Bulletins | April 15, 2016

It’s now even Harder for a Trustee to get Relief from Ancillary Relief

The case of Sands v Singh has recently clarified but narrowed the circumstances in which a trustee in bankruptcy can challenge an order or financial settlement made in divorce and ancillary relief proceedings. Such a challenge is usually made on the basis that the transfer of the assets was for nil consideration or consideration that was less than the value of the assets transferred (contrary to section 339 of the Insolvency Act).

Hill v Haines has already evidenced the uneasy relationship between the family court and the Bankruptcy court and the judgment in Sands goes even further to protect ancillary relief orders from challenge when the transferring party is made bankrupt.

Whilst it was helpfully clarified that the Trustee does not need to intervene in the ancillary relief proceedings in order to challenge a settlement or order, the judgment further reduced the scope for a Trustee to seek to challenge the order as an undervalue. In many cases of course, the assets transferred to the former spouse will be the most significant assets in the bankrupts estate.

The judgment essentially reinforced the family court’s ability to approve financial settlements of this nature and ruled that a transferee of assets in the context of ancillary relief proceedings is giving proper consideration. The difficulty for Trustees is that this case narrows the scope for challenge to only those situations where there has been a “vitiating” or exceptional factor in the process of agreeing the settlement or obtaining the order. The primary examples would be where the husband and wife have arranged or colluded for the assets to be transferred to the former spouse in order to deprive the bankrupt’s creditors (and maintain the assets for the benefit of the wider family) or where there has been a material misrepresentation or mistake.

Is this the nail in the coffin for challenges to financial settlement orders?

No, but it does make the Trustees job more difficult and more costly. Where there is suspicion of a vitiating factor, the Trustee will need a thorough investigation into the discussions between husband and wife in the process of carving up the assets and indeed the wider asset history. This may mean an extra layer of obtaining evidence from witnesses, private examinations and utilising the Trustees powers under section 336 of the Act to obtain solicitor’s files, computer records and messages where necessary.