Re Kumar (A Bankrupt), ex parte Lewis v Kumar and Another
| Jurisdiction | England & Wales |
| Judgment Date | 28 October 1992 |
| Court | Chancery Division |
Ferris, J
Matrimonial home – bankruptcy – husband and wife joint tenants – husband transferring his interest in the property to wife – subsequently bankruptcy order made against husband – whether transfer at an undervalue for purposes of Insolvency Act 1986 – whether transaction to be set aside.
The husband and wife were beneficial joint tenants of their matrimonial home. The property was currently of the value of about £140,000 subject to a mortgage. By May 1990 the mortgage had been reduced to £30,000. By a deed dated 11 June 1990 the husband transferred his interest in the property to the wife. The deed recorded that the transfer was in consideration of natural love and affection, and that the wife accepted sole liability for the mortgage. On 21 January 1991 a decree nisi of divorce was pronounced on the wife's petition. On 19 April 1991 a consent order was made under which it was provided that, in consideration of the transfer by the husband to the wife of his legal and equitable interests in the matrimonial home, then (inter alia) the wife's claim for capital provision be dismissed. On 24 July 1991 a bankruptcy order was made against the husband and a trustee in bankruptcy of the husband's property was subsequently appointed. The trustee applied under s 339 of the Insolvency Act 1986 to set aside the transfer of the matrimonial home to the wife on 11 June 1990.
Held – granting the application: By virtue of the provisions of ss 339 and 341 of the Insolvency Act 1986 a transaction which had been entered into by a person who was, within the following five years, adjudged bankrupt, could be set aside if he had entered into the transaction at an undervalue. In particular, by s 339(3)(c) an individual entered into a transaction with a person at an undervalue if he entered into a transaction with that person for a consideration the value of which, in money or money's worth, was significantly less than the value, in money or money's worth, provided by the individual. On the facts in the present case there was no consideration provided by the wife for the transfer of the matrimonial home beyond her assumption of sole liability for the mortgage of £30,000. That was clearly significantly less than the value of the consideration provided by the husband. Therefore, the transfer was for an undervalue for the purposes of the 1986 Act.
Statutory provisions referred to:Insolvency Act 1986, ss 339, 340, 341 and 423.
Land Registration Act 1925, s 58(3).
Matrimonial Causes Act 1973, ss 23 and 24.
Cases referred to in judgment:Abbott (A Bankrupt), Re, ex parte Trustee of the Property of the Bankrupt v Abbott [1983] Ch 45; [1982] 3 WLR 86; [1982] 3 All ER 181.
Fullerton v Provincial Bank of Ireland [1903] AC 309.
Gorman (A Bankrupt), Re [1990] 1 WLR 616; [1990] 1 All ER 717.
Hyman v Hyman [1929] AC 601.
Pittortou (A Bankrupt), Re, ex parte Trustee of the Property of the Bankrupt v Bankrupt [1985] 1 WLR 58; [1985] 1 All ER 285.
Smallman v Smallman [1972] Fam 25; [1971] 3 WLR 588; [1971] 3 All ER 717.
Windle (A Bankrupt), Re, ex parte Trustee of the Bankrupt v Windle [1975] 1 WLR 1628; [1975] 3 All ER 987.
Marcia Shekeremian for the trustee in bankruptcy.
The bankrupt in person.
Thomas Lowe for the wife.
JUDGMENTMr Justice Ferris. On this application, Mr Barry Davis Lewis, the trustee in bankruptcy of the first respondent, Kulbhushan Kumar, seeks to set aside a transfer made by Mr Kumar on 11 June 1990. By that transfer Mr Kumar transferred to his wife, the second respondent, Dr Vijay Lakshmi Gupta, his entire interest in their matrimonial home, a dwellinghouse known as 43 Broadwalk, South Woodford, London, E 18.
Since the date of the transfer Mr Kumar and Dr Gupta have been divorced. During their marriage, Mr Kumar was sometimes known as Mr Gupta, but I shall refer to him throughout as Mr Kumar.
Mr Kumar is an architect. At all material times he has been employed by the Home Office as an architect in the prison service. He has also carried on a private practice as an architectural consultant and designer under the name Kumar Associates or, since April 1987 or thereabouts, through a company named K Kumar Ltd of which he and Dr Gupta were the only shareholders and directors until January 1991 when Dr Gupta resigned her directorship.
