Joint Committee on Legislation debate -
Friday, 24 May 1985

SECTION 59.

Debate resumed on amendment No. 11

In page 24, lines 16 to 18, to delete subsection (1)(a).

—(Senator O'Leary).

Deputy Noonan (Limerick East)

There is not much to add to what has already been said about the periods of two and ten years. It is important however to point out that in both this jurisdiction and Northern Ireland these sections are relied on to recover property which had been transferred during these periods. As will be seen from the section, there are three exceptions. When we talk about any settlement of property, in the section, we mean any transfer of property with the exception of a settlement made before and in consideration of marriage, or it is made in favour of a purchaser or incumbrancer in good faith and for valuable consideration or a settlement made on a spouse or children of the settlor of property which has accrued to the settlor after marriage in right of the spouse. In practice it is the second of these which is important. Thus, any transfer of property, whether it be a settlement or conveyance made to a purchaser or incumbrancer in good faith and for valuable consideration, is excepted from the section. At the same time there is an onus on the Official Assignee to prove that there has been an absence of bona fides under this section. As Members probably know already, expensive items of property have been recovered by the Official Assignee. The standard example given in most of the text books is jewellery given to a wife by a husband prior to marriage. Another point which is worth remembering is that prima facie all transfers are all right. They are simply voidable. The whole purpose of section 59 is to avoid antecedent transactions which are initiated by improper motive of some kind or another and which have the effect of taking the property of the bankrupt out of its lawful stream, in other words, ensuring that it will not come within bankruptcy law. I do not know whether that answers the question about the two to ten years. It has been mentioned already that the two years and the ten years are not magic figures. They have, however, existed for quite some time in our legislation and it is correct to say that they still exist in Northern Ireland. Representations were made by some people when the Bill was being prepared to leave the periods alone and by others to reduce them. The Bankruptcy Law Committee were quite satisfied that they worked in practice.

With regard to the amendments, it is true that if the amendments suggested were to be introduced they would of necessity reduce the effectiveness of the provision because there is a distinction between reducing the periods and totally excluding subsections (1)(a) and (3)(a).

With regard to the other points, the question of transfers between spouses was raised. Deputy Shatter mentioned two cases, one where there was no conflict between the spouses and the other where there was a breakdown between them. I am not aware of the section actually being applied in either case. With regard to the second case, if there is a transfer between one spouse and another — and I take for example the case I mentioned already about a transfer of jewellery — clearly that is a case in which the transfer would be voidable. Of course the onus is on the Official Assignee to void it. The onus is on him to prove mala fides. With regard to the second case, the example put forward related to the Family Home Protection Act and the transfer by virtue of a court order. This matter will be dealt with more fully when we come to section 61.

It has been held in England that a transfer made by virtue of a court order in the pre-adjudication period could be upset in principle by the corresponding provisions of the English legislation. If I understood Deputy Shatter correctly, the points he made were concerned more with the Family Home Protection Act rather than with the Bankruptcy Bill. However, there obviously is an interaction because there were transfers of property. As mentioned, there have been a number of cases where properties have been transferred and it is not clear why the provisions with regard to the avoidance of certain settlements in bankruptcy should necessarily be altered because of the circumstances which arise in relation to a transfer of the family home.

There was a third point made in relation to the Succession Act. As Members will agree, this is a most complicated and complex area and this is indicated by the committee in paragraph 23.5.5. on page 135 of their report. They refer to the sections of the Succession Act which were mentioned here — section 111 regarding the legal right and section 113 with regard to renunciation of the legal right in an ante-nuptial contract.

As Members will appreciate, these are matters of law which it would not be posible to cover in a Bankruptcy Bill which is simply laying down principles relating to the avoidance of fraudulent transactions, fraudulent preferences or voluntary conveyances. It would appear from what the Bankruptcy Law Committee say that it is conceivable that the renunciation of a legal right within the periods laid down by the bankruptcy code could be challenged by the Official Assignee. At the same time they suggest, on the basis of an English decision which they refer to on page 134, that if a husband obtains property by virtue of the legal right and settles it on his children it would be covered by the formula in section 59 which excepts from the section property of the settlor which has accrued to the settlor after marriage in right of the spouse. That appears to be what the committee's view on this matter was and there does not seem to be any reason to disagree with it. From this illustration it is clear or reasonably clear, that the issues involved in the interaction of the bankruptcy legislation and the Succession Act are not or cannot be resolved in the Bankruptcy Bill because it is generally accepted that it is not possible in this type of legislation to legislate for every conceivable type of case that can arise. Ultimately it would be for the court to decide, and here again it is important to remember that section 59 is merely a section which allows the Official Assignee to challenge transactions made prior to bankruptcy which he considers were made with a view to putting property into a stream other than that which is allowed by law.

