Avoiding payment by Bankruptcy Plan fails
A husband who had himself declared bankrupt in order to avoid making a financial settlement to his ex-wife recently found his plan stymied by the court.
The man had many business interests and had purchased a substantial house through an Isle of Man company. When his wife issued a petition for divorce proceedings in 2006, she obtained freezing orders to prevent him from dissipating his assets.
He then petitioned to be made bankrupt, claiming debts of £191,000. A few days before the bankruptcy petition was lodged with the court, he transferred the only issued share in the company to a third party, in breach of the freezing order. He was subsequently made bankrupt, but the order was not ‘sealed’.
The bankruptcy order was opposed by his ex-wife on two grounds. Firstly, that the judge could change his mind about granting the bankruptcy petition before it was sealed, and secondly that a bankruptcy order can be annulled on the petition of a debtor.
The house was sold, yielding a surplus of £1 million which was paid into court. The company which had owned the property was then put into liquidation, with an alleged debt due to another company exceeding £1 million. The ex-wife claimed that the debt due to the second company was a sham, and that her ex-husband had organised his affairs to ensure there was no money with which to make a financial settlement.
The ability of the ex-wife to obtain a settlement depended on getting her ex-husband’s bankruptcy order annulled. In order to do that, it had to be shown that he was capable of paying his debts at the time the order was made.
The application to annul the order was successful. Inevitably, the matter ended up in the Court of Appeal which, after lengthy consideration, concluded that the husband was able to pay his debts when he was made bankrupt.
By this decision, the Court has sent out a warning to those who seek to avoid their liabilities through financial manipulations.