| BANKRUPTCY — Transaction at undervalue — Ancillary relief proceedings — Husband transferring interest in matrimonial home to wife — Husband subsequently becoming bankrupt — Trustees in bankruptcy applying to set aside transfer — Whether wife giving consideration for transfer — Whether transfer constituting transaction at undervalue — Matrimonial Causes Act 1973, ss 23 -25, Insolvency Act 1986, s 339(3)(c)
Hill and another v Haines [2007] EWCA Civ 1284
CA: Sir Andrew Morritt C, Thorpe and Rix LJJ: 5 December 2007
A property adjustment order made in ancillary relief proceedings, whether following a contested hearing or a compromise agreement, was made for consideration and was not therefore a transaction at an undervalue under section 339 of the Insolvency Act 1986. Parliament could not have intended that an order transferring the former matrimonial home from one spouse to the other should be capable of automatic nullification at the suit of the trustee in bankruptcy of a spouse against whom a bankruptcy order had subsequently made on his or her own petition.
The Court of Appeal so held allowing the appeal of Wendy Haines, the wife, from the decision of Judge Pelling QC sitting as a deputy judge of the High Court on 3 May 2007 [2007] EWHC 1012 (Ch); [2007] WLR (D) 121 allowing the appeal of Richard John Hill and John Ivor Bangham, the joint trustees in bankruptcy of David Haines, the husband, from the order of District Judge Cooke who on 10 January 2007 refused to declare that the transfer by the bankrupt of the beneficial interest in a farm, bought by the bankrupt and the wife as joint tenants at law and in equity, was a transaction at an undervalue under s 339 of the Insolvency Act 1986 and void against the trustees. The wife presented a petition for divorce in 2003 and commenced ancillary relief proceedings. The order that the husband transfer the farm to the wife became effective on 28 February 2005. On 31 March 2005 a bankruptcy order was made against the husband on his own petition.
S 339 of the 1986 Act provides: “ (1) ... where an individual is adjudged bankrupt and he has at a relevant time ... entered into a transaction with any person at an undervalue, the trustee of the bankrupt’s estate may apply to the court for an order ... (2) The court shall ... make such order as it thinks fit for restoring the position to what it would have been if that individual had not entered into that transaction.”
MORRITT C referred to Miller v Miller; McFarlane v McFarlane [2006] 2 AC 618, paras 8 and 9, per Lord Nicholls of Birkenhead. It was self-evident that the ability of one spouse to apply to the court for financial provision and property adjustment orders under ss 23 to 24D in Part II of the Matrimonial Causes Act 1973, was a right conferred and recognised by law. Further it had value in that its exercise could, and commonly did, lead to court orders entitling one spouse to property or money from or at the expense of the other. That money and property was, prima facie, the measure of the value of the right. The judge was wrong in law when he concluded that parties to an order of the court granting some form of ancillary relief did not give consideration at all for the purposes of s 339(3)(a) of the 1986 Act. Considering the economic realities, the order of the court quantified the value of 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 to the applicant. That that was the true interpretation of s 339(3)(c) was confirmed by the terms of s 39 of the 1973 Act. S 339(3)(a) was inapplicable because the wife did give consideration. S 339(3)(c) was inapplicable because the consideration provided by the wife was in money or money’s worth and its value was not less than the value of the consideration provided by the bankrupt. In the light of those conclusions no question of exercising any discretion allowed by s 339 could arise and the appeal would be allowed.
THORPE LJ said that between the systems of insolvency and ancillary relief law there needed to be a fair balance which on the one hand protected creditors against collusive orders in ancillary relief and on the other protected orders justly made at arms length to protect the applicant and children of the family. The approach adopted by Judge Pelling would destroy that balance.
RIX LJ said that there was nothing in the concept of consideration as a whole to suggest that the compromise or release of a statutory right such as provided by s 24 of the 1973 Act could not amount to consideration.
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