Deputy Shatter

Could I first of all come back to the Succession Act point and then deal separately with the Family Home Protection Act point? Different though complementary issues arise on both. The key phrase in this relating to the problems I have raised under the Succession Act is in section 59(1) where it talks about "any settlement of property not being a settlement made for any consideration of marriage" or and there are a number of "ors" and one of the "ors" is "or for the spouse or children of the settlor of property which has accrued to the settlor after marriage in right of the spouse"et cetera. The key phrase here is “in right of the spouse”. The Bankruptcy Law Committee report deals with this on pages 134 and 135. It is unnecessary to quote in full from those pages. It is clear that the idea of property being acquired after marriage in right of the spouse arose out of the fact that in Ireland, England and Northern Ireland prior to 1882 upon marriage a wife’s property automatically became her husband’s. The idea of that phrase was to prevent property that a husband acquired upon marriage by virtue of that rule of law, that in reality was his wife’s property, to prevent the wife’s property being taken by creditors of the husband’s. That phrase was originally designed around that. There is reference to an English case in paragraph 23.5.4 of the report where it refers to section 52 of the 1872 Act and goes on to say that the reference in that Act to property accruing to a settlor after marriage in right of his wife appears at first sight to apply to property to which a husband became entitled through his wife on marriage during her lifetime but, that it was decided, and then they refer to the case re Bower Williams ex-parte the trustee, that when a wife dies intestate and her husband, after taking out administration settles certain of her former property on trust for the benefit of his daughters the property had “accrued to the husband after marriage in right of his wife” within the meaning of the exception in section 42 of the 1914 Act which the committee say is similar to that in the section they proposed in their draft Bill.

They then go on to paragraph 23.5.5. to talk about the Succession Act. It seems that they do not come to a definitive view as to how the Bankruptcy Bill they proposed and their recommendations were to interact with the Succession Act. They refer to the fact in the last portion of that paragraph that a particular type of settlement under the Succession Act involving renunciation of rights may be a settlement which comes within the terms of the section we are dealing with.

One cannot in any legislation deal with every possible eventuality. Some of it has to be left to be teased out by the Judiciary. It does seem that we have adopted the phrase "property which has accrued to the settlor after marriage in right of the spouse" and there is a legislative policy decision that that should not simply be left to the courts to unravel. It is something that ultimately may have to be unravelled by the courts. We simply leave it. We have the Succession Act as a separate statutory provision on one side and the Bankruptcy Bill on the other and we throw our hands in the air and say this is a legal problem. We are dealing with a legal problem. This whole Bill is about statutory provisions to deal with bankruptcy. I am quite honestly not clear as to what our intention is.

This phrase "after marriage in right of the spouse" has not been teased out by our courts. Certainly there has not been a case under the 1965 Succession Act in which the courts have been asked to deal with a situation in which, for example, a wife has renounced her succession rights, has in return had a family home that was owned by the husband put into her sole name, that one year later there has been an act of bankruptcy by the husband and then the creditors have tried to suggest that the wife's renunciation in some way should be set aside and the home should be taken into the bankruptcy. We have not had that type of case. We have not had that type of case taking place to deal with other situations, for example, three years after the waiver of succession rights has been concluded. It is not certain how our courts would deal with this. Possibly they will follow the English decision in some way or they might not. We should, as we are reforming something that has not been reformed within this jurisdiction for decades, try to get it right and not leave that problem to be teased out.

Modern life being what it is, if I was a husband facing the possibility of knowing I have a number of debts building up — I am living happily with my wife — I would say to my wife we are going to have a problem in that somebody might claim a judgment against me for £60,000. They can lodge a judgment mortgage, as I own the house and there is nothing I can do about it. We might have to sell the house and be left homeless. She has her succession rights under the Succession Act. Why do we not conclude — we are living together — an agreement whereby she renounces her succession rights as a valid statutory entitlement under section 113 of the Succession Act. In return for doing that I will place the house into her sole name. There will be nothing necessarily prima facie fraudulent about that. What you are doing is acting on a specific statutory entitlement under the 1965 Succession Act which is designed to protect families and spouses and she is waiving her succession rights. It does seem that it is not clear what the legal position is following upon that transaction. If there is an act of bankruptcy the wife does not necessarily have to know that the husband has debts. Somebody might suggest this to the wife as something they should do. She might see it as a way of providing future security for herself and the children regardless of the husband’s business adventures. It does seem there is an interaction that we need to spell out. There is nothing in the Succession Act which suggests that, if I renounce my succession rights and if I do it understanding what I am doing, any court can invalidate my renunciation.

