There are two amendment in the name of Senator O'Leary.
SECTION 59.
I move amendment No. 11:
In page 24, lines 16 to 18, to delete subsection (1)(a).
The purpose of this section appears to be to make statutory provision for the avoidance of certain settlements of property made by the bankrupt and seems to be a two pronged approach to the problem. I have to explain this in order to explain the purpose of my amendment. It appears to be the intention that the settlements should be void in two circumstances. Firstly, if the settlor is adjudged bankrupt within two years after the date of the settlement, it would be void irrespective of other considerations. Secondly, if the settlor is adjudged bankrupt at any time within ten years after the date of the settlement, unless he can show that at that time he was solvent.
What I am concerned about is the case of a person who is adjudicated bankrupt and there is a settlement of a property within two years but at the date of the settlement of the property the person was not a bankrupt and was able to pay his debts. It would appear that in those circumstances the settlement would not fall within paragraph (b), but within paragraph (a). The Official Assignee could invalidate the settlement, even though at the time the settlement was made the bankrupt was able to pay all his debts without the aid of the property comprised in the settlement. In those circumstances, if you extract paragraph (a) you leave the one criterion. You leave that anything within the ten years is capable of being set aside if at the time of that settlement the person was unable to pay all his or her debts without the aid of the property comprised in the settlement. That would appear to get over the problem that might arise in the situation where a person, who was bankrupt because of an adverse development within the previous two years, had made a settlement which was bona fide, which was at a time when he or she was in a position to pay all his or her debts, but would, under the provision of paragraph (a), be held to be null and void. That is the purpose of my amendment.
It strikes me that what Senator O'Leary is saying would leave a huge loophole if one could have a situation where a person could transfer a property if he knew that a certain process was beginning and would end up in bankruptcy either by the normal rigours of the business world or by fraud——
Of course you could transfer your property if you knew you were engaging in a series of activities the result of which might be bankruptcy. I do not see anything wrong with that, as long as you were able to pay your debts at the time you did the transfer. But if you were, for example, getting involved in a very speculative big business venture which might make or lose you a lot of money, at the time you actually made the decision you did not know whether it was going to make or lose you money. There is nothing wrong with transferring your property in those cases to protect yourself.
Are you not laying off to protect yourself at the expense of your prospective creditors?
No, as long as you do it in an open way. You are not giving your creditors any false hope; you are actually doing it. I do not see anything wrong with that. In other words, two individuals can engage in the same speculative venture, one with and one without any assets behind him. The law does not differentiate between the two of them. If the man with assets thinks it is prudent before getting involved in such a highly speculative venture to settle some property on his wife, there is nothing wrong with that, as long as at the time he made the settlement he was able to pay off his debts. That is my view.
Section 59 is one of the sections which allows the Official Assignee to assert title to property of which the bankrupt was no longer owner at the date of adjudication.
It can make for a considerable increase in the property which ultimately becomes available for distribution among the creditors of the bankrupt. The section relates to voluntary settlements made by a person who later becomes bankrupt. "Settlement" includes a gift of chattles or money. Apart from the exceptions mentioned in the section, all settlements will constitute voluntary settlements for the purpose of the section and will be voidable in every case where the settlor is adjudicated within two years after the date of settlement. That is the effect of subsection (1)(a). Such a settlement will also be voidable if adjudication occurs at any time within ten years of the date of the settlement unless the parties claiming under it can prove that the settlor was at the date of making the settlement able to pay all his debts, without the aid of the property comprised in the settlement and also that the interests of the settler in the property had passed to the trustee of the settlement on its execution. That is the effect of subsection (1)(b).
The amendment seems to suggest that only settlements in the latter case should be voidable. In other words, it is suggested that the law whereby a transaction is voidable if made within two years should be abandoned; that in future, transactions should be voidable under this section only in the absence of proof of solvency and that the interest of the settlor had passed to the trustee of the settlement on its execution. This amendment would be difficult to justify since it reduces the effectiveness of the section and thus reduces the property available for distribution among the creditors.
Section 59(2) relates to a covenant or contract made by a bankrupt in consideration of marriage either for the future benefit of his spouse or children or future settlement on them of property, not being property in right of a settlor's spouse in which he had not an estate or interest at the date of the marriage. If such covenant or contract has not been executed at the date of the adjudication it is void against the Official Assignee but the persons entitled may claim for dividend in the bankruptcy after the claims of other creditors for valuable consideration have been satisfied.
Does that meet your point, Senator O'Leary? I suspect it does not.
I understand what the Minister says, but I do not agree with it. I do not see anything particularly wrong. It is right that a person should be so able to order his or her affairs prior to embarkation on a speculative high risk venture which is not fraudulent. He or she should be able to protect his or her assets. I do not see anything wrong with that.
