Ruiz (a Bankrupt), Re

Mr Laurence Bothwell, who presents the wife’s case, is a deep thinker on legal matters. At one point during courteous submissions ranging widely over current legislation and historic authorities, he observed that if his main argument did not succeed, the resulting situation would be "a big mess, a fiasco". He is right. The events in this case are a financial disaster for a divorced couple and their child. On separation in 2006, they might with good sense and co-operation have just about stretched their modest means to meet their overall housing needs. Instead, by 2011, a combination of dissension, misfortune, improvidence, and over-lengthy litigation in three courts, has wiped them out financially and they will now lose their only significant asset, the home occupied by the wife and child. After five years, almost nothing remains of assets once valued at £300,000. A family that had difficulty supporting itself as a single unit cannot afford to dissipate limited assets in litigation, and certainly cannot support the professional expenses of lawyers and accountants over a period of years.

In its result, this case bears comparison with Evans v Evans (Practice Note) [1990] 1 FLR 319 (Fam), and with Piglowska v Piglowska [1999] 2 FLR (HL), but is if anything worse. In Evans, Booth J was appalled that parties with assets of £350,000 had run up costs of £60,000. In Piglowska, the parties had assets of £128,000 and costs in the same amount, but payment of the costs could at least be postponed as result of the legal aid charge. Here, the liabilities virtually extinguish the assets and there is no prospect of postponement of the legal aid charge. The parties made unnecessary applications and failed to make necessary ones. Procedurally, the overriding objective in the Civil Procedure Rules 1998 and the Family Procedure Rules 2010 has been soundly defeated. The case has not been dealt with expeditiously, and both the costs incurred and the court time spent have been wholly disproportionate to the issues involved. With the passage of time, the result has been to eliminate the possibility of any solution that is even minimally satisfactory.

The applications brought by the wife are for the annulment of a bankruptcy order, made in 2007, and an appeal against a financial order on divorce, made in 2008. But even if those applications succeeded, they would not in themselves be enough. For the wife’s housing situation to be salvaged, she would also need the court to deprive the husband's creditors of some or all of the sums due to them, and to disallow the fees and expenses incurred in the past three years by the trustee in bankruptcy.

For the reasons set out in this judgment, I must dismiss these applications. An application to annul or suspend the bankruptcy order might possibly have succeeded if it had been brought promptly and on proper grounds three years ago, but it is now far too late, and even if the bankruptcy were annulled there is no proper basis upon which the trustee’s fees could now be disallowed. As to the appeal against the order in the divorce proceedings, there was no error in the district judge’s approach at the time, and subsequent events provide no grounds for interfering.

This case emphatically shows that where a person affected by a bankruptcy order, such as a spouse or civil partner, considers that the order should not have been made, or that there are ways of getting it set aside, they must act immediately to have it annulled or suspended before the costs of the bankruptcy eat into or, as here, eat up, the family assets.

In the case of a creditor’s petition, the Insolvency Rules 1986 (as amended) make appropriate provision for the proceedings be served on the debtor. There is no equivalent provision in the case of a debtor's petition, even though third parties may be affected as profoundly as the debtor himself. On the other hand, there is nothing to prevent the court taking bespoke measures to meet the needs of individual cases.

The standard statement of affairs accompanying a debtor’s petition requires the applicant to disclose whether they have been involved in divorce proceedings at any time in the past five years. A positive reply should alert the court to the likelihood that a spouse or partner may have a legitimate interest in the outcome of the petition. I propose that the bankruptcy court should employ a simple expedient in cases where it is apparent that divorce proceedings are ongoing. When faced with such a petition, and particularly the petition of a debtor who is not being pressed for payment, the court should consider whether to adjourn for a short time to allow notice to be given to a spouse or partner who may be affected. They may be in a good position to say whether the debtor is in fact insolvent or, if he is, to make proposals for debts to be cleared without the need for bankruptcy and all it entails.

Even if adjournment is for some reason not appropriate, the bankruptcy order should at least be served on the spouse or partner at the time that it is made, so that they are immediately aware of what is going on. In the present case, it is of concern that the wife only became aware of the husband's bankruptcy by chance three months after the event, by which time the bankruptcy process was already gathering momentum.

