Audun Gudmundsson v Hsiao-Mei Lin

Where a bankruptcy order precedes a financial remedies order, the bankrupt’s assets vest in the trustee in bankruptcy. The family court may determine financial claims, but it cannot make a property adjustment order disposing of assets that have vested in the trustee. A lump sum order remains possible because it does not dispose of the bankrupt’s property, although it should ordinarily be made only where the likely surplus after bankruptcy can be assessed with sufficient confidence.

An appellate court may set aside an erroneous property adjustment order and substitute an order directing any eventual surplus attributable to the bankrupt’s former interest to the spouse intended to benefit from the original order.

This was an appeal from a financial remedies order made by HHJ Meston QC on 4 March 2020. The order required the husband to transfer his 50% legal and beneficial interest in the former matrimonial home to the wife.

The husband had been made bankrupt six days earlier. His interest in the property had therefore vested in the trustees in bankruptcy. The bankruptcy proceedings subsequently established that the wife and the trustees each owned 50% beneficially, and that the bankruptcy involved substantial admitted debts and trustees’ costs. The central issue was whether the property adjustment order could stand and what substitute order was required.

1. Appeal allowed. The property adjustment order requiring the husband to transfer his interest in the former matrimonial home to the wife was set aside. By the date of the order, the husband’s interest had vested in the trustees in bankruptcy.

2. Under sections 283 and 306 of the Insolvency Act 1986, the bankrupt’s assets formed part of the bankruptcy estate and vested in the trustee. A family court may make a financial remedies order notwithstanding bankruptcy, but it cannot make an order disposing of assets formerly belonging to the bankrupt and now vested in the trustee. The court followed the approach reflected in Re Holliday (A bankrupt) [1981] Ch 405, McGladdery v McGladdery [1999] 2 FLR 1102 and Ram v Ram (No 2) [2004] EWCA Civ 1684.

3. A lump sum order is not an order disposing of the bankrupt’s property and is provable in the bankruptcy. However, consistently with Hellyer v Hellyer [1996] 2 FLR 579, such an order should ordinarily be made only where the court has a sufficiently clear assessment of the likely residue available after discharge. The court declined to increase the nominal periodical payments order because there was no updated evidence of income or expenditure.

4. The court recorded that the wife owned 50% beneficially and directed that, on any eventual sale of the former matrimonial home, any surplus attributable to the husband’s former 50% interest, after payment of the trustees’ costs and creditors’ claims, should be paid to the wife. The direction was intended to give effect, so far as legally possible, to the purpose of the original order and the consequences of the husband’s concealment of the bankruptcy.

5. The husband was ordered to return the wife’s paintings, with transportation costs shared equally. The request for anonymisation was refused after the court undertook the balancing exercise referred to in Re S.

• Central Family Court: HHJ Meston QC made a financial remedies order on 4 March 2020 requiring transfer of the husband’s interest in the former matrimonial home.
• High Court (Family Division): Permission to appeal was granted on 14 August 2020. Mr Justice Peel allowed the appeal, discharged the property adjustment order and substituted directions concerning the property and the wife’s other relief.