In the opening remarks made after our brief adjournment it was suggested that the Official Assignee could declare the transaction voidable. What would he declare voidable? Would he simply be allowed to bring the house, if this was the case, into the bankruptcy while the wife's renunciation of rights would remain in force? Could he upset the entire contract of renunciation, which possibly he could not do? One could argue that the renunciation, if the house was taken back from the wife, would not have a valuable consideration. It would not be a valid contract. Section 113 of the 1965 Succession Act does not require a renunciation of rights to be in the form of a contract. There does not have to be reciprocal consideration within legal terminology for renunciation. A wife in that situation could find herself with no succession rights with the house taken back from her to facilitate creditors.

These are policy decisions to be made here and the Family Home Protection Act is in the last eight or nine years one of the pieces of legislation that has given rise to the most litigation of a contentious nature within our courts. It has left the Judiciary in a situation where they have had to tease out many aspects of it because it was too vague in many areas. The Judiciary are making policy decisions, in effect. They had no choice but to do it. They are behaving perfectly correctly in doing it. It seems this is too big a policy decision to be simply left up in the air and I am not satisfied that the Bankruptcy Law Committee fully came to terms with it. When that committee reported early in 1970 people were only getting used to the Succession Act — although passed in 1965 it did not come into force until the beginning of 1967 or 1968. People were not used to the way it was working. They have not tuned into it. We need to clarify this more.

For example, one of the ways we could do it would be on Report Stage to define within this legislation actually what we mean by "property which is accrued to the settlor after marriage in right of the spouse." It is a beautifully vague phrase which was designed to deal with an entirely different marital property situation. It was originally designed to deal with the situation — as I said at the beginning — where the husband was regarded as acquiring all his wife's property automatically upon marriage. That was property acquired by the husband in right of marriage from the other spouse. We seem to be retaining it in an entirely different legal environment. We are retaining it in saying there has been an English decision back in 1927 that extrapolates what this this might mean and possibly our courts might deal with it in that way.

I am deliberately confining my remarks at this stage to the Succession Act problem. If we mix that with the Family Home Protection Act problem it becomes too complicated. That is a separate area. We do need to tease this out a bit more.

Deputy Noonan (Limerick East)

I appreciate what Deputy Shatter says. I agree entirely with the basic of his argument. A certain point should be made clear from the outset. The phrase "which has accrued to the settlor after marriage in right of the spouse" is not new. It is in the law at the moment. Deputy Shatter is right that in all the legal textbooks it is made abundantly clear that the importance of this clause has been almost entirely swept away by the Married Women's Property Act and the Married Women's Status Act. The committee were well aware of the Married Women's Status Act and they were well aware of the Succession Act. They mentioned the case re Bower Williams which Deputy Shatter rightly referred to. We looked into the matter and the easiest way of dealing with it would have been to drop the exception altogether. However, the committee, which was chaired by the bankruptcy judge of the time, considered the case of Bower Williams, a 1927 case, by which time married women were well and truely freed from the 1882 and pre1882 disabilities, and they concluded that there was a possibility of property accruing to one spouse iure mariti. While Deputy Shatter is quite correct that they are not very clear in their conclusions, nevertheless, they retained the phrase and referred to section 111 and section 113 of the Succession Act. It is, of course, perfectly correct to say that there is an enormous amount of law in this area particularly as regards what is and what is not a settlement. Apart altogether from the fact that the section itself merely says that a settlement includes any conveyance or transfer of property, it is not as simple as that.

While I sympathise with Deputy Shatter's view that it might be a good idea to explain what you mean by "accrued to the settlor after marriage in right of the spouse," I do not think it would be possible to legislate in that fashion. What we simply state here are what settlements can be avoided; what are the conditions in which settlements of property can be avoided and what exceptions there are to these.

Bower Williams was an English case, which the Bankruptcy Law Committee referred to. This was a case where a wife died intestate and her husband after taking out administration had settled certain of her former property on trust for the benefit of his daughters. The property had “accrued to the husband after marriage in right of his wife”, within the meaning of the exception in section 42 of the 1914 Act. Leaving aside the Succession Act altogether if a similar situation arose it was the view when we were drafting this Bill that it would be a matter for the court to decide whether this is a settlement which is caught by this section or is an exception. On top of that, as Deputy Shatter rightly pointed out, there is the complication of the Succession Act. It was for that reason and because the committee were quite clear in their view that these three exceptions should remain, that we left them.

With regard to section 113, you are involved with very complicated law. If the renunciation by one spouse on behalf of the other spouse is entered into with a view to sweeping away most of the assets because the husband is quite sure that within the next six months or within the next 18 months or whatever period you like, somebody is going to adjudicate him bankrupt, one could hold the view that that renunciation could be successfully challenged. It would be a matter of evidence and for the courts to decide. While I appreciate what Deputy Shatter states, and I know that section 59 looks quite complicated, I do not think we should go beyond simply stating the circumstances in which the Official Assignee can avoid certain settlements and the exceptions to them. Otherwise we would be in a situation where we would have to legislate for every conceivable case. However, if there is any amendment which any member wishes to put forward and which they think is essential and would be helpful, we will be prepared to look at it between now and Report Stage.