The husband (now 51) and the wife, who is Polish (now 40), married in 2001 and their son (now 9) was born that year. In 2002 they moved into a house that had been bought by the husband in 1988, long before he met the wife. It was in his sole name and unencumbered, the mortgage having been paid off in the 1990s with some redundancy money. During the marriage, the husband worked as a therapist from a room in the home, but his ability to do this was affected following a conviction for common assault on the wife in 2005. She did not work, and by that time they were both dependent on state benefits.

In 2006 the marriage finally broke down and divorce proceedings began in the county court. In October 2006, the wife obtained a freezing order over the husband's assets and in November 2006 she obtained an occupation order, at which point the husband left the home and went to live with his parents. In December 2006, he proposed that the house be sold and that most of the equity be allocated to the wife for the purchase of a 2-bedroom flat, leaving him with the balance of the proceeds of sale. This was rejected. In February 2007 the freezing injunction was varied and continued until the conclusion of the proceedings. A final hearing of the divorce financial proceedings was duly listed for October 2007, but then adjourned by the court.

In 2006/2007 the husband ran up large debts at banks and on credit cards, latterly in breach of the freezing order. He says that he squandered the money, amounting to over one-fifth of the family’s means. The wife has suggested that he has other assets, perhaps representing unspent borrowings, but despite the normal process of discovery by questionnaire in the divorce proceedings, no evidence of this has been found. The creditors, who are some eleven financial institutions, were all unsecured.

In December 2007, being unable to make the repayments, the husband petitioned for his own bankruptcy in the High Court and a bankruptcy order was made without notice to the wife. In his statement of affairs the husband said he was on incapacity benefit and in the middle of divorce proceedings, although he did not mention the freezing order or the occupation order. He declared assets approaching £300,000, being the family home, by then valued at £279,000, and a share trading account containing £18,000. He had an occupational pension with a CETV of £57,000. His debts totalled £66,300. Accordingly, the available assets in his name amounted to some £230,000. He was clearly not balance-sheet insolvent and the question was whether he was commercially insolvent. By its decision, the court accepted that he was.

The consequence of the bankruptcy order was to vest the husband’s estate in the trustee in bankruptcy, when appointed: s.306 Insolvency Act 1986. While the bankruptcy subsisted the divorce court was not able to make a transfer of property order in favour of the wife, and its powers were limited to making a lump sum order out of the residue of the estate.

In late February 2008 a trustee in bankruptcy was appointed at a creditors’ meeting. They selected a partner in PWC, the world's second-largest accountancy firm.

In late March 2008 the wife became aware of the husband's bankruptcy by chance when her solicitor carried out a search of the property register, and on 3 April 2008 her solicitor wrote to the trustee’s solicitor in these terms:

Despite this letter, no application for annulment was made. Instead, in September 2008, the wife's solicitor sought an order from the divorce court requiring the trustee to disclose information and documents relating to the estate, which were duly produced. It was not until September 2009, 18 months after learning of the bankruptcy, that the wife, by then acting in person, issued her application for annulment. Her explanation for the delay is that she could not afford the costs of making the application to annul, modest though they are.

In April 2008, the trustee's solicitor had indicated that the amount required to discharge the bankruptcy was £117,000, so £50,000 more than the debt underlying the petition in December 2007.

The district judge’s hearing spanned two days in September and November 2008, at a time of global financial uncertainty. The husband was unrepresented and the wife was represented by counsel. She explicitly accepted that the home had to be sold, and was at the time co-operating with the marketing of the property, for which an offer of £270,000 had been received. By then the amount required to discharge the bankruptcy was some £132,000, having grown to twice the amount of the original debts in a year. The wife also had a debt to the Legal Services Commission for her publicly funded costs, which could have been postponed if the proceeds of the proceedings were used to rehouse herself and the child.

On 17 November 2008, in a reasoned judgment running to 16 pages of transcript, the district judge noted that this was not a long marriage and that the child’s situation had first to be considered. He found that neither party had much of an earning capacity. He concluded that a clean break order was appropriate. He ordered that the wife was to receive a lump sum equal to the entire surplus after the bankruptcy debt and costs was cleared. She was also awarded the husband's remaining capital of £18,000. The husband had asked to keep this as "a crumb", but the judge considered that he was in effect the author of his own misfortune.

