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insolvency, trust, Trustees

Bankruptcy and abuse and of course a trust or two

Boy meets girl.

Boy marries girl.

Boy bankrupts girl after she fails to pay $12,263.50 of court costs.

Girl’s appointment as trustee and appointor of two family trusts is terminated by her bankruptcy.

Aint love grand?

Anne (the girl in this narrative) remains a beneficiary of the trust that owns the family home where she still lives.

Leslie (the boy)  application is subsequently made for vesting orders to transfer the trust properties to “normalise trust affairs”.

Anne opposes the matter.

Separate proceedings relate to rate arrears of approximately $25,000 in resect of one trust property with the spectre of Auckland  Council forcing a sale of the property to meet the arrears.

The wider history relates to what AJ Sargisson refers to as “the tragic procedural history of the parties’ relationship property litigation.”  Initially the parties agreed to treat trust property as relationship property (or to “see through” the two trusts) and a global settlement was agreed.  One property, it transpired was leaky and matters began to unravel.  A subsequent judicial attempt to give legal effect to the agreement was subsequently overturned because s 21A of the Property (Relationships) Act 1976  did not grant the jurisdiction to make provision for the ownership of trust property.  Costs were awarded against Anne, and it was for the non-payment of that award that she was bankrupted.

The jurisdiction to annul a bankruptcy order is in s 309 of the Insolvency Act.  S 309(1)(a) provides that one ground for annulment is if the Court considers that the bankrupt should not have been adjudicated bankrupt.  Accordingly, the court can annul a bankruptcy order that “should not have been made” in light of all the material facts pertinent to the adjudication, especially facts not known to the court that made the adjudication.

The discretion is narrow and admit three categories:

  • abuse of process
  • defect in form or procedure
  • human error

However, AJ Sargisson notes that she is not “shoehorned” to a single category.  The categories are secondary to the question of whether the adjudication should not have been made.

A frank assessment of matters is traversed in the case and the story of control wrested from the facts is summarised as an observation that Leslie had nothing to gain but Anne’s pain.  As noted at [64]:

“… What I am confronted with in this case is a man who bankrupted his former wife over a comparative pittance, when two years previous the parties had essentially agreed … that she wold receive tens of thousands in relationship property.  He did this moreover, seemingly for no good reason except to exacerbate her stress, complicate her legitimate claim in relationship property proceedings, and prolong its final resolution.”
There is also the ultimate distribution / disposition of the trust’s assets to consider, and perhaps a claim under s 182 of the Family Proceedings Act 1980 (Editor’s note).

The case while a sad tale of legal abuse, also highlights the risks of amalgamating trust property and relationship property.

The result was that Anne’s bankruptcy was annulled.

Where that leaves matters remains to be seen.  The editor’s thoughts gravitate around how Leslie can acquit is duties of even-handedness as a trustee moving forward or how Leslie and Anne can act together as trustees.

References:

Discussion

2 thoughts on “Bankruptcy and abuse and of course a trust or two

  1. Hi Vicki,
    I have attempted to contact your business privately twice in the last 3 weeks, from your website page by leaving a (long) comment. I have had no reply or acknowledgement from your office.

    I live in Australia. My situation requires legal representation to access trust information via the courts. Your business was one of 3 law firm recommendations you made. As you’d been so quick to respond on your blog, I was hoping for a speedier response from your private practice – unless the website ‘leave a comment’ section is not getting through. In which case, my perseverance to make contact this time will see a result – and the website comment section may be faulty.
    Thank you for your time.

    Posted by J. Deadmarsh | October 28, 2017, 3:15 am

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