Mekarska v Ruiz & Anor

Matrimonial home rights survive a spouse’s bankruptcy as a charge binding the trustee in bankruptcy and persons deriving title under the trustee. That protection does not create an entrenched right of occupation. A trustee may apply to regulate or discharge the rights, and the court must consider the statutory factors, including the interests of creditors. After one year, creditors’ interests are presumed to outweigh other considerations unless the circumstances are exceptional. The charge does not give the spouse priority over bankruptcy debts. A bankruptcy order is not premature merely because divorce financial proceedings remain unresolved, and annulment depends on grounds existing when the order was made.

The wife appealed decisions concerning financial provision on divorce and the husband’s bankruptcy. The husband owned the matrimonial home in his sole name. The wife had registered matrimonial home rights and obtained an order extending them beyond the divorce. The husband later became bankrupt.

District Judge Wicks awarded the wife the available surplus after bankruptcy debts and expenses. Peter Jackson J rejected her appeal against that order and refused to annul the bankruptcy in [2011] EWHC 913 (Fam). The Court of Appeal considered permission for a second appeal on financial provision and a first appeal concerning annulment. The central issues were the effect of matrimonial home rights during bankruptcy and whether the bankruptcy order ought to have awaited the conclusion of the divorce proceedings.

Mann J gave the judgment of the court. Kitchin LJ and Thorpe LJ agreed. The court refused permission to appeal in relation to both matters.

1. Second appeal. Permission required an important point of principle or practice, or some other compelling reason. The proposed appeal concerning financial provision raised no arguable or sustainable point and therefore failed that threshold.
2. Matrimonial home rights. The Family Law Act 1996 gives the non-owning spouse rights of occupation against the owning spouse. Those rights are protected as a charge. Under section 336(2)(a) of the Insolvency Act 1986, the charge survives bankruptcy and binds the trustee in bankruptcy and persons deriving title under the trustee. The statutory scheme does not, however, confer an entrenched right to occupy the property.
3. The trustee is a successor in title and may apply under section 49(3) of the Family Law Act 1996 for an order under section 33 regulating or discharging the wife’s rights. On an application under section 336(2)(b) of the Insolvency Act 1986, the court must make a just and reasonable order having regard to the interests of creditors, the spouse’s conduct, the spouse’s needs and resources, the needs of any children, and all the circumstances other than the bankrupt’s needs. After one year, section 336(5) creates a presumption in favour of creditors unless the circumstances are exceptional.
4. The statutory scheme gives bankruptcy debts priority over the wife’s claim for these purposes. The financial provision order therefore operated on the surplus remaining after bankruptcy debts and expenses. The subsidiary arguments concerning possession of low-value homes, trustee fees, disclaimer, the wording of the district judge’s order and Secretary of State’s fees did not establish an appealable error.
5. Annulment. Under section 282(1)(a) of the Insolvency Act 1986, annulment depends on grounds existing when the bankruptcy order was made which show that the order ought not to have been made. There is no general rule requiring bankruptcy to await determination of divorce financial proceedings. Later fees, expenses or the fact that bankruptcy proved unwise did not satisfy the statutory test.

Application refused.

• Court of Appeal (Civil Division) refused permission to appeal on the financial provision issue and refused the first appeal concerning annulment.
• High Court of Justice, Family Division Peter Jackson J rejected the appeal from District Judge Wicks’s financial provision order and refused to annul the bankruptcy: [2011] EWHC 913 (Fam).
• Uxbridge County Court District Judge Wicks made the financial provision order on 7 November 2008, awarding the wife the available surplus after bankruptcy debts and expenses.