Sofia Arif (Petitioner) v Arif Anwar Zar (First Respondent) Raziz Rehan (Second Respondent)
| Jurisdiction | England & Wales |
| Judge | Lord Justice Patten,Lord Justice Rimer :,Lord Justice Thorpe : |
| Judgment Date | 18 July 2012 |
| Neutral Citation | [2012] EWCA Civ 986 |
| Docket Number | Case No: B6/2012/0861 and B6/2012/0869 |
| Court | Court of Appeal (Civil Division) |
| Date | 18 July 2012 |
[2012] EWCA Civ 986
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
FAMILY DIVISION
AND ON APPEAL FROM THE HIGH COURT OF JUSTICE
IN BANKRUPTCY
MOSTYN J.
FD 11 D 03106
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Thorpe
Lord Justice Rimer
and
Lord Justice Patten
Case No: B6/2012/0861 and B6/2012/0869
and
Valentine Le Grice QC (instructed by Zak Solicitors) for the First Respondent/Appellant, Arif Anwar Zar
Peter Shaw (instructed by Speechly Bircham LLP) for David Thurgood and Richard Hicken, the trustees-in-bankruptcy of Arif Anwar Zar
James Ewins (instructed by Hughes Fowler Carruthers Ltd) for the Petitioner/Respondent, Sofia Arif
Hearing date : 3 rd July 2012
This is an application for permission to appeal by Mr Arif Anwar Zar ("the Husband") and separately by his trustees-in-bankruptcy, Mr David Thurgood and Mr Richard Hicken of Grant Thornton UK LLP ("the Trustees"), against an order of Mostyn J dated 23 rd March 2012. The judge of his own motion varied an earlier order of Registrar Derrett dated 16 th March 2012 by which she directed that an application by Mrs Sofia Arif ("the Wife") for the annulment of the Husband's bankruptcy should be adjourned on an expedited basis to be heard by a judge of the Chancery Division. Mostyn J varied the Registrar's order so as to transfer the annulment application to the Family Division with a direction that it be heard in December together with the Wife's application for ancillary relief in her divorce proceedings.
The judge, as part of his order, vacated the hearing listed in the Chancery Division for half a day over 18 th and 19 th April and ordered the Husband and the Trustees to give disclosure of all documents and information in their possession relating to the Husband's income, assets and liabilities including (in the case of the Trustees) the notes of any interviews conducted by the Trustees with the Husband. The judge also joined the Husband's son of his previous marriage, Mr Raziz Rehan, as a party to the proceedings and ordered him to file a witness statement and to give disclosure of all documents he proposed to rely upon to establish the debts which he says are owed to him by his father.
The Husband was declared bankrupt on his own petition by an order of Registrar Derrett dated 6 th October 2011. He had previously carried on business as an insolvency practitioner through a company called Rifsons Management Consulting Limited ("Rifsons"). According to his evidence in the annulment proceedings, Rifsons were in financial difficulties by October 2011 and an administration order was subsequently made in respect of the company in January 2012. He says that these problems were caused by Rifsons' former director, a Mr John Andrews, who failed to account to the company for money received by him from clients for work done. This caused serious cash flow difficulties from at least 2009, as a result of which the Husband ceased to draw any remuneration from Rifsons. He became, he said, reliant on sums from third parties to meet his financial commitments.
The main source of these borrowings from May 2009 onwards is said to have been an overdraft facility granted by Barclays Bank in Jersey which was secured over a property in St John's Wood which belongs to his son. The facility was in the sum of £500,000. By 5 th October 2011 some £434,000 had been drawn down. The Husband says that he had exhausted any other possible sources of finance such as friends and had no prospect of being able to secure any further loans.
At the date of the bankruptcy order he says that he had unpaid liabilities to his solicitors in the divorce proceedings of £79,000, to Victoria College, Nottingham of £35,000 and to Westminster City Council in the sum of £6,600, all of which were immediately payable. There were also arrears of maintenance pending suit in the sum of £5,400. Further statutory demands from trade creditors totalling some £50,000 were received after the making of the bankruptcy order. He had no income with which to pay those debts and could no longer draw on the overdraft facility.
