Whig v Whig

For annulment of a bankruptcy order under section 282(1)(a) of the Insolvency Act 1986, the applicant must prove on the balance of probabilities that the order ought not to have been made. Where the ground relied on is alleged insolvency, the relevant question is commercial insolvency: whether the debtor was unable to pay debts as they fell due, rather than whether assets exceeded liabilities. A debtor’s improper motive to frustrate ancillary relief proceedings does not justify annulment if the debtor was in fact insolvent. The Family Division applies the same insolvency principles as the other divisions of the High Court.

The wife’s ancillary relief proceedings and her application to annul the husband’s bankruptcy order were heard together. The husband had presented a debtor’s bankruptcy petition shortly before the first appointment in the ancillary relief proceedings. The wife alleged that he had undisclosed assets, that he remained able to pay his debts, and that the petition had been presented to frustrate her claim to the matrimonial home.

The central issues were whether the husband was unable to pay his debts on the date of the petition, whether any improper motive affected the validity of the bankruptcy order, and what financial orders should follow.

1. The wife’s application to annul the bankruptcy order was dismissed. Under section 282(1)(a) of the Insolvency Act 1986, the burden rested on her to establish, on the balance of probabilities, that the order ought not to have been made. Where annulment was based on an alleged false presentation of the husband’s finances, the gravity of the allegation required a high standard of proof.

2. Section 272(1) required the debtor’s petition to be founded on inability to pay debts. The applicable test was commercial insolvency, not balance-sheet insolvency. The question was whether the husband could pay his debts when they fell due, including whether there was a tangible and immediate prospect of payment.

3. The husband owed more than £24,000 to several creditors, several debts were being actively pursued, he had no employment or income, and his only liquid asset was an endowment policy worth approximately £6,700. The only realistic means of paying the debts would have been recourse to the equity in the matrimonial home. There was no tangible and immediate prospect that this could have been achieved in time to meet the creditors’ demands.

4. The husband’s motive was immaterial once the court was satisfied that he was in fact insolvent. A motive to frustrate the wife’s ancillary relief claim could justify careful scrutiny of his evidence, but could not itself support annulment under section 282(1)(a).

5. The Family Division was required to apply the same legal principles as the Chancery and Queen’s Bench Divisions. A wife’s claim to ancillary relief could not prejudice the interests of creditors or alter the established principles governing bankruptcy.

6. Because the husband’s interest in the matrimonial home had vested in the trustee in bankruptcy, no order could transfer that interest to the wife. The wife was awarded the husband’s pension by pension-sharing order and a nominal maintenance order. The trustee was in principle entitled to his costs of the annulment application.

7. Obiter, if the bankruptcy had been annulled, the matrimonial home would probably still have had to be sold to meet the commercial creditors’ claims and the trustee’s costs. An ancillary relief order made after annulment could also have been vulnerable under sections 339 and 341 of the Insolvency Act 1986 if the husband were made bankrupt again.

First-instance decision. The ancillary relief proceedings and bankruptcy annulment application were consolidated and heard together in the High Court.