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Is there any way for trustees in bankruptcy (trustees) to circumvent the Court of Appeal’s decision in Hill v Haines? John de Waal QC, barrister at Hardwicke Chambers, and Mark Sands, partner at RSM, review the judgment in Sands v Singh, in which the High Court was asked, among other things, to set aside an ancillary relief (AR) settlement entered into prior to bankruptcy as a transaction at an undervalue (TAU).
Sands (as trustee in bankruptcy of Mr Tarlochan Singh) v Singh and others  EWHC 636 (Ch),  All ER (D) 209 (Mar)
The Chancery Division ruled on an application by the first respondent’s trustee in bankruptcy, challenging transactions that the first respondent had entered into in 2010/11 in relation to a property he owned, the first respondent having subsequently been adjudged bankrupt, including a trust deed and consent order disposing of AR proceedings brought by the first respondent’s wife. It held that one of the charges was a sham and so a nullity, but that a second charge had not been proved to be either a sham or a preference within the meaning of section 340 of the Insolvency Act 1986 (IA 1986), and the challenge to the trust deed and consent order also failed.
Some nine months before Tarlochan Singh was made bankrupt owing his creditors £1m, and as part of a settlement reached in AR proceedings, he put the valuable matrimonial home—which was registered in his sole name—in trust for his two young children. Mr Singh had earlier also granted charges to his father and sister. Mr Singh’s trustee, Mark Sands, applied to set aside the charges as shams or alternatively preferences and the AR settlement as a TAU pursuant to IA 1986, s 339.
As well as considering the law in relation to sham transactions the judge, Mr Justice Newey, had to consider the decision of the Court of Appeal in Hill v Haines  EWCA Civ 1284,  All ER (D) 56 (Dec) which held that, absent fraud or collusion, a transferee (here Mrs Kaur) under a transfer made in AR proceedings is generally to be regarded as having given consideration equivalent to the value of the property being transferred. The questions were:
The main legal submission put forward on behalf of the trustee was that the Court of Appeal in Hill v Haines had left the door open for an AR settlement to be set aside if it was a TAU and there were exceptional circumstances such as this transaction, which apparently gave Mrs Kaur all of Mr Singh’s property in return for nothing of real value.
The judge held that:
There are three important points on the Hill v Haines issue:
The whole area of divorce, relationship breakdown, and debt is relevant to a large number of insolvent estates. Hill v Haines has been seen by many as closing the door on any attempts to upset a divorce settlement entered into before a bankruptcy. That is not an accurate representation of the decision in Hill v Haines, and this case was an opportunity to test the extent to which cases may be challenged despite that decision. While the result is disappointing, the comments in this judgment are helpful and will hopefully encourage trustees to challenge shams and to review divorce settlements at the extreme ends of reasonableness.
To that end, trustees and their advisors should bear in mind the following:
John de Waal QC specialises in chancery and commercial work with a particular focus on property law and property-related professional negligence. He is regularly instructed in complex property-related litigation in the Chancery Division and Court of Appeal, and in the past few years he has appeared in the House of Lords in the leading case on economic torts, OBG Ltd v Allan  UKHL 21,  All ER (D) 44 (May) and in the Supreme Court in the leading case on the law of penalties ParkingEye Ltd v Beavis  UKSC 67,  All ER (D) 47 (Nov).
Mark Sands has more than 25 years’ experience of insolvency issues. The last 12 years have been focused on the personal insolvency sector, including several reported cases involving bankrupts seeking to put assets beyond the reach of their creditors. Mark is a leading commentator on personal bankruptcy and financial issues, regularly contributing to national print and the broadcast media. Mark sits on the consulting editorial board for LexisPSL Restructuring & Insolvency, and is current president of the Insolvency Practitioners Association.
John acted for Mark in this case.
Interviewed by Anne Bruce
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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First published on LexisPSL Restructuring and Insolvency
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