Chairman

That appears to be the nub of the problem. There is a difficulty which you see but do you have a specific formula which could be put forward for consideration between now and Report Stage.

Deputy Noonan (Limerick East)

We will certainly consider an amendment, if we could come up with a form of words. At the moment we do not have a solution. We see the problem.

Deputy Shatter

I very much accept that there is a problem and there is a conflict of interest. Obviously we can consider it following the discussion we have had. One point which certainly occurs to me and which could be clarified was the experience of the courts. The possible approach to be taken would suggest that if property given to a wife on foot of her renunciation was brought back by an Official Assignee into bankruptcy so as to leave a wife without the consideration for her waiver of succession rights even though section 113 does not require a contract, the courts would set aside the waiver and regard it as inoperative. In the event of property being given to a spouse in consideration of the spouse waiving succession rights under section 113 and that property being brought back into the bankruptcy by an Official Assignee, the spouse not being allowed to retain it, this would create a situation where the waiver of succession rights would itself become a nullity. I anticipate that if that issue arose the courts would probably make that finding.

Deputy Noonan (Limerick East)

In the case you mentioned I overlooked renunciation when I was speaking. If the spouse renounces the property for a consideration it would appear, as the section is drafted, that there would be no difficulty at all because you are then in a situation under subsection (1)(a) where you have valuable consideration bona fide.

There is a recent case and I can give the reference to you — In re-Abbott (a bankrupt) which shows that a settlement or transfer made in obedience to a court order in a matrimonial cause does not prevent it being a settlement which may be avoided.

Senator O'Leary

What is the name of that case?

Deputy Noonan (Limerick East)

In re-Abbott (a bankrupt). The important point is that it was reported in 1983, Chancery Reports page 45.

Senator O'Leary

Is it possible for us to skip over section 59, think about it and come back to it, consider sections 60 and 61 and carry on? Is that possible under standing orders? Let us go away and think about it rather than make a decision on it in committee at this stage. Is that possible?

Chairman

The Minister has agreed to look at the matter between now and Report Stage.

Senator O'Leary

I appreciate that. But in addition to that, and as you will appreciate the kind of discussion which might be necessary on any proposed amendment to this is not the kind of discussion which will be possible on Report Stage. The Minister has agreed to look at most of the other points and that is grand. The Minister will come in on Report Stage and either agree or disagree. We can all get up and say our piece and that is it. As this is so convoluted is it possible for us to leave section 59, is it within our standing orders or do we control our own standing orders? What can we do? Can we say we will leave section 59 and go on to 60, 61. Deputy Shatter, the Minister and I will go away and think about our respective positions, see if we can draft an amendment which will meet the point and come back at that stage.

Chairman

It is not within our competency to adjourn section 59 at this stage.

Deputy Noonan (Limerick East)

I presume the problem is that we must take the sections in sequence. What we could do is to go into private session from now until 1 p.m. If we could deal with everything up along the line in private, in effect we would at least have agreement on all the subsequent sections which we could then simply pass formally.

Chairman

I am unhappy with that because we could leave ourselves open to all sorts of trouble and confusion. I appreciate Senator O'Leary's problems in this. The Minister and indeed everybody has been very open in relation to this Bill and there is general agreement to get the best Bill we can. I am quite sure that on Report Stage the points you are making could be fully taken into account and there is nothing to stop Senator O'Leary, Deputy Shatter and the Minister having an informal get together on the matter outside of the committee. We are looking for a formula.

Senator O'Leary

We are indeed. We are all indebted to Deputy Shatter for bringing it to our attention. My reaction is that the section as such is fairly restricted with regard to the exceptions of what is not covered. It is any settlement of property with a number of exceptions, not being a settlement made before in consideration of marriage or in favour of a purchaser or incumbrancer in good faith for valuable consideration and not in favour of anybody else but only in favour of a purchaser or incumbrancer. An agreement made between a husband and wife to vacate succession rights and to transfer property is made for a valuable consideration. It could well be made in good faith but it is not made to a purchaser or incumbrancer. Therefore it is not covered within the meaning of that. It goes on re. a settlement made in favour of a spouse or children of property which has accrued to the settlor and that is the old problem we have been discussing. It is fairly restricted. The exceptions are very restricted. It is not any transaction in good faith.

Deputy Noonan (Limerick East)

To clarify the situation, the purchaser has a particular meaning. The purchaser includes a person who in a commercial sense provides a quid pro quo though not necessarily equal in value. That would cover the point you made. It is very important to emphasise in regard to the very valuable contribution made by Deputy Shatter that in the case of renunciation where there is consideration we could agree that that would be included in the exception of a purchaser or an incumbrancer in good faith for valuable consideration. I want to make that point clear.