There is no one stopping them from doing that.
As long as they do it more than two years before the——
As long as they are not adjudicated bankrupt.
To help matters, amendment No. 12 is almost precisely on the same point. There is no point in us discussing that separately. It is slightly different but it is the same principle.
There are two other points I want to make which are separate from the Family Home Protection Act. One of them is interacting. I want to come back to section 59(1)(a) and approach it from a different angle. Could the Minister explain why, other than because of the Bankruptcy Law Committee's report on this and legislation in adjacent jurisdictions, we home in on two years in the context of subsection (a)? Why is that the magical period? What is the policy consideration behind it? One will always have anomalies. If something happens after one year and nine months or two years and one month, there has to be a cutoff point somewhere. It would be interesting to hear the Minister give a reason as to why two years is the time limit in that context.
I would also like to raise a point about section 59(1)(b). The ten years has been part and parcel of the law for decades now, and it is the same in a neighbouring jurisdiction. This time period is too long. If nine years after property has been transferred somebody is adjudicated bankrupt does it not put an impossible onus on the parties claiming under the settlement to prove that the settlor was at the time of making the settlement nine years earlier able to pay his debt? It would seem that that period is too long. It is taking it beyond the balance. How will the people on whom the property has been settled have access to that information? Will the person who is declared bankrupt have access to the information in regard to the debts he had nine years earlier and what his financial circumstances were? Leaving aside the policy consideration brought up by Senator O'Leary, it would be interesting to hear what the Minister has to say about both the rationale in deciding on two years in (a) and ten years in (b). It would seem to me that in section 59(1)(b) there are difficulties in practice if it is litigated at later stages for the persons on whom property has been settled.
The second point is of a different nature relating to the Family Home Protection Act. It is one that is adverted to in the Bankruptcy Law Reform Committee's report in paragraph 23.5.5. where they talk about possible changes in the law in this area. They compare Irish law with English law and some reference is made to case law as well. That is the interaction between this section and the Succession Act, 1965, in the context of a spouse prior to marriage being able to renounce his or her entitlement to a legal right or a share in the other spouse's estate. To state it in simple terms, where a husband dies and leaves a will and if there are no children the wife would be entitled to half of the husband's property and to one third if there are children.
Two situations arise. People may conclude a settlement prior to marriage. There may be a renunciation of succession rights. Section 113 of the Succession Act, 1965, allows a husband and wife to renounce their succession rights at any stage. Sometimes there can be a mutual renunciation of succession rights. It normally takes place in a situation where people are separating. You can also have a husband or a wife renouncing their succession rights in consideration of one or other of them getting some immediate benefit. It is not unknown for a wife to waive her succession rights, for example, in consideration of the husband transferring property to her worth £50,000 or to waive her succession rights voluntarily in consideration of her getting a lump sum payment. What status does that have in the context of section 59? It seems that the Bankruptcy Law Reform Committee were suggesting that those types of settlements in the context of the reform being introduced could be void under section 59(1)(a). It would seem that this is not a voluntary settlement. It is for valuable consideration. The wife would be acting in good faith. She might be aware of her husband's debts.
I would like clarification of what the Minister's view of the position will be of waivers of succession rights pursuant to the provisions of this section in the event of following upon a waiver in which a wife, for example, receives a financial benefit or obtains an interest in a property in return for a waiver if following upon that, firstly, the husband is declared bankrupt within two years or, secondly, if he is declared bankrupt within ten years.
First of all, on the question of time, whether it should be two years or ten years, the committee looked at various options. Obviously if one is going to enter into a time limit, an argument can be made that one is running near the margin if it is a year and 11 months or two years and one month. Once time is involved, there has to be a cutoff period. They contemplated one year and five years instead of two years and ten years. They came down on this, first of all, because the two years is the existing position. When they thought about it they did not see a great reason for changing and the advice subsequently was that it was about the right period.
If it is shown that the transaction was not made bona fide and for value, it is void if made within two year's of the bankruptcy whether or not the settlor was solvent at the time of the settlement. If made between two and ten years of the bankruptcy it would also be void unless the settlor could prove he was able to pay all his debts without resort to the settled property. In contrast to this, subsection (2) provides that any covenant or contract made in consideration of marriage, either for the future payment of money to or settlement of property on the settlor's spouse or children, i.e. any agreement to settle, will be void as against the Official Assignee, if the settlor had no interest in such money or property at the date of the marriage, and the covenant or contract was not executed at the date of the adjudication. This covers situations where there are future settlements of property.
We should adjourn for the Order of Business. We will resume at 11 o'clock.
Sitting suspended at 10.20 a.m. and resumed at 11 a.m.