Protecting Spouse's interests in bankruptcy

[OMB]

My Ltd company is currently in a CVL, with HMRC being the only creditor (a significant six figure sum for PAYE / NIC). Although no action of any kind has been taken against me personally to date, I am aware of the possibility of a director misfeasance claim at some point, as the liquidation was caused by use of an EBT. In the worse case scenario if a claim was successful, this would probably force me into personal bankruptcy, or at least force the sale of our family home.

The house is the big concern. I'm very conscious that its currently a sitting duck as its mortgage free and owned solely in my name. The other snag is that my wife hasn't ever contributed financially in any significant way, as she fell pregnant before we bought it and has been a full time Mum ever since.

As things stand, are there any legitimate ways we can still protect my wife's interests, so she would at least retain 50% equity if the house had to be sold?

My first thought was a 50% deeds transfer in conjunction with a Declaration of of Trust, but is that something that could get easily reversed?

I've also read online about Equity of Exoneration, as I've seen there was a significant case under similar circumstances a couple of years ago in which a wife's beneficial interest was upheld in a bankruptcy claim against her husband (he'd solely owned the house & solely incurred the debt). Would E of E be a realistic deterrent to a 100% claim on the house?

The thought of my wife possibly losing everything because of me is hard to take. I appreciate we will need to take some professional / legal advice on this, but any input or advice from the IP's on here (or anyone facing similar situation) would be really appreciated.

 

[Frank the Insurance guy]

Did your company have a Directors & Officers Insurance policy in place? If so, I would make sure that this continues - Insurers will usually offer a 1 or 2 year extension following CVL's etc so that you can still benefit from the protection (Even if they do not offer renewal, last years policy will usually include a "discovery period" extension that you can enforce).

No idea on the E of E, but hopefully someone here can advise on that.

 

[OMB]

No policies like that in place unfortunately.

 

[Frank the Insurance guy]

I'm assuming HMRC challenged the EBT and was succesful?

May be worth looking at the advice you received when setting up the EBT - were you aware of the risks and were these pointed out to you etc. You may have recourse to the professional advisors who recommended the EBT?

 

[OMB]

Yes HMRC introduced retrospective legislation to capture it (don't get me started on that though!).

The EBT promotors are long gone unfortunately.

 

[Lisa Thomas]

Anything you try to raise now will be challenged and probably overturned.

I cannot impress how much your wife needs to take advice from a specialist insolvency Solicitor to see if her interest can be protected in a legal manner that cannot be challenged and overturned by any Trustee in Bankruptcy.

If you want to DM me I can recommend one for her.

She will need to find funds to pay for the advice.

 

[Paul Kelly ICHYB]

Why not use the property to create the funds to pay HMRC?

 

[ChrisCallaghan]

I would echo Lisa advices on this - that your wife should take advice from an insolvency solicitor as soon as practically possible.

 

[OMB]

Anything you try to raise now will be challenged and probably overturned.

I cannot impress how much your wife needs to take advice from a specialist insolvency Solicitor to see if her interest can be protected in a legal manner that cannot be challenged and overturned by any Trustee in Bankruptcy.

If you want to DM me I can recommend one for her.

She will need to find funds to pay for the advice.

Thanks Lisa, I feared that would probably be the case. I'll DM you as suggested.

 

[JeremySilva]

Agree, this is definitely one for a specialist insolvency solicitor. Some points that may be relevant:

• Equity of exoneration only applies where a business owner debtor has raised funds secured against a joint property for the purpose of putting funds into his business. Not sure it therefore applies here.
• Spouse may still have an interest if the couple agreed that she would have one.

 

[Lisa Thomas]

Hi Jeremy

I have to respectfully disagree with you - equitable exoneration does not necessary solely relate to a business owner and business funds.

 

[OMB]

I understand the Armstrong v Onyearu case from 2017 is the most recent decision of note on this. The trustee made a claim for the full equity, but the final appeal judge ruled Mrs Onyearu had a beneficial interest. Our situation is kind of similar in that Mr Onyearu was the sole owner of the property & the bankruptcy debt was not directly connected to his wife. The main difference is that she'd made some level of financial contribution to household bills, whereas my wife can't demonstrate that as easily. But yes, definitely one for a lawyer.

 

[OMB]

Agree, this is definitely one for a specialist insolvency solicitor. Some points that may be relevant:

• Equity of exoneration only applies where a business owner debtor has raised funds secured against a joint property for the purpose of putting funds into his business. Not sure it therefore applies here.
• Spouse may still have an interest if the couple agreed that she would have one.

Jeremy, how strong / realistic is an 'implied agreement' ? Obviously I'm kicking myself for not putting my wife on the deeds in the first place, but would any other factors be relevant in implied agreement scenario, e.g. her being named on my will / life insurance etc?

 

[Paul Kelly ICHYB]

Surely any changes in financial interests and ownerships now will not make a difference to any subsequent decision/action? The court/HMRC will just see it for what it is!

 

[JeremySilva]

• Equity of exoneration only applies where a business owner debtor has raised funds secured against a joint property for the purpose of putting funds into his business. Not sure it therefore applies here.

Thanks Lisa. I am checking my source on this.

 

[JeremySilva]

Jeremy, how strong / realistic is an 'implied agreement' ? Obviously I'm kicking myself for not putting my wife on the deeds in the first place, but would any other factors be relevant in implied agreement scenario, e.g. her being named on my will / life insurance etc?

Credible witness evidence can influence the court and, consequently, it can also influence negotiations with the office holder. I'm happy to DM details of another solicitor if you want to compare his opinion with other advice you receive.

 

[UK Contractor Accountant]

If you have taken a loan from the EBT do you not have to repay it?

You may also have a personal tax issue on loan write off.