The court will unravel a transaction where it appears to have been entered into to place assets beyond the reach of creditors.
This was the case in Ambrose sub nom Garwood v Amborse & Ambrose, where the trustee in bankruptcy of Mr Ambrose applied for declaratory relief and an order for the possession and sale of Mr & Mrs Ambrose's property.
The property had been registered in joint names and Mr Ambrose had been responsible for the mortgage payments. In late 2007, early 2008, Mrs Ambrose obtained legal advice about protecting the property from Mr Ambrose's creditors. A trust deed was executed in February 2008 recording that as of July 2007, Mrs Ambrose was beneficially entitled to the whole of the net equity in the property. Mr and Mrs Ambrose alleged that the trust deed reflected an oral declaration of trust that had been made in July 2007. There was no contemporaneous evidence of that, nor any evidence of any consideration having been paid. The trustee alleged that there was no trust and it was a transaction at an undervalue within the meaning of s339 of the Insolvency Act 1986.
The court found there was no evidence of a declaration of trust and Mr Ambrose had continued to make the mortgage repayments after the alleged declaration of trust. The evidence also indicated that this alleged agreement had been reached before Mrs Ambrose had taken legal advice on protecting the property from creditors. There was therefore no declaration of trust created in July 2007 and in any event, there was a lack of consideration and so it would have been a transaction at an undervalue under the Insolvency Act. There was no evidence of express discussions between Mr and Mrs Ambrose as to an agreement for a beneficial interest, no evidence of detrimental reliance and so no implied trust either. The trustee was entitled to possession.
Things to consider
This is a useful case not only in an insolvency situation but wherever there appears to be an improperly evidenced declaration of trust or transfer of property without consideration where it appears that the motive is to put assets beyond the reach of creditors.