Challenging the transfer of assets through ancillary proceedings as transactions at an undervalue remains challenging.
This case centred around a property in Coventry originally owned and developed by a Mr Singh. After failing to pay his builders a substantial amount, on which he was subsequently bankrupted, Mr Singh charged the property to his father and then his sister-in-law.
His wife then moved out and divorced him. The property was put in trust for the benefit of Mr Singh’s children with his ex-wife having exclusive occupation as part of the divorce settlement court order. The builder then obtained a freezing injunction and subsequently judgment and a bankruptcy order against Mr Singh.
The trustees in bankruptcy issued proceedings claiming that the charges were void as shams or preferences and/or the divorce settlement in respect of the property was a transaction at an undervalue and/or a transaction to defraud creditors.
On the facts and relying on a previous decision, the court found that the charge granted to the father was void as a sham, but that the charge to the sister in law was valid.
The majority of the judgment dealt with the allegations in respect of the divorce proceedings. The Judge followed the Court of Appeal decision in Hill v Haines  EWCA Civ 1284 that held that an order for ancillary relief, whether by consent or not, cannot be challenged as a transaction at an undervalue unless there was a factor that would affect the validity of the contract, such as fraud, mistake, misrepresentation or collusion.
The trustees alleged that there had been collusion. However, on the evidence, the Judge did not agree and dismissed the trustee’s application.
The case reinforces the difficulty that the trustees in bankruptcy have in challenging ancillary relief orders, even in circumstances where they clearly deprive creditors of assets and often appear too convenient to be true.