Deputy Shatter

Another point I would make is that I am interested in two things. I am interested in protecting the wife and children on the one hand, but I am also interested in something, under the guise of trying to protect wife and children, which is in fact defrauding creidtors. I am not looking for either all or nothing. I am not saying that in every case if a renunciation of Succession Act rights takes place all the property that goes to the spouse renouncing should always be retained by that spouse. It would be reasonable if the property going to the spouse was a £30,000, £40,000 or £50,000 home, in which she is living with two or three children, in return for which she renounces succession rights. It would be very unreasonable if the spouse was living in a £400,000 mansion and in return for waiving succession rights this mansion was put into her name and creditors were effectively prevented from challenging that.

What I am looking for is difficult. I am trying to balance the two and find a compromise arrangement where renunciation works to a degree but is open to question in certain instances. Possibly it is because of the uniqueness of the arrangement arising out of the Succession Act it needs its own special provision to deal with that type of eventuality. I have not worked out what the perfect formula is. It may not be possible to find a perfect formula. But this is the problem, to say that it will always work can give rise to a very real injustice on one side, to say it will not work could give rise to injustice on the other side. Somewhere in the middle we have to find a formula; and the other thing we have to do is to ensure that where it does not work in some instances we have to spell out the effect of that on the renunciation. For example, under the Succession Act once I renounce rights under section 113 I have renounced them for all time, I have no come back. I cannot suddenly sign something unrenouncing them, though myself and my husband could later on agree to sign another document presumably waiving the renunciation, though curiously the Succession Act does not say you can do that. The Succession Act gives you power to renounce but it does not actually say expressly you can later on sign a new arrangement between you where you invalidate your renunciation. One presumes that can happen and I think the courts would say it can. We are not going to solve the problem today. The idea on the Succession Act is that if we cannot do what Senator O'Leary is suggesting, what we might do having completed the Bill is to have an informal meeting of the full committee in which we can discuss the issues arising under section 59 when we and the Minister will have had time to consider the comments made this morning. Other Members now have an opportunity to think about a possible amendment that can balance the different problems.

Before we move away from section 59 I want to come back to the Family Home Protection Act problem, which is a different issue.

Chairman

There will be an opportunity to discuss that later.

Deputy Noonan (Limerick East)

There is just one point I want to reiterate so that Members will appreciate the position with regard to the actual section. One of the exceptions is a settlement made in favour of a purchaser or incumbrancer in good faith and for valuable consideration. The onus of proof that the transaction was not made in good faith is on the Official Assignee. As Deputy Shatter pointed out, if you have transferrals where there is clear evidence of a transferral of very valuable property and evidence of mala fides that kind of transaction can be avoided by the Official Assignee.

Chairman

I think we can take your points in a few moments. We are actually on amendment No. 11 in the name of Senator O'Leary and the question is, "That the subsection stand part of the Bill".

Senator O'Leary

Is that the question now?

Chairman

We will be discussing the full section in a few moments.

Amendment, by leave, withdrawn.

Amendment No. 12 not moved.

Question proposed: "That section 59 stand part of the Bill."

Deputy Noonan (Limerick East)

A voluntary settlement is one which is made for no valuable consideration. It may be a valid settlement in every respect apart from the bankruptcy law but if made within certain periods of time before the bankruptcy it will be void as against the Official Assignee. This section provides for the avoidance of certain voluntary settlements of property made before adjudication. "Settlement" covers any transfer of property. It includes a gift of money or chattels. It re-enacts existing law subject to certain changes recommended by the committee. It is no longer restricted to traders but applies to all debtors. It also applies to settlements made by wives as well as husbands.

Subsection (1) provides that any settlement of property subject to the three exceptions mentioned will be void against the Official Assignee on the adjudication of the settlor if (a) it is made within two years of the adjudication or (b) it is made more than two years but within ten years of adjudication, unless the person claiming under it can prove that (1) the settlor was able to pay his debts at the date of the settlement without the aid of the property settled and (2) the settlor's interest in the property had passed to the trustee of the settlement on its execution.

The committee recommended the addition of the latter requirement because what the law intended to prevent was a settlement to operate in the future, for example, a covenant to settle specific property which the trustee of that property could have enforced against the assignees in the case of the settlor's bankruptcy.

Subsection (2) provides that any covenant or contract made in consideration of marriage for the future payment of money to or settlement of property on the settlor's spouse or children, that is 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 marriage, and the covenant or contract was not executed at the date of the adjudication. This in substance reflects the present law with an added proviso that the beneficiaries may prove their claims in the bankruptcy but will be postponed to those of other creditors for valuable consideration.

