Separation Agreements and TUVs

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Sheridan, a bankrupt, met Ms Song in 1999. They subsequently had children and married. Sheridan was the sole wage earner. They acquired a property in July 2007; it was held in the sole name of the bankrupt although both Sheridan and Song asserted that it was jointly owned.

The marriage broke down in March 2012 and the property was subsequently sold. Ms Song saw a solicitor and entered into a Separation Agreement with Sheridan in March 2012. It was agreed that Song would receive 80% of the net proceeds of sale from the property (c. £430,000) in order to purchase a home for herself and their children. 

It became apparent that 80% of the proceeds of sale would be insufficient and the bankrupt agreed to provide a further £40,000. Song borrowed additional sums to fund the purchase from family. The purchase of the new property was completed on 11 May 2012 and that property was owned in her sole name. Sheridan and Ms Song divorced in 2015; she did not apply for ancillary relief.

Sheridan sought help in dealing with his debts in 2013, prior to HMRC presenting a petition for his bankruptcy. The debt to HMRC dated back to 2008.

Jackson, Sheridan’s Trustee, was appointed in March 2014, and identified the transactions relating to the sale of the property as antecedent transactions recoverable as TUVs under the Insolvency Act 1986.

Upon considering the evidence, the judge found that Song was promised that her share from the property would be in the region of £450,000. Whilst there was a factual dispute over whether the additional £40,000 was an additional payment or a loan, the judge found that it represented a variation of the terms of the Separation Agreement, albeit not in writing. Song’s reliance on the promises made by Sheridan was clear, and she had relied on this promise when exchanging contracts for the purchase of the new property.

In the view of the judge, the Separation Agreement provided valuable consideration in the circumstances meaning that the payments were not caught by s. 339.

This case is a salient lesson to Trustees to consider “valuable consideration” in the circumstances of the case.

Jackson v Song [2021] EWHC 1636 (Ch)

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