International Family Law Chambers

Bankruptcy in Family Proceedings: a powerful weapon?

David Truex and Kerstin Beyer

Family Law Journal, July/August 2002

Introduction

In England and Wales, bankruptcy cannot, in the absence of special circumstances, be used to enforce maintenance arrears which accrue pursuant to an order made within the jurisdiction (Rule 12.3 Insolvency Rules 1986 (SI 1986/1925); Russell v Russell [1998] 1 FLR 936).

This is not the law elsewhere. In Scotland, Australia, Sweden and Germany, for example, the threat of personal insolvency proceedings can persuade a maintenance defaulter to pay up.

With the increasing internationalisation of family law, particularly recent initiatives for harmonisation of laws within the European Union, such as Brussels II, it is not surprising that the courts and legislature in England and Wales have begun to question the anomalies apparent in the current system. The decision by Mr Justice Rimer in the Chancery Division in the case of Cartwright v Cartwright on 21 November 2001 (June [2002] Family Law 412), to uphold an English bankruptcy petition for recovery of maintenance arrears pursuant to a Hong Kong order, may point the way forward. The Court of Appeal (Thorpe, Rix and Arden LJJ) heard argument in Mr Cartwright’s appeal on 27 May 2002 and a reserved judgment is awaited.

Cartwright : wife’s bankruptcy petition successful – but appeal pending

In Cartwright the parties were divorced in 1994 in Hong Kong, where a consent order was made in ancillary relief proceedings. Six years later the wife served a statutory demand on the husband, who had moved back to England, which claimed payment of a debt comprising periodic payments and lump sums unpaid under the Hong Kong order. A bankruptcy order was made against the husband, who had not appeared, but he subsequently appealed. Rimer J dismissed the appeal and stated that the Hong Kong order was a provable debt within the meaning of Rule 12.3 of the Insolvency Rules 1986. See Rebecca Bailey-Harris’ useful précis of His Lordship’s reasoning at pages 412-413 of June 2002 Family Law.

Wehmeyer : wife’s bankruptcy petition dismissed

In Wehmeyer v Wehmeyer [2001] 2 FLR 84 the parties were divorced in Germany and a spousal maintenance order was made there in 1994. After Mr Wehmeyer failed to make payments according to the order, Mrs Wehmeyer’s German lawyer started enforcement proceedings there which were partly successful. Mr Wehmeyer then moved to England. In 2000 Mrs Wehmeyer presented a bankruptcy petition in the High Court in London. The petition was founded on two debts. The first was for some £97,500, for spousal maintenance, the German order having been registered in the High Court in October 2000 under s 5 of the Civil Jurisdiction and Judgments Act 1982. The second was for £2,200, due pursuant to a costs order which had also been registered at the High Court under s 4 of the 1982 Act. Mrs Wehmeyer’s bankruptcy petition was dismissed. It was held that both orders were non-provable debts. See Gillian Douglas’ comment at page 494 of July 2001 Family Law for a good summary of the case.

Bankruptcy as a powerful weapon in Scotland

Mr Wehmeyer made it known during the English proceedings that he had moved to Scotland. Scots insolvency law does not make the same distinction as the English Rule 12.3 between normal debts and “obligations arising under an order made in family … proceedings”. In Scotland, maintenance arrears can be enforced by insolvency proceedings. A Scottish sequestration petition was served on Mr Wehmeyer and, after some argument about procedure and jurisdiction, the case was settled by a consent order made in Germany. In May 2002 the long-suffering Mrs Wehmeyer received the first tranche of an agreed lump sum payment which takes into account maintenance arrears, costs and interest. Mrs Wehmeyer will also continue to receive monthly maintenance payments. The German consent order states that in the event that Mr Wehmeyer defaults Mrs Wehmeyer is entitled to enforce the original order against him. Mrs Wehmeyer has finally received justice, but she wonders why the English law let her down when the Scots law was so helpful.

Differences between Cartwright and Wehmeyer?

Rimer J stated in Cartwright that it was “relevantly distinguishable” from Wehmeyer. Bur are the facts not really quite similar? Both women were divorced abroad, both women obtained orders in ancillary relief proceedings abroad, both husbands moved to England, both husbands seemed to have a lot of money but preferred not to pay any of it to their former wives, both women started bankruptcy proceedings. Mrs Cartwright succeeded in England (subject to the pending appeal) but Mrs Wehmeyer did not succeed until she started fresh proceedings in Scotland.

One technical difference between the cases is that Mrs Cartwright did not seek to register her Hong Kong order in England whereas Mrs Wehmeyer used the Civil Jurisdiction and Judgments Act 1982 to register the German maintenance order and one German costs order but not a second costs order. But does justice depend on such technicalities?

Foreign orders: to register or not to register?

In Cartwright Rimer J pointed out how important it might be if an order has been registered or if it could have been registered in England and Wales. His Lordship noted that Wehmeyer concerned two foreign orders (maintenance arrears plus one of the costs orders) which had been registered under the 1982 Act. On the other hand, Cartwright concerned a Hong Kong order which had not been registered in England. It could not have been registered under the 1982 Act but registration could have been effected under the Administration of Justice Act 1920. However, the 1920 Act is not listed in section 65(1) of the Magistrates’ Courts Act 1980, which defines “family proceedings”.

