Re Gudmundsson – Annulment And Divorce – Insolvency/Bankruptcy

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Lin vs. Gudmundsson [2021] EWHC 820 (Ch) was a request by the debtor’s ex-wife to set aside a bankruptcy order made against her ex-husband on February 26, 2020 following the service of a notice on her. remains and the presentation of a request by a creditor. The family court issued an order for financial relief on March 4, 2020 and shortly after issued an irrevocable decree. Under the terms of the financial aid order, Mr Gudmundsson was to transfer his interest in the marital home in London to his wife, but retain his business interests in Iceland, property in Iceland, certain pensions and any interest he may have may have had in a family trust or foundation.

The ex-wife’s case was that the bankruptcy order should not have been made for three reasons: (1) there was collusion between the petitioning creditor and the debtor; (2) the debtor was solvent when the bankruptcy order was made; and (3) the center of the debtor’s main interests was not in the UK at the material time. The line of case law on the use of bankruptcy to defeat a matrimonial claim on which she relied is well known. As Patten LJ said in Arif versus Zar [2012] BIPIR 948, courts should be aware of the possibility that husbands (or wives) may attempt to use the protection of a bankruptcy order as a shield against their spouses’ claims for corollary relief. Other cases in question mentioned by ICC Chief Justice Briggs in his judgment include Re vacation [1981] Ch 405, F vs F [1994] 1 FLR 359 and Paulin against Paulin [2009] BPIR 572.

In the family proceedings, the judge described the debtor’s financial situation as opaque. His former wife’s position in the annulment petition was that he had substantial assets in the form of his stake in the family foundation which had received funds from the family trust, a stake in a hotel in Reykjavik and sufficient collateral to allow him a step to raise an unsecured loan of over £2m.

ICC Chief Judge Briggs reviewed the authorities, noting that in
Re vacation the husband had filed his own petition and obtained a bankruptcy order the day his wife activated her application for corollary relief. Goff LJ had found that if the husband had been unable to pay his debts as they fell due,
At first glance the receivership order and the bankruptcy order (under the Bankruptcy Act 1914) had been properly made. Re vacationsaid Chief Justice Briggs, was still good law, but for good measure he also referenced Re Coney [1998] BPIR 333 which makes the same remark. The situation was different, however, if the statements in support of the petition were false, that is to say that there were no debts, or if the bankrupt could pay them when they fell due:
F against F; Couvaras vs Wolf [2002] 2 FLR 107. Briggs J. noted a distinction between what was once a debtor’s petition (now a bankruptcy petition) and a creditor’s petition:

“In my opinion, cases concerning a debtor’s application for bankruptcy and a creditor’s application must be distinguished. The warning that a party to financial recovery proceedings may attempt to use the protection of bankruptcy to prevent a spouse from benefiting from an order, does not cover cases where a true creditor files a petition and the debtor cannot pay the debt.

The judge’s decision in Re Gudmundsson, as is often the case in cases of this kind, rested mainly on his assessment of the veracity of the testimonies. Although he admitted that, in the case before him, the debtor and the creditor had been friends, he refused to find collusion, finding that “the relationship was also a creditor-debtor relationship”. (He relied in this regard on documents provided to the trustee in support of the debt, including a schedule of payments made to or on behalf of the debtor and bank statements showing the payments.) He also concluded that the only income available to the debtor at the time of the bankruptcy order was made by the hotel In Iceland The trustee had discovered no other source of income. “As can be observed,” he said, “these circumstances contrast with Couvaras.” He also concluded that the debtor had correctly admitted his jurisdiction when he appeared at the hearing of the bankruptcy petition and he saw no reason to go beyond the judicial finding made at the time the order has been made.

The ex-wife’s request for annulment was therefore rejected.

Originally published April 7, 2021

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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