Subsection (3) is entirely new in that it deals with money paid or property transferred pursuant to covenants or contracts covered by subsection (2). Any such payment or transfer will be void as against the Official Assignee in the settlor's bankruptcy unless the person to whom it was made proves that the payment or transfer occurred more than two years before adjudication or when it was made that the settlor was able to pay his debts without the aid of the money or property concerned or the payment or transfer was made under a covenant relating to money expected to come to the settlor on the death of another person.

Payments of premiums on policies of life assurance are protected because a provision is already made for these under section 7 of the Married Woman's Status Act, 1957.

We will consider amendments between now and Report Stage. I would like to thank Senator O'Leary and Deputy Shatter for their help on this section.

Deputy Shatter

I want to come back to the Family Home Protection Act point that I was making. I appreciate the Minister saying that we can come back to the Succession Act points on Report Stage. We will possibly have another look at them.

In relation ot the Family Home Protection Act the point that was made earlier was that is has been held in Northern Ireland that a transfer of property made by a court order can be upset in bankruptcy. I may not be correct in this but I think the transfer of property made by a court order that was being referred to there would be a transfer of property being made by the Northern Ireland courts pursuant to their powers to transfer property between spouses in separation or divorce proceedings as opposed to a transfer of property arising in a situation such as arises under section 5 of the Family Home Protection Act. There is no corresponding statutory provision to section 5 in either English or Northern Ireland law as far as I know. There you are talking about transfers of property being made effectively to rearrange the family property on marital breakdown taking place and property transfer orders may be made in lieu of maintenance orders or in conjunction with them.

Section 5 of the Family Home Protection Act is a very particular section which applies in very specific circumstances. I want to refer to the section because I think it encapsulates the problem I am describing. I do not think we deal with this and I do not think this Bill copes with this problem. In a sense it probably does not because it is only in the last three or four years that the judiciary have been using this section in the way I described. Even for the first four years or so after the 1976 Act came into force it was a fairly dormant section. It was not utilised to any great extent. It is only in the past two or three years that it has been. Subsection (1) of section 5 is the section that I am referring to, which states:

Where it appears to the court——

and the court can either be the High Court or the Circuit Court——

——that of the application of the spouse that the other spouse is engaging in such conduct as may lead to the loss of any interest in the family home as a family home with the intention of depriving the applicant spouse or a dependent child of the family of its residence in the family home the court will make such order as it considers proper directed to the other spouse or to any other person for the protection of the family home in the interest of the applicant spouse or such child.

There are a number of essential ingredients in that before the courts can act. The spouse must be behaving in a way that may lead to the loss of any interest in the family home, such as creating major debts or being in a situation of debt where he is not discharging his debts with the possibility of court judgments being obtained against him, and ultimately the sale of the home being forced pursuant to a judgment mortgage. That would certainly be behaving in a way that might lead to a loss of the family home. The spouse must behave in that way with the intention of losing the family home. Most spouses who build up debts in business ventures do not have the deliberate intention of losing the family home. But in a situation where deliberate intention can be proved in court — for example, if a correspondence takes place between the spouses, where the wife draws it to the attention of her husband that if he does not mend his ways, behave himself and meet his debts it will inevitably lead to the loss of the family home — if he writes back and says he is not going to do anything about it or if there is no response, it is open to the courts to interpret his behaviour as leading to the loss of the family home thereby implying an intention.

The courts have, in dealing with the section, tended to seek a specific intention. There have been a number of different cases. There was one High Court case called ED v. FD, an unreported judgment in 1980 of Judge Costello. It took place in October 1980 and there was a subsequent decision in either November or December 1981. It illustrates the type of situation that can arise. The situation there was that the husband had incurred debt. He owed money to banks, he apparently owed money to the Revenue Commissioners, he was being pursued by various other individuals to whom he owed money and he was not paying the debts. The case came before the courts on a number of matters, one was under section 5 of the 1976 Act. The court was asked to transfer the house into the wife's name to prevent a sale of the house being forced ultimately by the creditors. The court said initially it would not, it would give the husband an opportunity to discharge his debts but that if he did not do something about them and make some arrangement for them it would take the view that he did have an intention to lose the family home. A year later when it was established at court proceedings that the husband had not done anything to tackle his debts, and fortunately for everyone concerned no judgment mortgage had been lodged against the home, the courts simply transferred the family home to the wife, lock, stock and barrel. That provided the wife with a protection. At the same time it provided the children with protection, which was desirable. In the context of the particular home concerned, in so far as the judgment disclosed it, it was not a mansion in the £400,000 variety, but it was not a house in the £30,000 variety either. It was worth something in the region of £70,000 to £80,000.

