the
relevant rules (rule 6.206 onwards of the Insolvency Rules 1986).
Rule 6.209 enabled the court to direct advertisement where it had
been reported under rule 6.207 that there were known creditors who
had not proved their debts. As far as unknown creditors were
concerned, the court would exercise the discretion contained in
section 282, in accordance with the circumstances of each case.
In considering an annulment
application of a bankruptcy that was 12 or 13 years old, the
district judge was entitled to take the view that advertisement
would be pointless, and had therefore acted reasonably. The
district judge had been satisfied that there would be a surplus of
assets over liabilities once the creditors, including the trustee,
had been paid and therefore granted an annulment.
The judge considered it
questionable that the trustee was acting in the interest of
creditors and ordered him to pay Mr Savage’s costs. The judge held
that the costs incurred by the trustee and those ordered to be
paid to Mr Savage should not be the subject of an indemnity from
the estate.
This is good news and encourages the Court to exercise its
discretion.
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