Family Law Hub

B v IB [2013] EWHC 3755 (Fam)

W was seeking to set aside a transaction, where H had transferred £1.75M to his son before their divorce, so as to bring the sum back into the estate.

  • In brief: A case involving both doom (insolvency) and the tomb (death). 

    The husband ("H") was born in 1938 and the wife was born in 1949. They had married in 1984. H had been married previously and there were two daughters and a son from his first marriage. H owned the majority of shares in a company, which was sold in 2000 and the bulk of the sale price was paid in 2002. The minority shareholdings of W of 10% and H's son ("IB") of 5% were transferred back to H before sale.  

    In 2002, H transferred £1.2M to IB, on IB ceasing to be employed by the company. In April 2005 he transferred £30,030 to IB and in September 2006 he transferred a further £1.75M to him. It was IB's case that all payments reflected his shareholding or were a gift to him to reflect his part in the company's success. W did not accept IB's contention. W pointed out that IB had received 65% of the net proceeds and queried why payments were made in 2006, four years after the sale monies were received.  

    In 2009, W filed a petition for divorce and in October 2009 she applied to set aside the money transfers to IB between 2002 and 2006 under s.37 Matrimonial Causes Act 1973 so as to bring back those monies into the assets available within the financial remedy proceedings. She obtained an ex-parte freezing order in respect of H's assets. The order stated on its face that it was made both pursuant to s.37 MCA 1973 and the court's inherent jurisdiction. 

    IB was joined as second Respondent in June 2010 but by July 2010 H was very ill and unable to give instructions. Medical opinion was that he lacked capacity to litigate. There was no evidence that he had been incapacitated as at the date of the transfer(s). He became represented by the Official Solicitor.

    In March 2011 District Judge Aitken sitting at the PRFD set aside the transfer from H to IB which had been made on 21 September 2006 of £1.75M. She dismissed the applications to set aside the transfer of £1.2M in 2002 and £30,030 in April 2005. IB appealed. W did not cross-appeal. In September 2011, Mostyn J granted permission to appeal and set aside the order because the District Judge had specifically disbelieved IB on a point which arose in cross-examination on behalf of H about which the judge had asked questions, but upon which IB ought to have been challenged, and in respect of which W ought to have been recalled. There were other evidential points and it was held that the district judge had not given a clear explanation as to why she had exercised the discretion to set aside the transaction. A retrial was ordered.

    In October 2011 W's solicitors served notice that as well as pursuing the s.37 set aside remedy, she also intended to apply for an order under s.423 Insolvency Act 1986 (IA 1986), restoring the financial position of H to that which would have existed had he not made the transfers to IB of £30,030 in 2005 and £1,750,000 in 2006 and for an order waiving compliance with any other procedural requirements that might otherwise exist in respect of the making of the application under s.423 IA 1986. 

    W's solicitors argued that although the two provisions are similar in effect, s.423 did not require proof that the transaction about which complaint is made had been effected with the intention of defeating a claim under MCA 1973, which she was otherwise required to establish since the two transfers had been made more than three years before the date of her application.

    The two applications came before Mrs Justice Parker for hearing on 25 to 28 June 2012. The hearing outran its allotted span and was adjourned. H died on the night of 10 July 2012. 

    W's legal team wanted to consider the legal consequences and their client's position and a hearing was not reconvened until April 2013. The parties now agreed that the right to pursue an application to judgment did not extend past joint lives and that the s.37 jurisdiction had come to an end.  

    H's will, made in 2010, replacing an earlier will and made shortly after W had presented her petition, named IB as executor together with another individual. His estate was left on trust for his surviving children. W was to receive nothing under the will. W also intended to commence proceedings under the Inheritance Provision for Family and Dependants Act 1975 ("I(PFD)A 1975").

    W owned half of the former family home. H's remaining estate was about £2M. W sought to set aside the transaction so as to bring back the sum of £1.75M into the estate and sought to have the s.423 route available to her as well as the statutory route under s.10 I (PFD)A 1975. The issue for Parker J to determine was whether the application made by W under s.423 Insolvency Act 1986 should be dismissed or not.

    After consideration of the law and the relevant case law and in particular the interrelationship between s.423 IA 1986 and s.10 I(PFD)A 1975, Parker J held that:-

    • it was not impossible to restore the position, at least in law, as to ownership, to what it was at the date of the transaction; 
    • that she did not accept that s.423 only applies to cases where the estate is insolvent; and 
    • that the s.423 test is wider than the s.10 test and that the remedy was therefore different.

    The judge held that applications were not indistinguishable. In her judgment, Parker J held that s.423 provides an additional remedy which may be of utility in the case, that an application can be issued in its own right pending the making of a claim, and that it did not require formal insolvency: H or his estate may be characterised as the debtor and W (and indeed the co-beneficiaries) as victims of the transaction. It was held that the court had jurisdiction and the merits of the applications would be tried in due course. On the issue of costs, the judge held while there was a possibility that the case may settle that to decide on costs now would not serve the overriding objective.

Case note, published: 18/02/2014

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See also

  • W was seeking to set aside a transaction, where H had transferred £1.75M to his son before their divorce, so as to bring the sum back into the estate. She wished to have the s423 Insolvency Act 1986 route available to her as well as the statutory route under s10 of the Inheritance Provision for Family and Dependants Act 1975. The judge declined to dismiss her s423 application and the question of costs was adjourned. Judgment, 09/01/2014, free

Published: 18/02/2014

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