In C&W Berry Limited v Mr & Mrs Armstrong-Moakes, Berry obtained a Charging Order against Mr & Mrs Armstrong-Moakes' property in 1992, which secured a debt owed solely by Mr Armstrong-Moakes. He was shortly afterwards declared bankrupt, and, some time after this, died. Following her husband's death, Mrs Armstrong-Moakes paid £10,000 to his Trustee in Bankruptcy to purchase her husband's share of the property. At the time this payment was made, Mrs Armstrong-Oakes was not aware of the existence of the Charging Order.

The £10,000 paid by Mrs Armstrong-Moakes was used by the Trustee as part of the dividend paid to Mr Armstrong-Moakes' unsecured creditors. Despite holding the benefit of the Charging Order, Berry proved in the bankruptcy and received a dividend for the full amount of its secured debt. Mrs Armstrong-Moakes subsequently claimed that Berry had surrendered its security by virtue of its actions in relation to the bankruptcy, and therefore that the Charging Order should be discharged.

On appeal, the Court found that there was insufficient evidence to prove that Berry had actually surrendered its interest in the property: as a Charging Order represents a formal interest in property, its surrender must be evidenced expressly rather than through any assessment of conduct. However, the appeal Judge found that there was enough evidence to show that Berry's conduct amounted to a waiver sufficient to allow the Court to use its discretion under the Charging Orders Act 1979 to discharge the Charging Order.

In Shah v Mr & Mrs Baverstock, another bankruptcy-related case, the Baverstocks had divorced prior to Mr Baverstock being declared bankrupt. As part of the financial arrangement within the divorce, Mr Baverstock transferred his interest in the marital home to Mrs Baverstock. Mr Baverstock's Trustee in Bankruptcy thereafter applied to have that transfer set aside as a transaction at an undervalue.

In defence of those proceedings, Mrs Baverstock claimed that in actual fact, Mr Baverstock had never had an interest in the property which he could transfer to her: although they had owned the property as joint tenants, in actual fact she had made all of the payments under the mortgage and paid for all other related financial outgoings. Mrs Baverstock therefore claimed that the Trustee did not have any interest in the property.

Applying the principles set out in Stack v Dowden (MFG: October 2007), the Court rejected Mrs Baverstock's claim. Although she may have been let down badly by her husband in terms of his lack of financial support, she had not done enough to prove that she had not intended to own the property equally with her husband. On that basis, the Trustee's claim that the transfer from Mr to Mrs Baverstock was an undervalue was upheld, and the Trustee was entitled to a 50% interest in the property.

Although two entirely different cases, both show the increasing impact of bankruptcy on the ownership of property and the unexpected issues that may be thrown up during the course of an otherwise straightforward-seeming transaction.

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This published article may contain information of general interest about current legal issues, but does not give legal advice.