That effectively deprived the various creditors of any possibility of getting funds from this man whose only asset within this jurisdiction was the family home. The wife and children had been provided with a desirable protection but on the other hand the creditors — and there is a policy decision on this — had no opportunity to even be involved in those proceedings. They had no opportunity, for example, to come into court and say: we are processing our proceedings, we think the wife and children could get an adequate house for £45,000. At least a portion of this should be made available to us to meet debts.

I am not expressing a view one way or another, whether that should be the case. I am just pointing out that this is the problem here. Since that decision there have been a number of subsequent cases in which the Circuit Court has made property transfer orders. I am aware certainly of some of these. The problem is that there is no written judgments so these are happening in family law cases behind closed doors which are heard in camerabut are not reported. The only people who know they are happening are the lawyers directly involved in the individual cases. There have been cases where creditors have been issuing proceedings for debts —£10,000 to £15,000 — against a husband and the wife has been able to come into court and say: “Look, we have this civil bill that has been served on my husband, he is doing nothing about it; I know of X, Y and Z other debts he is doing nothing about; please transfer the home to me.” The courts are making those transfer orders. Indeed, there have been subsequent ones made in the High Court ED v. FD was the first in a line of them.

As a policy decision it is desirable that that protection be available to wives and children in a situation where this happens not simply for business reasons but where it can provide considerable protection in a situation, for example, where the husband is trying to gamble the family funds away and incurring debt or is drinking them away through the problem of alcoholism. In the contest of bankruptcy legislation this area is a problem area that is not coped with in this legislation. It arises as an indirect relevance to what we are dealing with under this section.

It is not clear in Irish law that if a property transfer order was made under section 5, which is specifically designed to protect the wife and children and, in a situation where the husband is the dependent spouse, to protect the husband in the case of his wife's incurring debt, and where the court is given a very wide power to make any order it considers proper, which is clearly a power to transfer the home to the wife, being both legal and beneficial interest in it. It does not seem to me that any Official Assignee can come along later on in bankruptcy proceedings and get a decision to set aside that court order. That would not arise. It may arise in Northern Ireland in property transfer order proceedings in a matrimonial situation where the judge at the time of making the decision may not have been aware of debts that could lead to bankruptcy and possibly make property orders on the basis of not having a full knowledge of the level of a family's wealth or indebtedness. Here it is specifically designed to protect the family home against loss, including loss arising from debts incurred by a husband.

We need to spell out in this legislation how we intend to balance the rights and how the interaction between this legislation and section 5 (1) should go. My own personal bias is to guarantee a degree of protection to a wife and children in the context of the family home. The Minister's proposal that there be a presumption of joint ownership, I do not know in effect how this is going to work, whether it is going to be retrospective, whether it can be or whether it can be a procedure, which has some implications in this area. But it does not solve the problem because, if there is a presumption of joint ownership and the house is only worth £30,000, the procedure in section 5 is certainly going to be needed. If there was a sale and the Official Assignee gets half the value of the house, the wife retaining the other half would not be helped in establishing a roof over her head for very long because the money would not be there. There is a policy decision here. It is arising out of the statutory provision that was enacted after the bankruptcy committee sat, so they could not have predicted what was going to develop in this area. It is arising particularly because of the way that the courts are interpreting the section. It is desirable to provide protection for wives and children but we need to spell out in this bankruptcy legislation how we balance this Bill with the operation of section 5 (1) of the 1976 Act.

Chairman

Those points were already taken by the Minister.

Senator O'Leary

The points are well made and they should be considered by the Minister. The only way to tackle the problem is by having a special subsection within section 59 dealing with it and referring to orders made under subsection (5) of the Family Home Protection Act, giving some indication of the line of approach to be adopted. I was not satisfied with "any order made under section 5 of the Family Home Protection Act may not be set aside only by reason of the provisions of this Act." That does not cover what I have in mind. A separate subsection which would allow the possibility of examination would allow the court the ultimate decision on the matter and put the emphasis on the protection of the family home rather than on the protection of the Official Assignee's right but not making either of the rights absolute. Would Deputy Shatter agree that that is what we are looking for — something that is not going to make the right absolute but which will recognise the problem and give a direction as to what the view of the Oireachtas with regard to the normal preference should be?

Deputy Noonan (Limerick East)

I take the points made and very well made. The basic problem in any bankruptcy is the balancing of the interests of the creditors and other persons who may be prejudiced by the insolvency. The dilemma as Deputy Shatter pointed out, is being fair to everybody. It is a greater dilemma when it is the balance of rights of creditors in the cause of a family home than anywhere else. Traditionally bankruptcy law operated on the basis that the rights of creditors must be given priority after the payment of costs and expenses before the interests of the spouse and the children. This obviously is the subject matter of debate and criticism. It is obviously linked with the growth in matrimonial law. We will have to look at it and make a policy decision on it.

