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Case study 1 Divorce – Financial provision – Ancillary relief – Bankruptcy – Wife obtaining freezing and occupation orders in course of divorce proceedings – Husband running up debts in breach of freezing order and petitioning for bankruptcy without wife’s knowledge – District judge making financial order in divorce proceedings – Order leaving wife with residue of bankrupt estate – Wife appealing against financial order and subsequently seeking annulment of bankruptcy order – Whether bankruptcy order improperly made – Whether district judge erring in approach to financial order – Matrimonial Causes Act 1973, s 25 – Insolvency Act 1986, ss 282(1), 336(2), (4), (5) – Family Law Act 1996, s 33. Held – (1) The first question on the annulment application was whether, on any grounds existing at the time the bankruptcy order was made, the order ought not to have been made. Three conclusions were relevant in answering that question. The first was that the husband had in fact been unable to pay his debts as they became due and, at the time the order was made, it could not be said that there had been a tangible and immediate prospect of his being able to do so. Whilst some or all of his debts could have been paid once the divorce was concluded at some time in the foreseeable future, the information presented to the bankruptcy court had not made it inappropriate for it to have made the order when it had. Secondly, there was no evidence that the husband’s motivation for petitioning had been to frustrate the wife’s legitimate claims, although his actions were bound to impact on her; it was more likely that he had been motivated by a belated wish to put his affairs in order. Although his breach of the freezing order was reprehensible, he had been entitled to consider that he too had some interest in the family assets and, if anything, the bankruptcy had put an end to their dissipation. The bankruptcy was unnecessary but it had not been tactical. Thirdly, contrary to the wife’s assertion, s 336(2)(a) of the 1986 Act did not provide her, and all others in her position, with a position of cast-iron impregnability against any attack on the family home by creditors. The intention behind the subsection was to ensure that, where a wife’s home rights were concerned, a trustee in bankruptcy was in no better short-term position than a husband had been. The rights endured until they were brought to an end by an order of the court, whether in divorce proceedings, or by an order in the bankruptcy proceedings. The existence of such rights did not make the property onerous and the section did not give a person in the position of the wife a right to remain in the property in perpetuity regardless of anyone else’s interests. As a matter of law, the threshold for annulment had not been crossed and the wife’s application therefore had to be refused (see –, below); Re Coney (a Bankrupt)  BPIR 333 and Paulin v Paulin  2 FCR 477 applied. (2) The wife’s claim that the district judge had failed to give first consideration to the child’s position had to be rejected, and it was not the case that his welfare was to be regarded as paramount in that context. The submission that the judge had proceeded on the assumption that no challenge to the bankruptcy was possible was also unfounded. The wife had not herself challenged the bankruptcy order; on the contrary, she appeared to have accepted it and, like the court, to have worked around it. Moreover, as the district judge had no power to disturb the bankruptcy, any challenge would have had to be made in the bankruptcy court, with the result that the financial application in the divorce would have had to be adjourned again. Given the fact that the assets were already wafer-thin and the debts a reality,  2 FCR 608 at 611 the judge could not be criticised for failing to adjourn the proceedings on his own initiative to allow the wife to make an application to annul. The reduction in the price offered by the purchaser was not a ground for the appellate court to interfere, particularly as the judge had specifically referred to the falling market. The wife’s argument that the judge should have applied the checklist of factors mentioned in s 336(4) of the 1986 Act could not be accepted; the trustee had had no reason to apply for an order for possession at that stage because, at the time of the hearing, the wife had agreed to a sale. In any event, under s 336(5), the interests of creditors outweighed all other considerations once the trustee had been in post for more than one year, unless exceptional circumstances existed. No such circumstances existed in the instant case, which made it difficult to see what assistance the wife could have gained from s 336. Moreover, it could not be said that the district judge had failed to properly take into account the relevant factors under s 25 of the 1973 Act. His judgment demonstrated a sensible and pragmatic approach to the information before him. He had been aware that the residual assets were scarcely sufficient to re-house the wife and child, and his order fell to be viewed in the context of the acutely limited solutions that were by then available. In those circumstances, the wife’s appeal would be dismissed (see , –, below). Per curiam. Where a person affected