June 16, 2011
In a recent decision the High Court held that a husband's bankruptcy defeated the wife’s right to occupy the matrimonial home. This decision confirms that, in the absence of special circumstances, creditors’ interests outweigh that of the bankrupt’s family.
The husband was made bankrupt upon his own petition, during divorce proceedings, within which the wife had obtained an order freezing the husband’s assets and an order granting her rights to occupy the matrimonial home.
Some 18 months after the bankruptcy order, the wife applied to annul it. The wife argued that the order should not have been made as the husband had failed to disclose the freezing and occupation orders to the bankruptcy court.
The High Court refused the application
- A bankruptcy order was not inappropriate, as the husband was genuinely unable to pay his debts as they fell due, despite his assets exceeding his liabilities.
- The occupation order had not granted the wife indeterminable rights to occupy the home, but rights which can be brought to an end by a further court order (whether in the divorce or bankruptcy court).
- The freezing order did not prevent the Trustee in Bankruptcy from acquiring an interest in the matrimonial home, as the Trustee’s interest vests by operation of law.
The Court said that had the wife made a timely annulment application, accompanied by an agreement to sell the home, the court might have suspended the order or indeed annulled it on the basis of payment of the bankruptcy debts and costs in full. This was no longer an option due to the level of the bankruptcy debts and costs.
The Court recommended that in future bankruptcy courts should consider adjourning a debtor’s own petition, to allow a debtor's estranged spouse to receive notice of the hearing. Where an adjournment is not appropriate, the bankruptcy order should be served on the spouse.
What the case makes clear is that any bankrupt’s spouse should take immediate legal advice when receiving notice of a bankruptcy petition or order.
For further information on the issues surrounding bankruptcy or insolvency, please contact Petra Van Dijk, Solicitor at Spratt Endicott Solicitors on 01295 204000 or email her at pvandijk@se-law.co.uk.