Referring to the bankruptcy, the district judge considered that the husband had unnecessarily made himself bankrupt when he could have kept his creditors at bay. However, he made no finding that the bankruptcy was tactical, in the sense of being motivated by a desire to defeat the wife’s claims, whatever its effect might have been. He notionally attributed the debts and the costs of the trustee to the husband, and deliberately left him with nothing except his modest pension.

The broad effect of the order was that the wife would receive about 60% of the initial capital assets and the trustee the balance. The husband, who had brought almost all the assets to the marriage and had worked to support the family, ended up with nothing tangible, having had the use of about a quarter of the assets in one way or another.

Predicated on the sale of the property at £270,000, the wife would have received about £149,000 with which to rehouse. The district judge recognized that she would struggle to find a two-bedroom property.

Neither party lodged an appeal against the order at the time. Nor had the wife suggested at any stage that the proceedings be adjourned to allow her to seek the annulment of the bankruptcy.

Immediately after the hearing, the economy took a hand. The prospective purchasers dropped their offer from £270,000 to £250,000. At that point the wife, who firmly believed that the property was worth £300,000, withdrew instructions from her solicitor and stopped co-operating with the sale process. In December 2008, the trustee asked her to sign a notice relinquishing her home rights so that the sale could go through. He urged her to co-operate and warned of the serious consequences in terms of costs and dissipation of the estate. When this warning failed, he made an application to the bankruptcy court for an order for possession. This was adjourned from time to time, and on at least one occasion (March 2009) the registrar urged the wife to get legal advice, saying that the creditors would have to be paid.

By this stage it will have been apparent to everybody that the assets were haemorrhaging as a result of the ongoing dispute.

In May 2009, the wife made an application to the county court which was treated as an application to appeal out of time against the November 2008 order. She was directed to file an affidavit setting out her grounds of appeal and did so in documents filed in June and August 2009. Her arguments were that the order did not meet her needs and those of the child, whose welfare she believed should be paramount. The husband had deliberately declared himself bankrupt to defeat the child's right to a home. The trustee was unjustifiably reducing the price of the property. Her previous solicitors had not advised her properly. The bankruptcy order was not legal because of the freezing injunction.

The matter came before a recorder in August 2009. He gave permission to the wife to appeal out of time. He also granted permission to appeal, although this was not then required. He set the appeal down for hearing in December 2009.

I have read a transcript of the hearing before the recorder and of his judgment, the latter emerging after the end of the hearing before me. The decision to grant the wife permission to appeal out of time was animated by three matters:

The recorder said this in the course of the submissions:

It is apparent from the transcript as a whole that the recorder knew very little about what had taken place before the district judge, or indeed before the bankruptcy court.

If the recorder meant that the bankruptcy limited the options available to the divorce court, he was of course right, but this was not in itself a reason for granting permission to appeal out of time, when an application for annulment could have been made long before the decision under appeal. He instead contemplated the re-harnessing of the horse of divorce and the cart of bankruptcy without reference to the fact that the proceedings had been ongoing for two years at the time of the district judge's order, and almost three years by the time the matter came before him. His observation that the district judge’s order "cannot stand" went beyond what needed to be said when considering whether to grant an application for permission to appeal out of time. Nor is it correct that "the freezing injunction would have taken precedence over the entitlement of the trustee in bankruptcy". The existence of a freezing order is not a bar to the presentation of a bankruptcy petition: Woodley v Woodley [1994] 1 WLR 1167. Although the husband initiated the process, the disposition of property takes effect by operation of s.306, which vests it in the trustee.

In giving the green light to the wife's appeal, the recorder said this to counsel for the trustee:

In the course of the recorder's judgment he speculated that both sets of proceedings may have proceeded on fundamental misapprehensions as to antecedent rights. It is difficult to see how that speculation could have led to permission to appeal out of time being granted when the essential material was so lacking. With respect to the recorder, it was, I think, unwise to allow an appeal to proceed without access to the judgment under appeal, or to any of the papers in the bankruptcy. Had he seen the district judge’s judgment, he would have seen that, far from being in ignorance, the judge had full knowledge of what had transpired in the bankruptcy proceedings, not least because the trustee had twice been represented before him. He would also have seen that the judge had had a firm and practical grasp of the family’s predicament.

