High Court allows bankruptcy petition against non-compliant ex-husband for family law debt recovery.

Neutral Citation Number: [2008] IEHC 435

THE HIGH COURT

BANKRUPTCY

484 P

IN THE MATTER OF THE BANKRUPTCY ACT, 1988 AND

IN THE MATTER OF A PETITION FOR ADJUDICATION OF BANKRUPTCY

BETWEEN

B. D.

PETITIONING CREDITOR

AND

J. D.

DEBTOR

Judgment delivered by Ms. Justice Dunne on the 3rd day of December 2008

1. Section 11(1) of the Bankruptcy Act provides as follows:-

“11. (1) A creditor shall be entitled to present a petition for adjudication against a debtor if;

(a) the debt owing by the debtor to the petitioning creditor (or, if two or more creditors join in presenting the

petition, the aggregate amount of debts owing to them) amounts to £1,500 or more,

(b) the debt is a liquidated sum,

(c) the act of bankruptcy on which the petition is founded has occurred within three months before the

presentation of the petition, and,

(d) the debtor (whether a citizen or not) is domiciled in the State or, within a year before the date of the

presentation of the petition, has ordinarily resided or had a dwelling- house or place of business in the State or has

carried on business in the State personally or by means of an agent or manager, or is within the said period has

been a member of a partnership which has carried on business in the State by means of a partner, agent or

manager.”

2. In this case, the petitioner was the applicant in family law proceedings against the debtor, her husband. It is not necessary to

refer to the history of those proceedings; suffice it to say that ultimately an order was made in the High Court in the following terms,

inter alia:-

“Pursuant to s. 8(1)(c)(i), the respondent [the debtor herein] do make the following lump sum payments to the applicant

upon the date and in the manner specified such lump sums being in addition to the sum of €500,000.00 paid by the

respondent to the applicant on foot of the stay granted by the Supreme Court on 2nd July, 2004.

(i) The sum of €500,000.00 to be paid on or before 27th January, 2006, in respect of the applicant’s interest in the

family home.

(ii) The sum of €1,000,000.00 to be paid on or before 28th February, 2006.

(iii) The sum of €500,000.00 to be paid on or before 27th January, 2006, to the said applicant’s pension fund.

(iv) The sum of €500,000.00 to be payable in four equal instalments, the first payment to be payable on 30th June,

2006, and annually thereafter and each instalment shall be indexed linked to the consumer price index having as its

base the date 30th June, 2006.”

3. The affidavit of debt of the petitioner herein avers that the sum of €2,125,000.00 is due to her on foot of the judgment and order

of the High Court made and perfected on 21st February, 2006. To date, that part of the judgment and order of the High Court has

not been satisfied.

4. A number of affidavits have been sworn herein by or on behalf of the debtor. No issue is raised by the debtor as to his

indebtedness. He set out the background to the Family Law proceedings, matters relating to the valuation of the group of companies

owned and run by him and set out the precise terms of the order on foot of which the indebtedness now arises.

5. It goes without saying that no issue arises in these proceedings as to the order made in the Family Law proceedings. In making

that order, the High Court had the benefit of hearing evidence from the parties and their experts as to the circumstances of the

parties and as to the valuations of the group of companies and other assets involved. Clearly, neither party is entitled to look behind

the order made in the Family Law proceedings.

6. The approach of the debtor to these proceedings, as demonstrated by the affidavits filed herein, has been to offer excuses for the

failure to comply with the order of the High Court in the Family Law proceedings by reference to “the straitened circumstances” of the

debtor and the group of companies owned and run by the debtor. It is, however, important to bear in mind that a significant

proportion of the monies payable on foot of the High Court order in the Family Law proceedings, was due to be paid over by the

debtor by 28th February, 2006. The amount due to be paid over by that date was €2,000,000.00. It is also important to note that

the order of the High Court in those proceedings was clearly, made having heard all of the evidence and having taken into account

that evidence. Although previous orders made in the course of the Family Law proceedings were subject to appeal to the Supreme

Court, that order was not appealed. At the time of making the order, the High Court would have had the benefit of all the up to date

information in relation to the circumstances of the debtor and the group of companies. In other words, it is hard to see how the

debtor could make reference to “straitened circumstances” in respect of an order that had just been made and in respect of which

the financial terms were to be largely complied with a week after the order had been perfected.

