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7-04-2021

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Lin v Gudmundsson [2021] EWHC 820 (Ch) was an application by the debtor’s ex-wife to annul a bankruptcy order made against her former husband on 26 February 2020 following the service on him of a statutory demand and presentation of a petition by a creditor. The Family Court made an order for financial relief on 4 March 2020 and shortly thereafter pronounced decree absolute. Under the terms of the financial relief order Mr Gudmundsson was to transfer to his wife his interest in the matrimonial home in London but retain his business interests in Iceland, a property in Iceland, certain pensions and any interest that he may have had in a family trust or foundation.

The ex-wife’s case was that the bankruptcy order ought not to have been made for three reasons: (1) there had been collusion between the petitioning creditor and the debtor; (2) the debtor had been solvent at the time the bankruptcy order was made; and (3) the debtor’s centre of main interests was not in the UK at the relevant time. The line of authority on the use of bankruptcy to defeat a matrimonial claim on which she relied is well known. As Patten LJ said in Arif v Zar  [2012] BIPIR 948, the courts need to be alive to the possibility that husbands (or wives) may attempt to use the protection of a bankruptcy order as a shield against the claims of their spouses for ancillary relief. Other cases in point referred to by Chief ICC Judge Briggs in his judgment include Re Holliday [1981] Ch 405,  F v F [1994] 1 FLR 359 and Paulin v Paulin [2009] BPIR 572.

In the family proceedings, the judge had described the debtor’s financial position as opaque. The position of his former wife in the annulment application was that he had substantial assets in the form of his interest in the family foundation which had received funds from the family trust, an interest in a hotel in Reykjavik, and sufficient collateral to enable him at one stage to raise an unsecured loan of over £2m.

Chief ICC Judge Briggs reviewed the authorities, noting that in Re Holliday the husband had presented his own petition and obtained a bankruptcy order on the day when his wife had activated her claim for ancillary relief. Goff LJ had found that if the husband had not been able to pay his debts when they fell due, prima facie the receiving order and the bankruptcy order (under the Bankruptcy Act 1914) had been properly made. Re Holliday, Chief Judge Briggs said, was still good law, but for good measure he referred also to Re Coney [1998] BPIR 333 which makes the same point. The position, was, however, different if the statements supporting the petition were false, i.e. there were no debts, or the bankrupt could pay them as they fell due: F v F; Couvaras v Wolf [2002] 2 FLR 107. Judge Briggs noted a distinction between what used to be a debtor’s petition (now a bankruptcy application) and a creditor’s petition:

“In my judgment cases concerning a debtor’s own petition for bankruptcy and a creditor’s petition need to be distinguished. The warning that a party to financial relief proceedings may attempt to use the protection of  bankruptcy to avoid a spouse from receiving the benefit of an order, is not directed at cases where a genuine creditor petitions and the debtor cannot pay the debt.”

The judge’s decision in Re Gudmundsson, as so often in cases of this kind, rested mainly on his assessment of the truth of the witness evidence. Although he accepted that in the case before him the debtor and creditor had been friends, he declined to find collusion, holding that “the relationship was also one of creditor-debtor.” (He relied in this respect on documents supplied to the trustee supporting the debt, including a schedule of payments made to or on behalf of the debtor and bank statements showing payments.) He also found that the only income available to the debtor at the time the bankruptcy order was made was from the hotel In Iceland The trustee had not uncovered any other sources of income. “As can be observed,” he said, “these circumstances contrast to Couvaras.” He also found that the debtor had properly conceded jurisdiction when he appeared at the hearing of the bankruptcy petition and he saw no reason to go behind the jurisdictional finding made at the time the order was made.

The former wife’s application to annul was accordingly dismissed.

 

Graham McPhie
Partner

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