In closing, while making an order that the costs be costs in the appeal, the recorder said this to the trustee's counsel:

“It is not your fault, but it is not her fault either. Someone is going to have to pay the costs of all of this. I suspect it will be the bankrupt estate, but we shall see. Cost in the case. [To the wife:] Get yourself a solicitor.”

Given the very limited scale of the assets, the observation that "someone is going to have to pay the costs of all of this" begged a question that the recorder was bound to answer before granting permission to appeal eight months out of time in a case that was already long overdue for resolution.

The consequences have been far from what the recorder will have intended. In September 2009 the wife at last applied to the bankruptcy court for annulment. In November 2009 the bankruptcy court transferred that application to the county court, for hearing alongside the impending appeal, but that court declined the transfer on the basis that it did not have bankruptcy jurisdiction. In December 2009, immediately before the date set for the appeal, the wife instructed her second set of solicitors, who duly applied for an adjournment to allow them to obtain public funding. The judge granted the adjournment and gave directions, including one for a transcript of the district judge’s judgment to be obtained, over a year after it was delivered.

In March 2010, the bankruptcy court effectively transferred the annulment application to the Family Division for hearing alongside the appeal, which it urged the wife to have transferred from the county court to this court.

In April 2010, the wife's solicitors finally lodged a notice of appeal in the county court. I will refer below to the grounds on which the appeal was being presented at that stage. The appeal was in due course transferred to this court and the two proceedings were at last joined together at a directions hearing before a deputy judge in June 2010.

The deputy judge gave directions for a two-day hearing on the first open date after 1 October 2010, but the order did not fix the hearing date as it should have done. As a result, a further three months passed before a hearing date was even fixed, and the matter did not come on for hearing before me until the end of March 2011. In the meantime, in August 2010, the wife withdrew instructions from her second firm of solicitors, and in the following month consulted Mr Bothwell. He then attended as her McKenzie Friend at a number of hearings in substantial proceedings in relation to the husband's contact with the child. That issue had also been so problematic that a Children's Guardian was appointed in 2008.

In August 2010, after the deputy judge’s hearing, the trustee's solicitors wrote to the wife asking whether she was now seeking to challenge his costs and disbursements if an annulment order was granted. No reply was ever given.

Lastly, the wife's first solicitors have presented a claim to the trustee in respect of £18,000 of unpaid costs, which the trustee has accepted has increased the amount of the debts in the estate.

In the background to this sorry procedural history, the taximeter of professional costs has been running continuously. From an initial debt of £66,000 in December 2007, the overall amount required to clear the bankruptcy has risen to £260,000:

A breakdown of the last figure shows that the original debt has risen to £113,000, with professional fees and disbursements of various kinds amounting to over £86,600, and the state claiming £61,000:

The Secretary of State’s fee, known as the ad valorem fee, is payable as a result of Schedule 2 of the Insolvency Proceedings (Fees) Order 2004 and its annual subsequent amendments. This entitles the Secretary of State to levy a charge of approximately 17% on the value of the estate, as represented by sums paid into the Insolvency Services Account. It is said to be for the performance of general duties under the insolvency legislation in relation to the administration of the estate of each bankrupt, and thus represents an extraordinary contribution by this family to the running of the insolvency service. Mr Bothwell suggested that the Fees Order might for some reason be ultra vires the Insolvency Act, an argument that is not for consideration here.

The ad valorem fee would not be payable if the bankruptcy were annulled. However tempting that might seem as an argument in favour of annulment, the benefit would be offset by the fact that the husband's debts, which have been frozen at the favourable statutory rate of interest, would stand to be recalculated at commercial rates.

There is another practical consequence arising from the bankruptcy. Even after the sale of the home, any surplus that the wife might receive would not become available to her before six months at the very least,according to a letter written by the trustee in January 2009 in an attempt to assist her in obtaining local authority accommodation.

The issues for decision are:

Her position has been put in a number of different ways. As noted, in November 2008 she accepted that the property should be sold and the trustee paid. In August 2009, she made the arguments listed at paragraph 26 above. In her counsel’s skeleton argument in June 2010, she requested that the property be transferred to her absolutely, but conceded that the trustee’s costs and expenses should be charged against the property, and that he could force a sale if they were not paid within a reasonable time. The husband should be left to pay all or almost all of the original debts himself. Her case was put in this way by counsel:

Now, in advancing the wife's case, Mr Bothwell presents a number of arguments that go beyond the notice of appeal, and which I will consider in the absence of objection from the other parties.