7. Nevertheless, the key argument of the debtor is that the petitioner has issued these proceedings for a collateral purpose and not

for the purpose of recovering the debt due. It is averred by the debtor that the petitioner bears him considerable ill will and that

these proceedings are “effectively an exercise in punishing [the debtor] for the unhappy differences which led to the separation of

the parties herein.”

8. In making the case that the proceedings herein have been issued for a collateral purpose, the debtor relied on an affidavit sworn

herein by one of the sons of the parties herein. He deposed to the fact that of his own volition he met his mother, the petitioner

herein, on a couple of occasions to discuss his concerns as to the effect an adjudication of bankruptcy would have on the group of

companies, himself, his family, his brother and the workforce of the group of companies. He referred to the inability of his father to

raise the money necessary to comply with the order of the High Court. He also referred to a conversation with his mother in which

she apparently told him that “she would be happy to see [the debtor] being made a bankrupt and that if the company closed as a

consequence it would not be her problem”.

9. A further affidavit was sworn by another of the children of the parties which purported to deal with the financial circumstances of

the group of companies concerned and the adverse effect that an adjudication of bankruptcy of the debtor would have on the group

of companies and the family as a whole.

10. The petitioner herein swore a replying affidavit setting out further details in relation to the history of the Family Law proceedings.

She referred to the hardship caused to her by the failure of the respondent to comply with the order. She referred to the fact that

since the order was made, various discussions have taken place to resolve the issue of the outstanding debt through the medium of

family discussions and through the legal representatives of the parties, but to no avail. She further referred to proposals to settle the

issues between the parties. She put forward counter proposals on affidavit. She did not deny the contents of the conversation that

took place between her son and herself.

11. A final affidavit was sworn by the debtor herein. In it he deposed, inter alia, as follows:-

“There must – pending any application to the family division of this honourable court to revisit the same – be compliance

with the order. The petition herein appears to be technically correct. There is a debt due to the petitioner by this

deponent which exceeds the monetary threshold on which this honourable court’s jurisdiction is based. However, I say

and believe, that given the petitioner’s acknowledgment that her financial position will not be improved one whit by the

adjudication of this deponent as a bankrupt, and her refusal to engage with any temporary arrangement which might

address her entitlements on an interim basis, and the clear ill will which she bears this deponent and which has motivated

the present petition, it appears that the present petition is actuated by malice towards this deponent – in this regard the

petitioner wishes to bankrupt me to ‘spite’ me – and in the circumstances I am advised by counsel and believe that the

petition herein has been brought in bad faith and is an abuse of the process of this honourable court. In light of the

foregoing I am advised and believe that the ‘rights and wrongs’ of our family law proceedings are not a relevant matter for

consideration by this honourable court in the context of the present proceedings.”

12. There are a number of comments to be made in respect of this averment. First, it is clear that the debtor acknowledges that “the

petition herein appears to be technically correct”. There is no doubt that it appears that the petitioner is entitled to an adjudication

of bankruptcy. She has met the criteria laid down in s. 11(1) of the Bankruptcy Act 1988. However, an issue has been raised as to

whether or not the purpose of these proceedings is not to recover the debt due but to cause difficulty for the debtor by an

adjudication of bankruptcy arising from spite or ill will on the part of the petitioner. I will deal with this issue in due course.

13. There is another comment that I would make on the averment just referred to. Although the debtor avers that he does not seek

to look behind the order of the High Court, that appears to be exactly what he seeks to do by his affidavit herein. He complains of his

“diminished capacity” to comply with the order. Bearing in mind that the order was made on 21st February, 2006, and that the larger

part of the sums due to be paid by the debtor (€2,000,000.00) was to be paid by 28th February, 2006, it is difficult to see how the

debtor could now complain of a “diminished capacity” to comply with the terms of the order as I have already noted.. It is noteworthy

that no satisfactory explanation has been provided by the debtor for non-compliance with the order. I have already referred to the

affidavit of one of the sons of the parties who is the general manager of the group of companies and who has outlined in that

affidavit the trading difficulties of the group of companies at the present time. However, the trading difficulties of the group of

companies post the making of the order are not, in my view, a reason for not making an adjudication of bankruptcy.

14. As I indicated above, the debtor has raised an issue, namely that the petitioner herein has brought these proceedings not to

secure payment or for the purpose of making assets available for creditors, but by reason of the fact that she is actuated by spite or

ill will towards the debtor. I now propose to consider the submissions made by counsel for both parties in this regard.

