Affairs of the hearth

The outcome of the Stonham v Ramrattan appeal could set a precedent for the treatment of matrimonial homes in insolvency cases.

In the unreported decision of ­Stonham v Ramrattan in May 2010, the judge, Justice Mann, allowed an appeal by a trustee in bankruptcy against an earlier refusal to set aside a transfer of a matrimonial home from ­husband to wife, notwithstanding a ­previous finding that the transfer was a sham, or, alternatively, a Transaction at an Undervalue (TUV).

The outcome of this appeal has ­implications for the treatment of the ­matrimonial home in insolvency cases and the limitation periods for TUV claims as a result of the ’use it or lose it’ provisions. For those with legal interests in personal assets, particularly matrimonial homes, this is ­worthy of consideration.

In the case of Stonham v Ramrattan, the husband was adjudged bankrupt on 16 October 1995. A few weeks within the five-year relevant time for TUV, the bankrupt had transferred the matrimonial home to his wife for ’natural love and affection’. This was previously held by him in his sole name and was mortgage-free.  Within a few days of the 12-year ­limitation period, the trustee issued an application to set aside the ­transfer as a TUV, therefore reversing the transaction and reinstating the asset in the estate of the bankrupt.

The bankrupt and his wife claimed, both in a private examination and throughout the course of the proceedings, that the ­registration of the bankrupt as legal owner of the property was a mistake by their ­solicitor and the transfer deed was ­intended to rectify that mistake. The matter came on for trial before Registrar Simmonds on 24 and 25 November 2009, some 19 years after the transfer by the bankrupt.

During the trial it became apparent in cross-examination that the transfer was a forgery and that the only genuine signaturewas that of the bankrupt. In cross-­examination the bankrupt admitted to ­forging the signatures of his wife and the witnesses, and deliberately lying on his bankruptcy questionnaire regarding a ­previous bankruptcy.

The Enterprise Act introduced, by way of amendment to the Insolvency Act, the use it or lose it provision, where a trustee sought to realise a bankrupt’s interest in the ­matrimonial home. The use it or lose it ­provisions were introduced to ensure that wives and families were not forever ­overshadowed by a bankruptcy, whereby they lived in fear of losing their home. As such, this has opened up the debate for TUV claims as to when use it or lose it might start, given that the bankruptcy order was granted in 1995, the TUV was registered in 1990 and the reversal of the transaction was granted in 2010. The challenge raises questions as to the applicable limitation period for TUV claims that involve the ­matrimonial home.

On the use it or lose it point, but for the sham declaration (as the judge decided time started to run from knowledge of the sham, which only came out at trial), the trustee may have been in difficulty. The disparity in the statutory provisions in the period of limitation on TUV, currently 12 years, and the provisions of use it or lose it of three years from the bankruptcy order, raise a natural issue of conflict.

Should the time start to run following an order reversing the transaction or date of knowledge of the potential ­undervalue transaction?

The judge ­speculated in obiter comments the former but commented that he could see potential arguments of ­applying the ­principles of the 283A Insolvency Act 1986 by analogy when ­considering winsolvhether to exercise discretion following a declaration as to an undervalue.

The majority of practitioners take the view that time can only start to run ­following a reversal of the TUV, but the ­language of the use it or lose it provisions starts the clock running from the ­bankruptcy order for assets comprised in the ­bankruptcy estate.

The judge did not decide the point but indicated his view that time would run from reversal; however, given the public policy decision that the matrimonial home is ­effectively sacrosanct, he could see the ­possibility of a trustee only having three years to seek a revesting order on a TUV claim that involves the matrimonial home.

Notwithstanding the inconclusive nature of the judgment on use it or lose it, it leaves the subject open for further debate and the potential for Parliamentary ­guidance.

In the intervening period the important ­consideration for p­ractitioners is to be mindful in TUV claims that the court may refuse a possession order unless proceedings were issued within three years of the ­bankruptcy order, where the primary asset is the matrimonial home.

Alan Bennett is a partner at Ashfords