Fundamentally, he submits that the wife's home rights under s.33 Family Law Act 1996, and the orders that were made until further order under that Act in November 2006, put the family home permanently beyond the reach of the trustee in bankruptcy and of the creditors. He bases this bold proposition on s.336(2)(a) Insolvency Act 1986, which falls in the chapter of the Act which concerns the effect of bankruptcy on certain rights. It reads:

Mr Bothwell argues that by virtue of this provision the wife's rights are binding on the trustee in bankruptcy. The triple pre-existence of the divorce proceedings, the freezing order and the occupation order (expressed to last until further order) before the making of the bankruptcy order, meant that, in giving priority to the creditors and the trustee’s fees, the district judge acted without jurisdiction. s.336 does not distinguish between proprietary and non-proprietary rights and must be read at face value. The trustee should have recognised this and should therefore have disclaimed the property as being "onerous property" under ss. 315 and 320.

He then submits that the trustee inappropriately achieved his goal of laying hands on the property within the divorce proceedings, when, if he wished to disturb the wife's rights, he should have applied to the bankruptcy court under s.336(4). He misled the divorce court by failing to mention s. 336 of the Act.

He further argues that the district judge, in prioritising the creditors and trustee, did not correctly apply s.25 Matrimonial Causes Act 1973, which amongst other things requires the court to have regard to all the circumstances of the case, first consideration being given to the welfare of the child. This also amounts to a breach of Article 8 of the European Convention on Human Rights. In contrast to the registered rights of the wife, the rights of the creditors were unsecured and they had lent at their own risk.

As to the trustee's fees, Mr Bothwell argues that within days of appointment the trustee was aware of the wife’s home rights and the freezing order as result of a search of the property title. All the costs since March 2008 have been unnecessary and should not be recovered. Serious questions arise for the trustee, who should have realised the strength of the wife's position, and should accordingly have restrained his activities. Instead, Mr Bothwell charges the trustee (in persuading the divorce court to make its order instead of applying to the bankruptcy court) with keeping this particular bankruptcy well away from the eyes of the judges in the bankruptcy court and Chancery Division. In so doing, the trustee has fallen foul of the rule in ex parte James (Re Condon, ex p. James) (1874) 9 Ch. App. 609. This provides that a trustee who holds money which in equity belongs to someone else (in that case money paid under a mistake of law) should pay it to the person really entitled to it. The modern conditions for the rule are set out in In re Clark (A Bankrupt), ex parte The Trustee v Texaco Ltd. 1975 1 WLR 559.

In the result, Mr Bothwell says that the trustee has misconducted himself in failing to appreciate, or indeed concealing, the wife's statutory protection, and that a wasted costs order against the trustee and his advisers should be made.

The husband opposes an annulment, stating that he was genuinely unable to service his debts at the time that he made himself bankrupt and that his creditors should be paid. He now accepts that bankruptcy was not the most efficient way of dealing with his debts, but at the time it was a genuine attempt to regularise his affairs. He had no idea that the process would lead to such levels of expense. He also resists the wife's appeal, stating that she had rejected a sufficient amount to purchase an alternative property in 2006, and that by her intransigence she too bears substantial responsibility for subsequent events. He himself has been left with virtually nothing; had he had proper legal advice, he might have acted more wisely, but as a result he would have incurred legal costs.

The trustee in bankruptcy plays no part in the wife's appeal. He is formally neutral in relation to the annulment application, beyond observing that in 2007 the husband was in fact unable to pay his debts as they fell due. In the event that the bankruptcy is annulled, he submits that it should be conditional upon the payment of his professional fees, and of the legal fees and other expenses that he is obliged to pay.

Section 272(1) of the Insolvency Act 1986 reads:

Section 282(1) of the Insolvency Act 1986 reads:

In Paulin v Paulin [2009] EWCA Civ 221, [2009] 2 FLR 354, the Court of Appeal considered the interrelationship between family law and bankruptcy law in a case brought under subsection 282(1)(a). A husband, who had been subject to a prior freezing order, had made himself bankrupt in the midst of divorce proceedings. The wife's application to annul was ultimately granted by the judge on the basis that the husband had deliberately painted a false picture of his financial circumstances and that he had in fact been able to pay his debts. The Court of Appeal upheld that conclusion.