by a bankruptcy order, such as a spouse or civil partner, considers that the order should not have been made, or that there are ways of getting it set aside, they must act immediately to have it annulled or suspended before the costs of the bankruptcy eat into, or eat up, the family assets. In the case of a creditor’s petition, the Insolvency Rules 1986, 1986/1925 (as amended) make appropriate provision for the proceedings to be served on the debtor. There is no equivalent provision in the case of a debtor’s petition, even though third parties may be affected as profoundly as the debtor himself. On the other hand, there is nothing to prevent the court taking bespoke measures to meet the needs of individual cases. The standard statement of affairs accompanying a debtor’s petition requires the applicant to disclose whether they have been involved in divorce proceedings at any time in the last five years. A positive reply should alert the court to the likelihood that a spouse or partner might have a legitimate interest in the outcome of the petition. When faced with such a petition, and particularly the petition of a debtor who is not being pressed for payment, the bankruptcy court should consider whether to adjourn for a short time to allow notice to be given to a spouse or partner who may be affected. They may be in a good position to say whether the debtor is in fact insolvent or, if he is, to make proposals for debts to be cleared without the need for bankruptcy and all it entails. Even if adjournment for some reason is not appropriate, the bankruptcy order should at least be served on the spouse or partner at the time it is made, so that they are immediately aware of what is going on (see –, below). Case study 2 Divorce – Financial provision – Ancillary relief – Non-disclosure – Husband and wife divorcing – Court making consent order for ancillary relief on clean break basis – Wife subsequently discovering husband failed to disclose ownership of shares – Judge altering consent order to include additional payment to wife on basis of shares’ value – Husband appealing – Whether judge erring in failing to order rehearing of ancillary relief proceedings – Matrimonial Causes Act 1973, s 25. Divorce – Financial provision – Ancillary relief – Sharing – Husband and wife divorcing – Court making consent order for ancillary relief onclean break basis – Wife subsequently discovering husband failed to disclose ownership of shares – Judge altering consent order to include additional payment to wife on basis of shares’ value – Husband appealing – Whether appropriate to give guidance as to proper application of sharing principle to part matrimonial and part non-matrimonial asset – Matrimonial Causes Act 1973, s 25. Held – (1) Although there might be cases of non-disclosure in which the proper course would be to conduct the exercise under s 25 of the 1973 Act all over again on updated material, that exercise would not always have to be conducted again. It would depend on the nature of the defect generated by the non-disclosure. In the instant case, the judge had been entitled to proceed to repair the defect by enlargement of the additional payment in the 2005 order because (a) he had a discretion as to how best to proceed; (b) in exercise of that discretion he was required to seek to deal with the case justly, and thus in a way which was proportionate to the complexity of the issues and which would save expense and ensure expedition; (c) the non-disclosure was of a discrete element of the husband’s assets and generated a defect which could be cured by one simple enlargement, to be devised pursuant to the sharing principle; (d) the order had been fully implemented and there was no need to reverse any part of its implementation; and (e) the husband’s lies yielded a conclusion that, were there to be a second, updated, inquiry, no assertion on his part in relation to his financial circumstances would be likely to be accepted unless clearly established following protracted and costly examination. To that had to be added an important rider: before adopting the course which the judge had taken, he had to have been satisfied that the husband could reasonably make the extra payment of £481,000. In that respect, however, he had been entitled to take a broad and robust approach. Given that, four years earlier, the husband had enjoyed a secret windfall of £1.268m, the judge was entitled to assume, in the absence of powerful prima facie evidence to the contrary, that he could still reasonably make that extra payment (see –, –, below). (2) While the general starting point of equal division established in Miller v Miller, McFarlane v McFarlane  2 FCR 213 was to be applauded, the  1 FCR 179 at 181 insinuation into the sharing principle of other starting points in relation to particular types of assets would serve only to sweep the inevitable examination of the facts downstream into the realms of departure from those points. The interposition into the sharing principle of the subsidiary starting point suggested by the husband for property which was only in part matrimonial would add fertile ground for further argument on an extra level and would banish none of the uncertainty which, though regrettable, was unavoidable in a system which remained committed to justice bespoke to the