No resulting trust in favour of a bankrupt

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In one of Gabriel Moss QC’s last reported cases, the Court dismissed a claim that three properties owned by a bankrupt’s adult daughter were in fact held on resulting trust for the bankrupt.

The application concerned three properties purchased using funds from a joint account held by the bankrupt and his wife together with a mortgage. The bankrupt was joint applicant on one mortgage, but was guarantor on the other two.  

The principle claim run was that a resulting trust had arisen in favour of the bankrupt because of the contributions made by him to the purchase price.

A resulting trust may arise if a person, using his own money, purchases property in the name of another. That is a presumption, and it can be displaced by a presumption of advancement where that other person is a spouse or child. 

The Court accepted that the presumption of advancement applied here, and it was for the Trustee to rebut that presumption by demonstrating the funds introduced were not intended to be a gift. Whilst that presumption might be easier to rebut that in the context of adult children who were financially dependent of their parents, the Trustees could not evidence that here. 

At the time of the purchase of two properties, the daughter was still financially dependent on her parents and it did not make sense for a graduate on a “starter” salary to act as trustee for her father.  With the third property, contemporaneous documents evidenced that the bankrupt and his wife intended to purchase property as an investment for their children which was inconsistent with the bankrupt actuating or retaining any beneficial interest.

The bankrupt was a joint applicant on the mortgage of the first property but the mortgage repayments were all met by the daughter who also collected all of the rental income herself and had paid all of the tax due on that. On the other mortgages, the bankrupt acted as a guarantor. Acting as a guarantor did not amount to “contribution to the purchase price”.

The presumption of advancement is still alive and kicking - even where funds are transferred between spouses and financially dependent adult children. 

In dismissing the application, ICC Judge Barber was also highly critical of the evidence which she described as selective. As with many Insolvency Act claims, the application was supported by a witness statement but documents the Trustee had, which were obviously relevant (such as interview transcripts) had not been exhibited or disclosed.

If nothing else, this is a warning to office holders that evidence should be presented fairly and completely.

Wood and another v Watkin [2019] EWHC 1311

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