Bankruptcy – Ancillary relief in matrimonial proceedings – Order for transfer of husband’s share of property to appellant wife – Husband subsequently adjudged bankrupt – Whether trustees in bankruptcy entitled to set aside transfer as transaction at undervalue – Whether appellant providing consideration of similar value to that provided by husband – Appeal allowed
In divorce proceedings between the appellant and her then husband, an order for ancillary relief was made requiring the husband to transfer to the appellant his share in a farm that they jointly owned. After the transfer took place, the farm was sold, releasing a profit of £120,000 in respect of what would have been the husband’s share. By that date, the husband had been adjudged bankrupt at his own petition. The respondents, as his trustees in bankruptcy, sought to set aside the transfer of his beneficial interest to the appellant on the ground that it was a transaction at an undervalue within the meaning of section 339 of the Insolvency Act 1986 and, accordingly, void against them. That application was dismissed by the county court judge, who held that the transaction, consisting of the court order in the matrimonial proceedings, was not at an undervalue since the decision in those proceedings had determined the extent of the appellant’s claim and its value as the equivalent of the assets transferred by the order. On that basis, he held that there had been neither a transaction for no consideration, within section 339(3)(a), nor a transaction in which the consideration received was significantly less valuable than that provided, within section 339(3)(c), and that accordingly the transfer could not be set aside and the discretion under section 39(2) did not arise for consideration.
That decision was reversed on an appeal by the respondents to the High Court. The judge held that the receiving party in an application for ancillary relief, under sections 23 to 25 of the Matrimonial Causes Act 1973, gave no consideration to the paying party, whether the order was made following a contested hearing or following a compromise agreement, since the receiving party was not relinquishing any right in return for the payment. He distinguished authorities in which the consideration for a payment was deemed to consist of the giving up of a claim, on the ground that an applicant for ancillary relief did not have a cause of action and any compromise agreement would not be binding. The appellant appealed.
Held: The appeal was allowed.
Parties to an order of the court granting ancillary relief gave “consideration” for the purposes of section 339: Re Pope, ex parte Dicksee [1908] 2 KB 169 applied. A dealing with a statutory right could constitute consideration even where the right did not amount to a pre-existing proprietary or contractual right or a cause of action: G v G (Financial Provision: Equal Division) [2002] EWHC 1339 (Fam) and McMinn v McMinn (Ancillary Relief: Death of Party to Proceedings) [2002] EWHC 1194 (Fam) distinguished. The ability of one spouse to apply to the court for one or more of the orders referred to in sections 23 to 24D of the 1973 Act was a right conferred and recognised by the law. It had value, in that its exercise could, and often did, lead to court orders entitling one spouse to property or money from the other. The order of the court quantified the applicant spouse’s statutory right by reference to the value of the money or property thereby ordered to be paid or transferred by the respondent spouse; that property or money was the prima facie measure of the value of the right, and, in the absence of any of the usual vitiating factors such as fraud, mistake or misrepresentation, the one would balance out the other such that there would be no inequality of consideration: Re Abbott (Bankrupt No 8 of 1980) [1983] Ch 45 and Re Kumar (A Bankrupt) [1993] 1 WLR 224 applied. If that were not the case, all such transfers would be void under section 339(3)(a) and/or (c); parliament could not have intended that such an order could be capable of automatic nullification at the suit of a trustee in bankruptcy of a husband against whom a bankruptcy order had been made at his own petition. However, if any vitiating factors were established by a trustee in bankruptcy on an application under section 339, it would be apparent that the prima facie balance was not the true one, and the transaction would be liable to be set aside.
It was not relevant to consider what the effect of an out-of-court compromise of ancillary relief proceedings would be, since such a compromise could not amount to a “transaction” for the purposes of section 339; accordingly the extent to which it was made for consideration, or otherwise enforceable, was immaterial: Xydhias v Xydhias [1999] 2 All ER 386 distinguished.
In the instant case, section 339(3)(a) and (c) were inapplicable since the appellant had given consideration, which was in money or money’s worth and of a value not less than that of the consideration provided by the bankrupt husband.
Avtar Khangure QC and Angus Burden (instructed by Harrison Clark, of Worcester) appeared for the appellant; Peter Arden QC and Niall McCulloch (instructed by Clarke Willmott, of Bristol) appeared for the respondents.
Sally Dobson, barrister
