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Cases, General, Gifting, Trusts

To forgive, divine

When Alexander Pope wrote “To err is human; to forgive, divine” it is doubtful that his mind was turned to matters equitable.  However, the expression is an apt description of the recent decision in Official Assignee v Mayers.

This case considers whether the Official Assignee can recover gifts made by way of forgiveness of debt prior to bankruptcy pursuant to s.207 of the Insolvency Act 2006 (see below).  The defendants were trustees of the family trust and were keen not to have to ante up with the $81,000 the Official Assignee was seeking to recover.

By way of background gifts made between 2 and 5 years prior to bankruptcy can be cancelled.  Once validly cancelled application can be made for the gifted property or an appropriate sum of money to be transferred to the Assignee.

Perhaps surprisingly for the Assignee in this case the Court found in favour of the defendant trustees who argued that there was no property in a gift by way of forgiveness of debt that could be transferred.  Accordingly, this round has gone to the trustees.

It is yet to be seen if the decision will be appealed.  However, unless or until this case is overturned (or the “loop hole” legislatively amended) anyone considering making a gift directly to trust may wish to reconsider sticking with a gifting program for now.


Insolvency Act 2006

s. 207 Court may order retransfer of property or payment of value

(1) On the cancellation of an irregular transaction under which property of the bankrupt, or an interest in property of the bankrupt, was transferred the Court may make an order for –

(a) the retransfer to the Assignee of the property or interest in the property; or

(b) payment to the Assignee of a sum of money that the Court thinks appropriate, but the sum must not be greater than the value of the property or interest in the property when the transaction was cancelled.


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