The annulment application is important for the wife. Unless she can set the bankruptcy order aside her application for ancillary relief is likely to be severely prejudiced. Unless she is able to demonstrate the existence of a clear surplus of assets over liabilities in the bankruptcy it will not be possible for the judge in the ancillary relief proceedings to make an award in her favour: see Hellyer v Hellyer [1997] 1 FCR 340. If, on the other hand, the bankruptcy is annulled it will be open to the court to make an order in the Wife's favour without any danger of it being set aside in any subsequent insolvency proceedings as a transaction at an undervalue: see Hill v Haines [2007] EWCA Civ 1284. In making the order for ancillary relief the court is bound under s.25 of the Matrimonial Causes Act 1973 to take into account the husband's liabilities to his commercial creditors but in a contest for limited assets it will not always follow that the creditors will take precedence over the wife's claims: see Paulin v Paulin [2009] EWCA Civ 221 at paragraph 54.
The Wife's case is that many of the Husband's alleged debts are in fact shams. The creditors are the Husband's friends and members of his family who have fabricated these liabilities in order to facilitate his bankruptcy. She claims that if the Husband's liabilities were reduced to the genuine debts there would be a considerable surplus of assets from which an award in her favour could be made. She therefore contends that as of the date of the bankruptcy order the Husband was not balance sheet insolvent nor was he unable to pay his debts as they fell due.
There is a dispute about the Husband's net worth. The Wife contends that even taking into account only the assets shown in the statement of affairs there is a surplus of assets over liabilities of some £482,828. But this is disputed by the Husband and his Trustees. If one treats Mr Rehan as having acquired a one-half interest in the matrimonial home by his alleged payment of £503,785 then the Husband's interest in the property would be worth £900,000 and his total creditors (excluding the £503,785 paid by his son) would amount to £1,368,687. If, however, one were to treat all payments by Mr Rehan as loans then the Husband's interest in the property would be valued at £1.8m against total creditors in the sum of £1,872,472. In order to succeed on her application for annulment under s.282 of the Insolvency Act 1986 it will be necessary for the Wife to establish that on the grounds existing at the time of the order, the order ought not to have been made. The critical issues therefore will be whether the Husband was then balance sheet insolvent and whether he was able at the time to pay or had a reasonable prospect of being able to pay his debts as they fell due.
The Wife alleges in her evidence that the debts shown as due to his son; to a Mr Declan McCarthy (who is said to be a friend) and to Victoria College, Nottingham are a sham. Together they amount to £1,985,587. Her reasons are set out in some detail in her affidavit. She says that the proper adjudication of these issues can only take place if there is full disclosure and cross-examination of witnesses. The Husband's case is that even on the undisputed evidence it is obvious that he was unable to pay the debts currently due as at the date of the bankruptcy order.
Mr Registrar Baister gave directions for the filing of evidence on 9 th January and adjourned the annulment application to a further hearing on 16 th March. On 18 th January at a directions hearing in the Family Division at which both the Husband and Wife and the Trustees were represented Mostyn J made an order inviting the Bankruptcy Court to transfer the annulment application to the Family Division to be heard with the Wife's application for ancillary relief. On 16 th March the further hearing of the annulment application took place before Registrar Derrett. By then the Wife had issued her own application for the transfer of the proceedings to the Family Division to re-inforce the invitation extended by Mostyn J in his order of 18 th January. Mr Ewins, who appeared for the Wife on the application as he does today, submitted that an inquisitorial enquiry was needed in which there would be further disclosure of documents all of which could be provided for in the ancillary relief proceedings. The Trustees' position was that the only significant asset of value was the matrimonial home (legal title to which remains vested in the Wife) and that they wished to know their position as soon as possible so as to be able (if still in place) to realise the assets for the benefit of the Husband's creditors.
We have been provided with an agreed note of that hearing. It is clear that the Registrar was aware of Mostyn J's order but she declined to transfer the proceedings. According to the agreed note of her reasons, she said:
"I am not deciding whether to annul the bankruptcy order today. The issue to be decided is whether to transfer the matter to the Family Division, or to allow the annulment application to be determined as a discrete issue in the Chancery Division. This is the normal venue for such decisions but I acknowledge [the] Applicant counsel's citing of s.49 Senior Courts Act 1981. He has argued that this is clear authority for the transfer to be made. However, there is an equally valid argument that...
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