The applicant’s submissions

15. The main point made by counsel on behalf of the applicant is that there is no more than a bare assertion by the debtor to the

effect that the petitioner is motivated by spite or ill will towards the debtor in bringing these proceedings. The only averment of note

is that contained in the affidavit of their son set out above and which refers to the conversation between the petitioner and that

son. It was contended that this averment does not establish that the petitioner was motivated by spite or ill will. Counsel outlined the

various options open to the petitioner to obtain compliance with the order of the High Court, e.g., attachment and committal, and

argued that bankruptcy was the most appropriate option available to the applicant to secure payment of the debt due.

The respondent’s submissions

16. Counsel on behalf of the debtor referred to the purpose of bankruptcy proceedings and made the point that the awareness on the

part of the petitioner that an adjudication would not assist in the recovery of the debt coupled with the ill will of the petitioner

towards the debtor amounted to an abuse of the process of the court. In dealing with the purpose of bankruptcy proceedings

reference was made to the decision in the case of McGinn v. Beagan [1962] I.R. 364. In that case it was held that the court’s

processes should not be allowed to be used for an ulterior and collateral purpose and accordingly all proceedings under the debtors

summons therein should be stayed. The facts in that case were that the debtor’s business failed in 1958 and judgments to the extent

of nearly £2,000.00 were obtained against him. The judgments remained largely unexecuted as Beagan had no assets. In 1961,

McGinn procured the assignment to himself of the balance due on foot of one such judgment. On 27th March, 1962, the petitioner

issued a debtor’s summons against the debtor founded on the judgment debt. There was a long history of personal ill will on the part

of the petitioner towards the debtor. On the debtor’s motion to dismiss the summons as vexatious and an abuse of the process of the

court or alternatively to stay all proceedings thereunder on the grounds that it had been issued, not to obtain payment or to make

money available to creditors, but solely, to make the debtor a bankrupt and hence render him ineligible to be a member of the local

urban district council. The court granted the stay.

17. It should be noted that counsel for the petitioner herein did not dispute the law as set out in that case but noted that unlike the

present proceedings the debtor in that case made an application by way of cross motion to dismiss the debtor’s summons as an abuse

of process.

18. I accept that the decision in McGinn v. Beagan sets out the principles to be applied in considering the proper purpose for which

bankruptcy proceedings should be issued.

19. A key part of the argument on behalf of the debtor was that the purpose of the petitioner herein was to subject the debtor to as

much damage as possible and not to obtain payment or to make assets available to creditors. In support of this contention reference

was made to a number of decisions, namely, In Re Pooley (1882) XX Ch. D. 385, Re Bellador Silk Ltd., [1965], 1 All E.R. 667 12 Ch. D.

480. Two passages from the judgments in Re Pooley are of some relevant in considering this issue. Jessel M.R. noted:-

“Now what was the reason, the known reason, for this intervention of Mr. Rodney Pooley? He was so impecunious that,

when he had to buy Lovelock’s debt for £225.00, it was only through the assistance of the Jersey solicitor that he could

procure the money. Why does he want to buy up the debt due from Mr. Holt? Mr. Windslow suggested that any man

might speculate in debts. So he may, but Mr. Harper in his examination was asked the question, was it not with the view

of making Mr. Holt a bankrupt and he declined to answer, and then the registrar said in his presence that he must take it

to be the same thing as if he had answered in the affirmative. That is the effect of the registrar’s observation, and I think

it is a fair observation. I must take it, therefore, that Mr. Harper knew that the object of buying up this debt was, not the

recovery of the debt, but to make Mr. Holt a bankrupt, and (as I consider to be the fair inference) with the view of

removing him from being trustee. But, even if it goes no further than the first proposition, it is a gross abuse of the

bankruptcy laws. And we must recollect that all this occurred after the well known judgment, a judgment which made a

great noise in the profession, in ex parte Griffin, which was delivered in July, 1879, and in which Lord Justice Cotton said:

‘The proceedings in bankruptcy were not taken to obtain payment of the debt, but the debt was purchased in order

to take the proceedings in bankruptcy, . . .’”

20. Holker L.J. at p. 696 of the judgment in the same matter commented as follows:-

“When the second trustee had been selected, the gentleman who was likely to administer the estate properly, and to do

everything which he ought to do for the benefit of the creditors at large, when he had been appointed trustee [the

petitioner] conspired with another, he agreed . . . with the son of the bankrupt to buy up a debt due by the trustee, not

for the purpose of forwarding the proceedings in bankruptcy, not for the benefit of the creditors at all, but for the

purpose of making the trustee a bankrupt so that they might oust him from his position. They conspired together to do

this for the purpose of obtaining an advantage for themselves, and not only for that, but with the object distinctly in their

minds of injuring the trustee who had been appointed, and, though perhaps not the avowed purpose, yet with the

probable result of injuring the creditors also.”