particular facts. The major difficulty with the argument that the starting point for the sharing of such an asset should be 25%–75% was that it jumped from treating an asset as ‘partly’ matrimonial to treating it as ‘half’ matrimonial. Such a jump was not necessarily valid. Couples would probably wish to argue about it, one arguing that the asset was more than half matrimonial and/or the other arguing that it was less than half matrimonial. If so, they would wish to argue that there should be departure from the suggested starting point (or even that it was not apt to be applied in the first place). There was no escape from examination of the genesis of the asset (see , below); Miller v Miller, McFarlane v McFarlane  2 FCR 213 considered. (3) The husband’s argument that the judge was wrong not to have reduced the award of £481,000 by £200,000 to take into account the agreed payment made to the wife in 2005 was invalid. On a proper interpretation, the agreement in 2005 for the husband to make the additional payment to the wife had not been based primarily on her needs; that part of the agreement was primarily reflective of a different feature, namely that the husband was likely in the future to generate vastly greater earnings than the wife. Such was a reasonable assumption and, surveyed broadly, events since 2005 had served only to confirm its validity (see –, below). Accordingly, the appeal would be dismissed. Case study 3 Divorce – Financial provision – Ancillary relief – Bankruptcy – Wife issuing proceedings for ancillary relief and obtaining freezing order preventing disposal of property by husband – Husband successfully petitioning for bankruptcy using false statement of affairs – Wife applying for annulment of bankruptcy order – Judge refusing to annul order but subsequently reversing decision – Husband appealing – Whether proper for judge to reverse decision – Whether judge erring in annulling bankruptcy order. Held – (1) Although a judge had jurisdiction to reverse his decision at any time until his order was perfected, authority had placed a limitation upon the proper exercise of that jurisdiction, namely by the adoption of the formula that the circumstances had to be exceptional. The judge’s decision to exercise the jurisdiction to reverse in the instant case had been flawed in that it had not even purported to have been exercised in accordance with the established principles and had not been reasoned at all. However, it did not follow from the impropriety of the judge’s decision to reconsider his decision upon the central question that the husband’s appeal from his ultimate order should succeed. The husband had not attempted to appeal against the direction for reconsideration and it was pointless to speculate on the court’s reaction to any such attempt had it been invited to consider it prior to the date of the hearing at which the judge had conducted the reconsideration; Re Barrell Enterprises  3 All ER 631 considered.  2 FCR 477 at 479 (2) It was clear that a person made bankrupt on his own petition who was shown both to have made a substantially dishonest statement of affairs and on the date of presentation to have held assets which substantially exceeded his liabilities would find it hard to resist annulment on the basis that he was nevertheless unable to pay his debts. The husband in the instant case fell into both such categories. Had he honestly presented the facts to the court in 2006, the court would have been likely to permit the property’s sale and his deployment of a small proportion of its net proceeds in the discharge of his debts. Therefore, the judge had been correct to conclude that on 26 July 2006 the husband had been able to pay his debts. There had then accrued to the judge a discretion whether to annul the bankruptcy order. The husband’s motive in procuring the bankruptcy order, namely to defeat the wife’s claims, and also the effect on the wife of refusing to annul the order, namely that the court would be precluded from ordering the husband to make capital provision to her while it subsisted, were two factors which strongly militated in favour of exercising the discretion so as to annul it. It was clear that what had led to the exercise of discretion in the opposite way in the first judgment was the existence of the genuine commercial creditors; the likelihood that, were the order annulled, they would swiftly petition for the husband’s bankruptcy; and the judge’s conclusion that it would therefore be ‘idle’ to annul the order. By the time of his second judgment, the judge had realised that there was very little risk that his ultimate award to the wife would be set aside as a transaction at an undervalue and thus had no longer been concerned that it would have been idle to annul the bankruptcy order. Although that did not obviate the need for the court to weigh the interest of the husband’s genuine creditors in the exercise of its discretion, their existence was certainly not a trump card precluding annulment in the instant case. A survey of the wider circumstances plainly generated a conclusion that the judge’s ultimate approach to the exercise of his discretion had been correct. Accordingly, the appeal would be dismissed; Hill v Haines  2 FCR 513 (High Court),  3 FCR 785 (Court of Appeal) and Whig v Whig  1 FLR 453 considered.