High Court examines the interrelationship between Inheritance Act and the Insolvency Act

20 January 2014

In the case of B v IB [2013] EWHC 3755 (Fam) the High Court has determined the status of an application made under s.423 of the Insolvency Act 1986 issued during divorce proceedings where the husband had died during the process and the wife intended to commence new proceedings under s.10 of the Inheritance (Provision for Family and Dependants) Act 1975.

Background

H and W were married in 1984. H had been previously married, and there were two daughters and a son of that first marriage. Between 2002 and 2006, H transferred £3m of his own personal funds to his son (S). In 2009, W filed a petition for divorce and on 15 October 2009 W applied to set aside the money transfers under s37. Matrimonial Causes Act 1973, so as to bring back those moneys into the assets available within the financial remedy proceedings.

In March 2011, District Judge Aitken set aside £1.75m of the transfers to S. However, the setting aside decision was overturned on appeal, which led to W lodging two applications under s.423 of the Insolvency Act 1986 (“the Insolvency Act”) for the court to restore the financial position of H to that which would have existed had he not made the transfers to S. The applications were heard in part before being adjourned on 28 June 2012. H died two weeks later.

H's will named S as executor together with another individual. H’s estate was left on trust for his surviving children and W received nothing under the will. W intended to replace the s.37 proceedings by starting proceedings under s.10 of the Inheritance (Provision for Family and Dependants) Act 1975 (“the Inheritance Act”), arguing that her former husband’s will did not make reasonable financial provision for her.

However, at the time when the Insolvency Act hearing was re-convened in April 2013, W had not started the new proceedings under the Inheritance Act because S had not obtained probate. Subsequently, S applied to dismiss W's Insolvency Act application and the issue for determination by the court was the interrelationship between s.423 of the Insolvency Act and s.10 of the Inheritance Act.

W maintained that s.423 of the Insolvency Act was a freestanding remedy which was not excluded by the Inheritance Act and which provided her with a wider range of remedies. S argued that the Inheritance Act remedy precluded reliance on the Insolvency Act, and that there was no cause of action under the latter because it was applicable only in cases of insolvency. S also argued that a new claim under the Inheritance Act was, in any event, time-barred.

Held

The High Court refused to dismiss W's application under s423 of the Insolvency Act. In reaching her decision, Mrs Justice Parker accepted that s423 provides an additional remedy which may be of utility in this case, that an application can be issued in its own right pending the making of a claim, and that it does 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.

Parker J accepted that the court has jurisdiction, however she noted that whether or not the court would exercise it on the merits is yet to be decided.

Parker J rejected the argument that the claim was time-barred, as the time only began at the date of the bankruptcy and not at the earlier date of the transaction sought to be set aside.

Katie Allard

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