21. It is clear from the examination of the authorities referred to that if someone commences bankruptcy proceedings not for the

purpose of recovering the debt due, but to inflict damage on the debtor, eg. for the purpose of ousting someone as a trustee, or

having someone disqualified from a position such as that of a local councillor, then the proceedings are an abuse of process and liable

to be dismissed. This is well illustrated by the facts of the case of McGinn v. Beagan referred to above. By contrast, the facts of this

case seem to me to be somewhat different. In this case the High Court following the hearing of Family Law Proceedings made certain

orders involving the payment of money by the debtor to the petitioner herein. That order was not appealed. The order provides for

lump sum payments to be made within a short period of the making of the order by the High Court and clearly was made having regard

to the circumstances of the parties which existed at the time of the making of the order. The order has not been complied with by

the debtor. No satisfactory explanation has been put forward by the debtor to explain why he did not comply with the order and make

the relevant payments at the time specified. The debtor states on affidavit that the financial circumstances of the group of

companies which he owns and manages has changed for the worse – this may or may not be so. Considerable scepticism is expressed

by the petitioner in her replying affidavit as to the manner in which the respondent has utilised company funds and I feel there is

some justification for that scepticism, bearing in mind the time frame within which the bulk of the payments should have been made in

compliance with the order of the High Court.

22. I have to say that the overwhelming impression that I have from reading the affidavits herein is, that the petitioner has tried

through negotiation to have the order of the court complied with. Unfortunately, although the debtor now pleads financial problems,

there is nothing to suggest to me that he had those problems at the time of the making of the order. Otherwise, no doubt, the order

would not have been made in those terms. Although the debtor has stated that the applicant is aware of the financial circumstances

of the group of companies, I do not accept the assertion to that effect. It is clear that the parties sons have spoken to the

petitioner about the company finances from time to time as set out in the affidavits herein, but I think it is an inference too far to

suggest that the petitioner is aware that an adjudication will not assist in the recovery of the debt. On the contrary, an adjudication

will have the affect of assisting the applicant in the recovery of the debt due to her. Obviously an adjudication of bankruptcy would

have an effect on the position of the debtor as the director of the companies within the group. However, there is nothing in the

evidence before me to suggest that that was the purpose of the petitioner in bringing these proceedings.

23. The final issue I wish to consider is the allegation that the petitioner herein is motivated by ill will or spite towards the debtor in

pursuing these proceedings. I am not satisfied on the facts of this case that the applicant is motivated by ill will in pursuing these

proceedings. It seems to me that bearing in mind her circumstances, she has been driven to take these steps in order to secure the

payment of the monies provided for in the order of the court. The comments made by her, to her son as referred to in the affidavit

sworn herein, seem to me to be the reaction of someone who has been frustrated in having the order of the court complied with. She

has set out details of correspondence between her solicitors and the debtors solicitors in order to obtain compliance with the order of

the High Court. She has also set out her concerns in relation to the reduction of the assets of the group of companies over the

course of the time that the Family Law Proceedings were before the courts. She has also set out details of the hardship occasioned

to her by reason of the non-compliance with the order. In all the circumstances, I am satisfied that her remarks, can be attributed to

understandable frustration on her part in response to the failure of the debtor to comply with the terms of the order of the High

Court.

24. The final matter I want to deal with is to a reference made in the course of argument to a proposal for the resolution of this

matter contained in the affidavit of the petitioner which was characterised as being “tantamount to extortion”. By way of response,

counsel on behalf of the petitioner pointed out that she was not looking for anything more than she is entitled to receive on foot of

the order of the High Court. I have to say that I was somewhat surprised that the proposal made by the petitioner in her replying

affidavit was described in that way. She was doing no more than putting forward a counter proposal to an offer that had been made

by the debtor previously in correspondence. I cannot see any reason why the applicant should not put forward such proposals for the

resolution of this matter. In my view, to describe such a counter proposal as being tantamount to extortion goes much too far. The

counter offer put forward by the petitioner did not have to be and was not accepted by the debtor.

25. In all of the circumstances of this case, I reject the arguments made on behalf of the debtor herein. I am not satisfied that the

petitioner herein is engaged in an abuse of process. In my view the petitioner is entitled to an adjudication of bankruptcy.

26. I will hear the parties further in regard to the steps that now require to be taken.