Application to court to reverse a transfer of assets – what’s involved?

Introduction
With the economic storm clouds it has not been uncommon for debtors to seek to put assets beyond the reach of creditors.  This can often involve a voluntary transfer of assets from a debtor to a family member and which action prevents a creditor from enforcing directly against the asset.  This article will consider the law in this area, and the options option to a creditor to seek to reverse such transfers.

The Law
The primary piece of legislation is section 74 of the Land and Conveyancing Law Reform Act, entitled “Fraudulent dispositions”, and which came into effect on 1 December 2009 (the “2009 Act”).  This effectively replaced section 10 of the Conveyancing Act (Ireland) 1634.

Section 74 (3) of the 2009 Act states

“Subject to subsection (4), any conveyance of property made with the intention of defrauding a creditor or other person is voidable by any person thereby prejudiced”

In turn section 74 (4) states

“Subsection (3) does not:-

(a) apply to any estate or interest in property conveyed for valuable consideration to any person in good faith not having, at the time of the conveyance, notice of the fraudulent intention, or

(b) affect any other law relating to bankruptcy of an individual or corporate insolvency”

Intention to Defraud
The leading case in this area is Motor Insurers Bureau of Ireland v Stanbridge [2008] IEHC 389.  In the judgment of Ms Justice Laffoy she considered the cases of In re Moroney (1887) 21 L.R. Ir 27 and McQuillan v Maguire [1996] 1 ILRM 394 as the leading cases in the area.

She quoted Mr Justice Costello in McQuillan v Maguire where he found that:-

“The court need not find that the agreement was motivated by actual fraud – if it can be shown that the necessary or probable result of the agreement was to defeat or delay creditors, then it could be avoided”

She goes on to decide that on the basis of the evidence before the court:-

“there is no evidence of the intent of the second defendant and third defendant in executing the disclaimers, so that fraud has not been expressly proved as a fact.  The question for the court, therefore, is whether an intention on the part of these defendants to delay, hinder or defraud the Bureau as a creditor, has been proved as an inference of law from the evidence before the Court.  In this case, I am satisfied that the necessary or probable result of these defendants disclaiming their respective shares of the estate of the deceased on intestacy was to delay, hinder and defeat the payment of the debt due by them to the Bureau as the assignee of the deceased’s judgement against them.  Therefore fraud has been proved.”

Summary
In considering whether there was an intention to defraud, a court will take the following factors into account:-

• whether or not the transferor has disposed of all or almost all of his or her property;
• whether, after transferring the property, the property remains in the transferor’s possession;
• whether the transferor retains an interest in the property;
• whether the transferor retains a right to get the property back;
• whether the transferor and the transferee are closely related;
• how close in time the transfer is made to the creditor seeking to enforce judgment, and
• was there valid consideration

It seems clear that intention to defraud can arise either where it can be established, as a matter of fact, that the party transferring the asset did so with the express intent to put the asset beyond the reach of the creditor, or where no such express intent can be shown, that an intention to defraud a creditor can be inferred from the facts of a particular case.

For further information on this article, please contact Godfrey Hogan at ghogan@reddycharlton.ie