In Jan. 2008 I bought a buy to let property for £110K with joint funds, but registered only in my name. In March 2009 I took out a £75K mortgage to help pay unsecured creditors. In 2010 my wife wanted her £55k contribution repaid so I tried to sell the property. Due to the recession I was unsuccessful.In Sept. 2011 I took the property off the market. As the equity in the property was less than my wife's contribution I decided not to ask for a charge in her favour as I felt the bank would have objected. I entered into a Declaration of Trust acknowledging her £55k contribution and placed a restriction on the property. In Jan. 2012 I sold the property to her for £125k by her taking out a £70k mortgage and repaying her Declaration of Trust.My mortgage before completion was 77k ( 75k mortgage + 2k arrears) so my wife paid £7k to my mortgage company to make the mortgage 70K to allow completion. A week after completion I filed for bankruptcy with debt of £47k. The case has been transferred from the Official Receiver to a Insolvency Practitioner so the transaction can be investigated.(1) Is the IP taking over to investigate a cause for concern?(2)Why would the IP be interested in the timing of the restriction placed on the property?(3) Will she get any credit for paying £7k off my mortgage?(4) Can you see any reason why my unsecured creditors have been unfairly disadvantaged?
Province/Country relating to question : United Kingdom
HiThank you for your question and welcome back to Just Answer.Were you or your with legally advised when you entered into these arrangements?Did you know you were going to file for bankruptcy one week after completion?Kind regardsAJ
No I did not take legal advice from a solicitor or Insolvency Practitioner.Yes, I did know that I would would file for Bankruptcy in February once I completed the transaction at the end of January 2012. The declaration of trust/restriction was in Sept. 2011 though.To be honest, I just wanted to salvage as much for my wife before I ruined us both. The equity in the property was £35k-£40k at the time of sale of the property, which is a poor return for my wife's £55k contribution. To give that to creditors would be too much, especially after spending most of my £75k mortgage repaying them.
Hi,Thank you. The reason why the IP will be looking into this is because they suspect either a preference or transaction at an undervalue.In order to really go into the detail necessary I will need to refer to my copy of Sealey and Millman (Practitioners Handbook).I am therefore going to start to write an answer today and then will add the extra details when I have my handbook tomorrow morning.Is ok if I respond to you tomorrow morning?Kind regardsAJ
I did not sell at an undervalue: The property is worth £115-£125k and my wife paid £125k, the top end of the range.I look forward to your response tomorrow. Thank you.
HiThank you.Because your wife is a connected party under the insolvency act a preference and transaction at an undervalue are what the ip will be obliged to consider.When I have referred to the handbook we can talk it all through.Kind regardsAJ
Hi,Thank you kindly for your patience.I will structure this by answering your questions as referred to above:1. Normally a bankruptcy will only go to an IP instead of the OR if there is actually a return to be made in the estate. The OR has limited funds and often a larger creditor may petition to have an IP of their choosing appointed to investigate the affairs of the bankrupt. This is not necessarily anything to worry about, an IP has the same powers as the OR as they are both trustees in bankruptcy. The IP will simply have more resources to investigate your affairs.2. The reason why the IP may be interested in the timing is because it maybe considered a preference. This means you are trying to put your wife in a more favourable position than your other creditors. Under S.341 of the Insolvency Act 1986 a trustee in bankruptcy has the power to investigate and possibly set aside any transaction made two years prior to your bankruptcy where that transaction is with a connected person.3. This may well assist your wife. The fact that she paid off one of your creditors and therefore reduced the liabilities in your estate would be good evidence to show that you two entered into a valid commercial transaction and not just a sham to avoid your creditors.4. Before I can answer this part of the question - when you and your wife entered into the arrangement, did you obtain any independent valuations to verify that she was paying the top price?I look forward to hearing from you.Kind regardsAJ
Thank you for taking the time to research and go into detail with the first three questions. With the final question I can say that she paid over the top. The valuation from the Coventry Building Society was £99,000 and zoopla.com valued the property between £99,000 and £105,000 at the time. Today zoopla.com valuation is £118,000-£124,000, which is more accurate. Therefore, an independent valuation did take place.Because of Coventry Building Society's £99,000 valuation they only lent her £64,000 not the £70,000 she asked for. Therefore, she put in an extra £6,000 of her own money. She also paid £1,900 of my service charge arrears to allow completion to go ahead. Finally, she paid my £450 legal fees. Will she get credit for that as well?I look forward to your response and I will accept your answer.
Hi,Many thanks.Your wife has to prove that you entered into a legitimate transaction. Essentially she has taken over your mortgage and over paid for a property so she could be repaid herself. As you both had a share in the beneficial interest, the IP will try and argue that any equity after the mortgage had been repaid should have been split 50/50. Your wife's argument will be that it was a valid transaction and actually your creditors are better off because she removed your mortgage company from the equation. Certainly all the payments she made to help your indebtedness will assist when it comes to proving you entered into a transaction that was not to the detriment of your creditors.I would suggest that before the IP has an opportunity to contact her she goes and speaks to an insolvency solicitor herself. She will need some to fight any suggestion of a preference from the IP, and the best way to do this is with a solicitor who can advice her on what evidence she would need to submit and what she should refrain from submitting.Kind regardsAJ
2 Years Insolvency Litigation
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