Giving the judgment of the court, Wilson LJ surveyed the legislation set out above:

Wilson LJ then suggested that while the burden of establishing that the application for annulment should succeed normally rests on the applicant, the onus is reversed in a case where a debtor's assets exceeded his liabilities, and where he is shown to have petitioned for his own bankruptcy on the basis of a substantially dishonest statement of affairs and to have had assets substantially exceeding his liabilities. In such circumstances, the burden falls on him to prove that he was nevertheless unable to pay his debts within a timeframe which his creditors would have tolerated, and he will find it hard to resist annulment.

Then, referring to the exercise of discretion, he continued:

Lastly, Wilson LJ referred to the balance between the interests of creditors and of debtors' wives and children:

Authorities in the pure bankruptcy field naturally suggest that a critical factor in exercising the discretion in favour of annulment is whether the debtor would be able to meet his liabilities: see for example Owo-Sampson v Barclays Bank & Boyden [2003] EWCA Civ 714.

Under Rule 6.138 of the Insolvency Rules 1986 (as amended), the trustee is entitled to receive remuneration for his services. This can be fixed on a percentage basis, or on the basis of time properly spent, or as a fixed fee. In the present case the creditors agreed that the trustee and his staff would be paid on the basis of time spent. This basis is of course the most open-ended in terms of its potential impact on debtors and third parties. I refer below to the issue of the court’s control over the scale of trustee’s fees.

In Mellor v Mellor [1992] 1 WLR it was held that a receiver appointed by the court had a right to be remunerated for services actually rendered. Mr Michael Hart QC said this:

Likewise, in Butterworth v Souter [2000] BPIR 582, Neuberger J, whose decision has since been followed, noted that, on the face of it, it cannot be envisaged that the trustee will work for nothing, and normally when a bankruptcy order has been properly made, subject to questions of reasonableness and subject to special facts, the trustee will be paid out of the estate. On an annulment, the court has an unfettered jurisdiction to decide who, if anybody, should pay the trustee’s costs. The answer is likely to be different depending upon whether the annulment is under subsection (a) or subsection (b).

In Thornhill v Atherton [2004] EWCA 1858, [2005] BPIR 437, the issue was whether a trustee should have his costs and disbursements amounting to some £130,000 in a case where a husband was declared bankrupt as a result of shady dealings between his wife and a third party. He succeeded in obtaining the annulment of the bankruptcy order on terms that the trustee should have his costs and disbursements. He appealed on the basis that he had been an innocent victim of the bankruptcy process. He accepted that the trustee should have his costs, but that they should be paid by the guilty parties.

This argument was rejected by the Court of Appeal. Lloyd J said this:

The judge noted that Mr Atherton may have had a remedy against his solicitors.

The facts of Thornhill v Atherton bear more than a passing resemblance to the circumstances in the present case, although they are not identical.

A somewhat similar recent decision is that of the Chancellor in London Borough of Redbridge v Mustafa [2010] EWHC 1105 (Ch), [2010] BPIR 893. The debtor had been made bankrupt as a result of unpaid council tax for which she was probably not in fact liable. However, she had not followed normal procedures to regularise the position and then ignored advice to take immediate steps to have the bankruptcy annulled. Her application was not made until some 18 months later and the district judge, in annulling the bankruptcy, ordered the petitioning creditor, the local authority, to pay the trustee’s costs and expenses of some £23,000 on the basis that it had been unreasonable to take bankruptcy proceedings in respect of such a small debt. On appeal, the Chancellor overturned that order and the debtor was ordered to pay the trustee’s costs. The bankruptcy order was properly made at the time and there was no obligation on the creditor to obtain its annulment. The costs had been incurred as a result of the debtor's failure to organise her affairs and to avail herself of her remedies at the time.

Lastly, for a case in which a bankruptcy was annulled without making provision for the trustees’ costs of about £30,000, see Ella v Ella [2008] EWHC 3258 (Ch), [2009] BPIR 441. It was held that the proceedings were an abuse of the bankruptcy process and that the trustees were not blameless, being in effect an alter ego for the husband.

From these authorities, I draw the conclusion that a trustee will be entitled to reasonable remuneration for work properly carried out during the period of his appointment, and that the question of disallowing fees will only arise where he has acted improperly in some way.