Dr Gupta is a medical practitioner. At all material times she has been employed in the National Health Service. Her earnings have always been greater than Mr Kumar's. At the present time her gross salary appears to be about £24,000 per annum, as against about £15,000 per annum for Mr Kumar. The ratio between the two salaries appears to have been about the same in earlier years. Mr Kumar has also had some income from his private practice. There was no evidence about the profits, if any, of Kumar Associates. The accounts of the company for the year to 5 April 1988 show directors' remuneration of £2,000 for Mr Kumar and £750 for Dr Gupta rising to £2,220 and £960 respectively in the year ended 5 April 1990 and staying at the same level for the following year (when Dr Gupta received
only a proportion of the full year's remuneration having regard to her resignation in January 1991). The company made a small profit in two of the four years for which I have seen accounts and made a loss in the other years. As at 5 April 1991 there was an accumulated deficit on profit and loss account of some £2,838. It does not seem, therefore, that his private practice provided Mr Kumar with any substantial income.
Mr Kumar and Dr Gupta were married in 1967. They have two children, namely a daughter who was born in 1970 or 1971 and was married in December 1990 and a son who was born on 17 December 1972. During their marriage Mr Kumar and Dr Gupta lived successively in various houses which they purchased with the assistance of mortgages. Their last house was 43 Broadwalk in respect of which this application is made.
43 Broadwalk was purchased by Mr Kumar and Dr Gupta in 1983 for £75,000. The transfer in their favour is dated 20 Sepember 1983. It contains a declaration that the survivor of them could give a valid receipt for capital money arising on a disposition. When the transfer was registered the solicitors acting for them informed the Land Registry that they were entitled as beneficial joint tenants. No such restriction as is mentioned in s 58(3) of the Land Registration Act 1925 was entered on the register. Having regard to Re Gorman [1990] 1 WLR 616 these facts constitute conclusive evidence that Mr Kumar and Dr Gupta were indeed beneficial joint tenants. The contrary was not suggested before me.
Immediately after the purchase 43 Broadwalk was subject to a first charge in favour of the Halifax Building Society and a second charge in favour of the Norwich Union Life Insurance Company. Both these charges were discharged in 1988 when a new charge, dated 19 February 1988, was executed in favour of Westpac Banking Corporation. The amount borrowed from Westpac on the security of this charge was £133,000 of which £66,000 was required to redeem the charges in favour of the Halifax and Norwich Union leaving £67,000 (subject to costs) available for other purposes. I will indicate later how it appears that the greater part of this sum was spent.
In the mortgage application made to Westpac the value of 43 Broadwalk was stated to be £200,000. I do not know whether this was a realistic value for the property in 1988. There was no proper valuation evidence before me, but it was suggested that the current value of 43 Broadwalk is now much less than £200,000 being perhaps of the order of £140,000.
Apart from their successive homes, Mr Kumar and Dr Gupta have also owned other properties. On 15 November 1984 they purchased a freehold property known as 34 Nutfield Road, Leyton for £29,900. This property was transferred to them jointly. The transfer containing a declaration that the survivor of them could give a valid receipt for capital money, thus indicating conclusively that they were beneficial joint tenants. On 1 May 1990 Mr Kumar and Dr Gupta transferred 34 Nutfield Road by way of gift to their daughter. However, some two weeks after this gift the property was sold to a purchaser named Julie Holdings Ltd for £62,400. The purchase price was received by Messrs Suriya & Douglas, the solicitors for Dr Gupta, who accounted for it to Dr Gupta in a manner which I
shall explain later.
On 31 July 1986 Mr Kumar and Dr Gupta purchased another freehold property, known as 19 Sedgwick Road, Leyton, for £42,500. The transfer of this property to them contains no declaration as to the right of the survivor to give a receipt for capital money so it may be that they were beneficial tenants in common. This property was immediately mortgaged to Abbey National Building Society, presumably to secure a loan used for the purchase. On 18 November 1988 Mr Kumar and Dr Gupta transferred 19 Sedgwick Road to Dr Gupta alone. Solicitors acting for them endorsed on the transfer a certificate to the effect that the instrument operated as a voluntary disposition inter vivos for no consideration. The intention seems to have been that Mr Kumar should give his beneficial interest in the property to Dr Gupta, the legal estate being vested in Dr Gupta alone. Clearly the transfer achieved the latter purpose and I assume that it also achieved the former purpose as well. The Abbey National Building Society joined in the transfer to Dr Gupta so as to release Mr Kumar from the personal covenants on his part contained in the mortgage. On 11 May 1990 Dr Gupta sold 19 Sedgwick Road to Julie Holdings Ltd for £63,300. Out of this sum £43,212.59 was paid to Abbey National in order to discharge the mortgage.
A third freehold property, 38 Sedgwick Road, was purchased by Mr Kumar and Dr Gupta for £64,000 on 19 February 1988. This was the same date as the charge of 43 Broadwalk in favour of Westpac and although there was no evidence before me about it the inevitable inference is...
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