I have previously been asked to act on behalf of parties who were “separating” for the purpose of financial security. They had come into some financial trouble and thought creatively that they could avoid payment of debt by undertaking a property settlement which resulted in one party retaining the formal matrimonial home and the other retaining superannuation (protected in bankruptcy). My advice at the time was that to achieve a settlement of this nature both parties would have to sign documentation stating that they were not undertaking the settlement for the purposes of defeating creditors, and if the statement is made and found to be untrue, this could result in any agreement being overturned by the court and the parties incurring significant costs.
In the case of In Trustee of the Bankrupt Estate of Hicks & Hicks and Anor [2018] FamCAFC 37 (26 February, 2018) the Full Court (Strickland, Murphy & Austin JJ) did just that.
In this case an appeal was lodged by the Trustees in Bankruptcy concerning a Consent Order that had been made in the Federal Circuit Court. An agreement was reached between the Husband and Wife and the agreement failed to include an impending $600,000.00 debt owing by the Husband to a third party. That third party was not made aware of the Application and therefore could not seek to join the proceedings so as to ensure that payment of the debt was provided for.
When Trustees were appointed for the husband’s Bankrupt Estate it became apparent that Orders were made by consent for property settlement 3 weeks prior to an Order being made in another court for the Husband to pay the debt of $600,000.00 to the third party. The result of the property settlement Orders meant that the Husband was not able to comply with payment of the $600,000.00 and proceeded with personal bankruptcy.
The Trustees applied to the court to have the Consent Order set aside. This application was dismissed in the first instance but has now been overturned on appeal by the Full Court on the basis that the parties entered into the agreement with the purpose and effect of defeating creditors.
Justice Murphy found that if “the consent order is made on the basis of sworn information that is materially false, the evaluative process conducted by the Registrar has miscarried”.
When parties are entering into a property settlement agreement they must always remember that Orders can be overturned if proper accounting has not been done of the assets and liabilities, including impending liabilities of third parties.