The cases of Thornhill v Atherton and Mustafa also underscore the crucial importance of making an early annulment application.

As this is an appeal from a district judge, Rule 8.1(3)(a) Family Proceedings Rules 1991 (now Rule 30.12 Family Procedure Rules 2010) provides that it is limited to a review of the decision unless this court considers that in the circumstances of the case it would be in the interests of justice to hold a rehearing. No party has suggested that this hearing is other than a review, or that oral evidence should be given.

This court will allow the appeal if the decision appealed is wrong, or unjust because of serious procedural or other irregularity. A decision will be wrong if it is shown to be wrong in law; or to have taken into account an irrelevant factor or failed to take into account a relevant one to the extent that the result is plainly wrong.

The court only takes account of events subsequent to the judgment if the Barder criteria are met. These are that:

Normal price fluctuations do not amount to Barder events. In Cornick v Cornick [1994] 2 FLR 530, Hale J explained that what is required is that:

“…something unforeseen and unforeseeable has happened since the date of the hearing which has altered the value of the assets so dramatically as to bring about a substantial change in the balance of the assets brought about by the order…However, the circumstances in which this can happen are very few and far between. The case-law, taken as a whole, does not suggest that the natural processes of price fluctuation, whether in houses, shares or any other property, however dramatic, fall within this principle.”

The wife plainly has a sufficient interest to make her application.

The first question is whether on any grounds existing at the time the order was made, the order ought not to have been made. In answering this, I reach the following conclusions:

I therefore reject the principal argument now deployed on behalf of the wife. As a matter of law the threshold for annulment has not been crossed, and I must therefore refuse the wife's application.

The next question would only arise if I had reached a different conclusion on the previous issue. The court would then have to consider whether to annul the order in all the circumstances that now exist. Had this question arisen, I would have taken into account these circumstances:

The exercise carried out in the previous paragraph is hypothetical in the light of my prior decision that there is no basis for annulment. Nonetheless, balancing the various considerations, I do not consider that they provide a proper basis for annulment, and were the threshold for the exercise of discretion crossed, I would not exercise it in that manner.

I have also considered the possibility of annulment under s.282(1)(b), even though an application under that subsection has not been made at any stage. For such an application to succeed, the bankruptcy debts and the expenses of the bankruptcy must all have been paid or secured to the satisfaction of the court. The subsection plainly contemplates annulment in circumstances where the debts have been paid or could imminently be paid. Here, they clearly have not been paid or secured and there can be no confidence that even an order for immediate sale in the divorce proceedings would adequately secure these sums. The wife is strenuously resisting a sale. I cannot foresee when the process will end. The criteria under subsection (b) are not met.

It follows from the refusal of the wife's application that the trustee is on the face of it entitled to his proper professional fees and expenses, and that the estate will be further diminished by the ad valorem fee.

Although alarm must be felt at the scale of the fees and expenses in such a modest domestic case, I reject the wife's accusation that the trustee has behaved improperly or that he was duty bound to act differently. The suggestion that he has kept the matter away from the eyes of the bankruptcy court or the Chancery Division does not bear examination when one considers the number of times that he has returned to seek an order for possession. The fact is that the impact of the trustee's costs, and hence the danger that they pose to those in the wife's position, is the result of him acting in the manner that our system allows. His "unenviable position" if he is deprived of his costs may be of a different order to the unenviable position of the wife and child if he is entitled to them, but that is not to the point if there are no proper grounds for intervention.

I have considered the scope of the court's power to regulate trustees’ expenditure where a bankruptcy is annulled under each limb of s.282(1). Where annulment takes place under s.282(1)(a), the Rules provide a straight road for creditors to challenge a trustee's fees: IR 1986 r.6.142. However, there is no similar mechanism available to someone in the position of the wife. Reference has been made to Engel v Peri [2002] BPIR 961, in which it was held that the court’s general control over bankruptcy under s.363 of the Act can include a power to review trustee’s remuneration in circumstances that are not directly covered by the code in Section D of the Insolvency Rules 1986 and in particular Rules 6.138-6.142. Another possibility is the court’s general power to exercise control over the trustee under s.303, which is broadly expressed, but this route is not universally accepted as a means of controlling costs.

In contrast, where annulment takes place under s.282(1)(b), Rule 6.207A provides a clear basis for an application to the court to review and, where appropriate, disallow excessive remuneration or expenses.

