Estranged spouses often strike up an agreement under section 90D of the Family Law Act 1975 as a way to resolve their dispute about matrimonial property. These agreements are commonly referred to as binding financial agreements (BFA’s).
Such a BFA is entered after the Family Court has granted a divorce order. If, after a BFA has been made, one of the estranged spouses becomes bankrupt, then that bankrupt person will have a trustee in bankruptcy appointed who in turn may have something to say about the BFA.
Here is an example of what can go wrong. A husband and wife entered a BFA which dealt with their former matrimonial home and which was jointly owned by them. Under their BFA, the wife was to discharge the entire mortgage of the home and then transfer her share of the home to the husband and thereby make the husband the sole proprietor.
Some years later, the wife became bankrupt and had a trustee in bankruptcy appointed. The transfer of the wife’s share in the home to her former husband occurred within 5 years of her becoming bankrupt. The trustee in bankruptcy discovered the bankrupt wife had transferred the home to the former husband under the BFA and formed the view, having regard to the market value of the home, that the wife had transferred it to the husband for consideration of less value than the market value of the property (the undervalued amount).
The trustee relied on section 120 of the Bankruptcy Act 1966 which deals with undervalued transactions. The trustee then secured from the Official Receiver a Notice Pursuant to section 139ZQ of the Bankruptcy Act 1966 requiring the husband to pay the trustee former wife’s share (ie 50%) of the undervalue amount on the basis that the transfer of the wife’s share in the home to the former husband was void under section 120 of the Bankruptcy Act. The undervalued amount in some cases could be very high and, in this instance, it was more than $150,000. The husband could make an application to the court to set aside the 139ZQ notice within 60 days after it was given to him. The husband could also have made an application to the Official Receiver to amend or revoke the 139ZQ notice by application to the Official Receiver within 30 days of receiving it. As the husband did not pay the money sought by the 139ZQ notice, the trustee commenced a proceeding against him for payment of the undervalued amount.
Unfortunately for the husband, he was unable to properly contest those proceedings and ultimately resolved them by paying the trustee most of the undervalued amount. As an aside, 139ZT of the Bankruptcy Act says that a person who refuses or fails to comply with a section 139ZQ notice commits an offence punishable upon conviction by imprisonment not exceeding 6 months.
The take-away of all of this is simple: if you are served with a 139ZQ notice, do not waste any time and see your solicitor immediately and well before the 30 days expires to enable any application to be made to the Official Receiver to amend or revoke the notice or alternatively, to make any application to the court to set it aside. The consequences of not taking timely action could be serious and costly.
*Disclaimer: This is intended as general information only and not to be construed as legal advice. The above information is subject to changes over time. You should always seek professional advice before taking any course of action.*
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