Graeme Allan, the first defender, was sequestrated in 2017 seven months after divorcing his first wife, following which a new disposition was granted over the former matrimonial home in favour of him and his new partner, Anna Ragnarsson. The AiB submitted that the 2017 disposition was a gratuitous alienation and the orders sought were appropriate redress under the Bankruptcy (Scotland) Act 2016.

The case was heard by Sheriff Gregor Murray at Dundee Sheriff Court. Ower, advocate, appeared for the pursuer and Logan, advocate, for the second defender. The first defender was not represented at debate, but his pleadings were identical to that of the second defender.

Half its value

In May 2017, the first defender divorced from his first wife Kathleen Allan. Ancillary financial orders were made for the fair sharing of the value of their matrimonial property, which primarily consisted of their home in Hawick Drive, Dundee. This property, the title to which lay in both their names, was subject to a joint standard security in favour of the Royal Bank of Scotland.

The ancillary orders provided for the transfer of Mrs Allan’s interest in the matrimonial home to the first defender and for her to receive a compensating sum of £22,288. The capital sum was funded by RBS advancing the defenders a sum sufficient to redeem the original mortgage and to pay Mrs Allan. A new disposition of the property and standard security were registered in September 2017 in favour of Mr Allan and the second defender.

Counsel for the pursuer submitted that the 2017 disposition was effectively a transfer for no consideration that left the Mr Allan’s estate with an asset worth only half of its value. In return for securing the release of the £22,288 from RBS, the second defender had received an asset worth more than double that value. The defenders had not offered to prove that any relevant consideration was paid, and the second defender had neither given nor surrendered anything to the first defender.

It was submitted for the second defender that Mrs Allan’s half share of the matrimonial home had never formed part of the first defender’s estate. Separately, the second defender had given consideration by accepting joint and several liability for the new mortgage, which she would likely bear the responsibility of paying given the financial state of the first defender’s business. While value of her contribution was a difficult issue, it was one that ought to be dealt with after proof.

Bypassed transfer

In his decision, Sheriff Murray observed: “I did not understand counsel for the second defender to dispute that the 2017 disposition was an alienation for the purposes of section 98 [of the 2016 Act]. I agree. I also accept his submission that the Sheriff’s orders for financial provision were interlinked. In brief, the divorce judgement conferred a right on the first defender to acquire Mrs Allan’s interest in Hawick Drive in exchange for payment of the capital sum. It is accepted that the capital sum was paid.”

On whether consideration had been given, he began: “The Sheriff accepted evidence that RBS was prepared to lend the present defenders £25,000 provided the mortgage was put in joint names. She felt able to make the property transfer order and the order for a capital sum on that evidence and, as the action had been intimated to RBS, it had chosen not to enter the process, [and] as Mrs Allan would be paid whether or not the house was sold. It is in those circumstances that the Defenders’ averments of consideration fall to be assessed.”

He continued: “Had the first defender not been sequestrated, no difficulty might have arisen. However, as he was, section 98 was triggered. In circumstances in which the first defender could have perfected his right to take title to Hawick Drive, he and the second defender opted to take a course which bypassed transferring title to him first. For that reason, there could never have been any question of the second defender giving consideration as, in the circumstances of this case, no property was conveyed by the bankrupt to the transferee.”

The sheriff concluded: “As the second defender avers, she was aware of the first defender’s business difficulties. In the absence of any averment that RBS insisted on the title to Hawick Drive being placed in joint names, the only true purpose of the transfer to both defenders was to preserve their right to occupy the property. As that could not have been achieved in the divorce action and other means could have perfected the first defender’s right, however understandable the defenders’ desire to remain in Hawick Drive, the purpose of the alienation was not justified.”

Sheriff Murray therefore ordered the reduction of the 2017 disposition. Having accepted a submission that there was no need to intimate the action to Mrs Allan, he proceeded to grant an order for the title to the Hawick Drive property to be transferred to the pursuer.