I do not, however, consider that further enquiry into the issue of the trustee's costs and expenses would be appropriate in this case. As I have recorded, his solicitor wrote to the wife in August 2010 asking whether she would be challenging any aspect of his fees. No reply was given, and the matter has not been pursued during the hearing before me. The only argument that has been made is one that I have rejected, namely that the trustee should be entitled to no fees at all because he should not have even begun to act. Even where a litigant is not professionally represented, there must be a limit to the extent that it is proper for the court to investigate an issue that has not been properly raised during the litigation. The cost of embarking upon the exercise would also have had to be weighed.

Accordingly, had it been appropriate to annul the bankruptcy, the order would necessarily have been conditional upon the payment of the trustee's fees and expenses.

I first consider the arguments presented by the wife herself when the appeal was lodged. I do not accept the claim that the district judge did not give first consideration to the child's position, and it is of course not the case that his welfare is to be regarded as paramount in this context. The district judge took the husband's behaviour into account by way of an "add-back" of the lost amounts against his entitlement. The bankruptcy was not illegal, despite the freezing injunction. If the wife’s solicitors and counsel did not advise her properly at any stage, her remedy would be against them.

I next turn to the notice of appeal filed by the wife's second counsel. It is said that the district judge proceeded on the assumption that no challenge to the bankruptcy was possible. This statement is in my view unfounded. To start with, the wife herself was not challenging the bankruptcy order. On the contrary, she appeared to be accepting it and, like the court, to be working around it. Moreover, as the district judge had no power to disturb the bankruptcy, any challenge would have to be made in the bankruptcy court, with the result that the financial application in the divorce, now ready for hearing, would have had to be adjourned again. Given the fact that the assets were already wafer-thin and the debts a reality, the district judge cannot be criticised for failing to adjourn the proceedings on his own initiative to allow the wife to make an application to annul. Even if the issue had been raised, it would quite probably have been wrong to adjourn a case that had been on foot for two years to allow the application to be made. The consequences of such an adjournment can be clearly seen in the escalation of costs that has in fact resulted from the further litigation brought by the wife.

I also reject the suggestion that the decision in Paulin or the wife's annulment application invalidated the basis upon which the district judge's order was made. Paulin is quite different to this case on its facts. Of course, if the annulment application had succeeded at this hearing, I would have taken that into account on the appeal, but it has not. Its issue was certainly not a Barder event. The reduction in the price offered by the purchaser is not a ground for interfering, particularly as the district judge specifically referred to the falling market.

Nor can I accept that the district judge should have found that the husband had hidden assets. Beyond the documents that evidence the debts that the husband originally declared, no evidence was produced to the district judge or to this court by the wife or the trustee to sustain this submission.

I now turn to Mr Bothwell's remaining arguments. He says that, since the effect of the district judge's order was to deprive the wife of occupation of the home, he should have applied the checklist of factors mentioned in s.336(4), which applies when an order for possession is being sought in the bankruptcy court. I do not accept this argument. The trustee had no reason to apply for an order at that stage, because at the time of the hearing the wife was agreeing to a sale. In any event, under s.336(5) the interests of creditors will outweigh all other considerations once the trustee has been in post for more than a year, unless the circumstances are exceptional, which they are not. It is therefore difficult to see what assistance the wife could have gained from s.336.

Mr Bothwell then says that the district judge did not take into account all relevant factors under s.25 Matrimonial Causes Act 1973. Again, I do not agree. His judgment shows a sensible and pragmatic balancing of the information before him. He was aware that the residual assets were scarcely sufficient to rehouse the wife and child, and his order has to be seen in the context of the acutely limited solutions that were by then available. Although the husband had squandered a significant proportion of the capital, he was the source of that capital. The real problem facing the district judge lay in the escalating bankruptcy fees, which should have been confronted head-on at a much earlier stage.

It is of course possible for an order for possession to be postponed, but a long-term postponement of possession, for example for the rest of the son's childhood, is not a result that could properly be achieved in this case.

This unhappy outcome, avoidable though it might have been, does not amount to a breach of the rights of the wife and child under Article 8. The article requires a balance to be struck between the rights of individuals, the economic well-being of the country and the rights of others.

I therefore dismiss the appeal.