I will be moving an amendment to section 61 which will ensure that in the case of a family home no disposition thereof can be carried out without the sanction of the court. That will help in one side of the argument but obviously there are other outstanding matters which we will have to look at between now and Report Stage because, as Deputy Shatter pointed out, it is a case of balancing rights. If we cannot balance them, we have to come down on one side or another and then it is a straightforward policy issue on which side we come down.

Deputy Shatter

May I make one or two very brief points. The Minister's amendment to section 61 will provide that the home cannot be sold without the sanction of the court. It does not give the criteria of how the court is going to balance it either. There is no guideline. We have judicial discretion here. As a practising lawyer I realise that the manner in which that discretion will be exercised to some degree will depend on the particular personal subjective views or prejudices or whatever of the individual judge asked to make the decision, be it in the Circuit Court or in the High Court. That is the problem. We have a duty to say where the balance lies.

I welcome the Minister's openness and the fact that we can look again at this on Report Stage and presumably this can form part of our discussion at the informal session we are going to have on section 59.

I would say that in the context of the family home itself both in the context of waivers of succession rights and in the context of the Family Home Protection Act, my own personal bias would be not to give the creditors preference but to give the family preference in the home but that is subject to some general provision along the lines of that preference being related to adequate and secure acommodation in so far as possible being provided for the dependent spouse and children while bearing in mind the obligations to creditors which could give the court a discretion to do something it cannot do at the moment. At the moment it cannot, for example, say, "We think the house should be sold and £40,000 should be set aside for the wife and children and the rest should go to the creditors." In the existing bankruptcy law it is all or nothing. It comes in and it can all go out or it does not come in at all. Under the Family Home Protection Act, section 5 (1) you have that situation, you give the home and that is it, or you allow it go to creditors. There is a compromise for a drafting formula that would provide a balance while providing the protection to the dependent spouse and family as well and protecting creditors also against what is happening at present where homes of substantial value that are not essential to providing adequate and secure accommodation could end up being transferred and defeating creditors' entitlement to get some moneys back to discharge debts due to them. There is a balancing formula there that we can use. Subsection (2) of section 5 of the Family Home Protection Act is a compensation mechanism which is trying to close the stable door after the horse has bolted. The house has been lost but the husband does have assets and a compensation order can be made. There is a halfway house between those two that could be linked into this legislation that might provide a solution to the dilemma we have.

Deputy Noonan (Limerick East)

I just want to make two points. First of all a correction — that was an English case, not a Northern Ireland case. The second point I want to make is that in referring to this case as the basis for the proposition that the fact that a settlement is made in obedience to a court order in a matrimonial case does not prevent it being a settlement which may be avoided under section 59, I am not suggesting that that would be followed by the Irish courts.

With regard to the Family Home Protection Act, what Deputy Shatter has said about section 5 subsection (1) and section 5, subsection (2) is absolutely correct. As he pointed out there have been numerous cases dealing with the application of section 5 (1) and the question of the making of transfer orders. As he also pointed out there has been quite a lot of law on the question of "with the intention of depriving" and what "intention" means. With regard to bankruptcy and a Bankruptcy Bill I think that in regard to any amendments as may consider it is important to remember that we should ask the question, is a Bankruptcy Bill the appropriate place to amend the Family Home Protection Act? We mentioned on the last occasion that it is not simply a question of the family home in a bankruptcy being in or out. It is a question — and this is the purpose of the amendment being put to section 61 — that the court will decide on the matter of the sale of the family home but the family home as already mentioned vests in the Official Assignee subject to the rights and interests attaching to it. The only case where the family home would prima facie go straight into the bankruptcy would be if it was in the sole ownership of the bankrupt spouse. It is important that we look at the purpose of the Bankruptcy Bill, the Family Home Protection Act and whatever Matrimonial Property Bill may eventually be enacted. I agree entirely with Deputy Shatter that the family home legislation is a matter of great importance in this area.

Deputy Shatter

In a sense we are not talking about simply amending the Family Home Protection Act legislation. What we are talking about is how in bankruptcy the Official Assignee and the courts ought to deal with the question of the family home. So it is something that has to be dealt with in this legislation. We cannot leave it over and say this is simply a Family Home Protection Act amendment. It is very much the point of saying what the powers are, how you exercise them, what principles are applicable in exercising them and, if there is a conflict arising between bankruptcy and other legislation, how that conflict is resolved. So we really have to deal with it in this Act.

Chairman

This point has been very fully discussed and the Minister will come back on Report Stage, hopefully with an amendment to take on board the points which have been very fully made this morning. Of course, it is important that we spend time on this because as members know they can only speak once on Report Stage and I am sure the Minister will have an amendment on this.

Deputy Noonan (Limerick East)

We will discuss this at our informal session and we will see what arises from there.

Question put and agreed to.