For Richer, For Poorer....

06 May 2014


In the recent case of Official Receiver for Northern Ireland v Catherine Gallagher (11th February 2014), Deeny J considered the issue of dispositions by a bankrupt during the period of a live bankruptcy petition, where the transfers were to give effect to a divorce settlement.

Ciaran Gallagher was the subject of a petition for bankruptcy issued by HM Revenue & Customs following a statutory demand for the sum of £21,500.00 which petition was live at the same time as the negotiation of his decree nisi settlement with the respondent in this case.

Master Redpath of the Family Division heard the terms of agreement between Mr and Mrs Gallagher in November 2011, and arranged to also hear the bankruptcy petition at the same time as the two hearings were inter-connected.  The proposals by Mr Gallagher entailed settlement of the HMRC amount in order to extinguish the statutory demand and bankruptcy petition, and payment of €20,000 and transfer of a building site in County Donegal to his wife as part of the divorce settlement.  Both Mrs Gallagher and the petitioning creditor, HMRC, were represented at the hearing and approved the terms of the settlement.

Subsequent to this arrangement, Mr Gallagher was declared bankrupt in any event in January 2012.

The Official Receiver argued that the agreement reached at the November 2011 hearing, and the dispositions effected by it, were void on the basis that the High Court had not ratified the dispositions in bankruptcy hearings.  As a petition for bankruptcy was live at the hearing date, a separate hearing would be required to issue a validation order, and in the absence of the same the cash payments and transfer of property should be reversed.

It was important in this case that Master Redpath had heard both petitions and was therefore making the orders in full knowledge of the bankruptcy petition (and with the petitioning creditor represented at the hearing).  As such, while no separate validation order was issued, the order of Master Redpath was sufficient to validate the transfers of cash and property to Mrs Gallagher and to HMRC for the purposes of Article 257 of the Insolvency Order.

Many similar cases in England have not had the same outcome because different courts were dealing with the different petitions (either in terms of geographical location, or in terms of county court being involved in one or other of the petitions rather than the High Court).  In this instance, as Master Redpath heard both petitions, the order of itself served to validate the dispositions effected by it and the creditors proving in Mr Gallagher’s subsequent bankruptcy were unable to apply to set aside the transactions.

Good to know the marriage vows still have some effect...

For further advice on this case or any other matter relating to insolvent companies, please contact the Carson McDowell Insolvency Team.