Statutory interpretation of Rule 12.3 Insolvency Rules 1986

Rimer J noted in Cartwright that Neuberger J recognised in Cadwell v Jackson and Others [2001] BPIR 966 that whether the order was one made in “family proceedings” for the purposes of Rule 12.3(2)(a) turns purely and simply on a question of statutory interpretation, namely, was the foreign order made in “family proceedings” within the special meaning assigned to that phrase by section 281(8) of the Insolvency Act 1986 (which refers back to the 1980 Act).

Registrar James stated in Wehmeyer that it was in his view contrary to public policy for a foreign maintenance order, which would be a non-provable debt if registered in England, to be treated as a provable debt if it were not so registered. He went on to say that both the underlying policy of the statute and common sense dictate that a foreign maintenance order which is capable of being registered but is not registered in this jurisdiction should be treated as a non-provable debt.

Rimer J disagreed with Registrar James, stating that whether an order is made in “family proceedings” cannot depend on an appeal to some ill defined concept of public policy, let alone to the even less defined concept of common sense, to which Registrar James referred. He agreed with Neuberger J in Cadwell and treated the issue in Cartwright purely as one of statutory interpretation, therefore suggesting, as Rebecca Bailey-Harris put it in her comment on the case, the undesirability of a distinction between registration and non-registration of foreign maintenance orders for the purposes of bankruptcy petitions. It remains to be seen whether the Court of Appeal judges agree with this view. The practical advice that can be given at present is: it is best not to register a foreign order in England and Wales if bankruptcy proceedings are contemplated for enforcement. But this advice will have to be reconsidered in the light of the appeal result in Cartwright when it is known.

New legislation required

Should bankruptcy be available to enforce maintenance arrears in England and Wales? Maintenance creditors are much more dependant on regular payments than, say, a plumber who sues over a disputed bill. The law in Scotland, Australia, Sweden and Germany, to cite just four examples, does not discriminate against maintenance creditors. Is it not illogical that Mrs Wehmeyer might have been successful with her English bankruptcy petition if she had an order made in Hong Kong rather than Germany? And why should it make a difference whether the order had been registered in England or not? In fact, should not English maintenance creditors be able to use bankruptcy for enforcement? It seems unfair that a Hong Kong resident can benefit from English law when an English resident cannot.

Gareth Miller concluded in his article Bankruptcy as a Means of Enforcement in Family Proceedings, January [2002] Family Law 21, that the treatment of debts in family proceedings may deserve further consideration. Christopher Brougham QC wrote to the editor of Family Law in May, in response to Professor Miller’s article, reporting that the Insolvency Courts Users Committee has proposed “radical reforms” which will allow maintenance arrears, lump sums and costs in family proceedings to be provable in bankruptcy, and that the bankrupt not be released from such debts on his discharge. The proposals are supported by the President’s Ancillary Relief Advisory Group and are being considered by the Department of Trade and Industry (May [2001] Family Law 396).

Conclusion

Enforcement of maintenance arrears has always been a thorny problem for the family lawyer. The determined “deadbeat dad” can frequently wear down the exasperated former wife by hiding income and assets, changing jobs and invoking the grudging acquiescence of sceptical courts by appearing as a bewildered litigant in person to make lame excuses for continued adjournments. The problem is exacerbated when international issues arise, as in Wehmeyer and Cartwright, because the debtor may have to be chased through several jurisdictions where laws differ.

Following the emasculation of the judgment summons procedure by Mubarak v Mubarak [2001] 1 FCR 193 it is high time lawmakers in this jurisdiction, both legislative and judicial, gave families the tools they need to enforce family law debts, particularly maintenance but also lump sums and property adjustment. In the international arena the Hague Conference Permanent Bureau and the European Union are currently working on a revision of international maintenance enforcement procedures. The United States government is also seeking greater co-operation between nations, a high level delegation having travelled to Europe in June to consult with national and international policy makers about streamlining trans-Atlantic maintenance recovery. Now is clearly the time for the Westminster Parliament to consider amending the Insolvency Act 1986, and the Rules, to add a powerful weapon to the maintenance creditor’s armoury by allowing bankruptcy to enforce arrears.

David Truex and Kerstin Beyer* International Family Law Chambers, London 20 June 2002

*The authors acted for the Petitioner wife in Wehmeyer v Wehmeyer.

Case References:
Woodley v Woodley [1992] 2 FLR 417
Woodley v Woodley [1993] 2 FLR 477
Russell v Russell [1998] 1 FLR 936
Wheatley v Wheatley [1999] 2 FLR 205
Cadwell v Jackson and Others [2001] BPIR 966
Levy v Legal Services Commission [2001] 1 FLR 435
Wehmeyer v Wehmeyer [2001] 2 FLR 84
Cartwright v Cartwright June [2002] Family Law 412 (appeal pending)

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