Voidability of Fraudulent Transfers

There has been a recent increase in financial institutions and other creditors issuing High Court proceedings to have ostensibly fraudulent property transactions set aside.  Such proceedings are issued in an effort to seek recourse against the property in question in order to to satisfy judgment debts, often in circumstances where the debtor / transferor has little by way of other realisable assets.

In a Court of Appeal decision delivered in December 2015[1], the Court confirmed that an order setting aside voluntary transfers can be made more than a decade after the transfers were carried out, on foot of an application by a party who was not a creditor of the transferor at the time of the transfer.  The Court concluded that an inference could be drawn as a matter of law that the voluntary transfers of properties from husband to wife were effected to place the properties “beyond recourse of … a future creditor”, in the absence of persuasive evidence to the contrary.  Accordingly, the Court upheld the Order of the High Court declaring these transfers void.

As the transfers were effected before December 2009, this case was determined under section 10 of the Conveyancing Act (Ireland) 1634 (the “1634 Act”).  This provision has been repealed and effectively replaced by Section 74(3) of the Land and Conveyancing Law Reform Act 2009, as amended (the “2009 Act”), which provides that “any conveyance of property made with the intention of defrauding a creditor or other person is voidable by any person thereby prejudiced”.   The definition of “conveyance” includes a lease, a charge and any other instrument except a will.

The case law under the 1634 Act, the 2009 Act, and bankruptcy legislation dealing with similar issues[2], is consistent on the point that an intention to defraud can be inferred from the facts in the absence of evidence of an express intent to defraud, if the likely result of the transfer is to defeat or delay creditors[3].

In a leading High Court decision[4], the Court held that the transferor’s primary intention of defeating enforcement of an anticipated judgment was held to be fraudulent as the “necessary or probable consequences of the act” was to “defeat, delay or hinder creditors”[5].  The secondary motivations of marital and health reasons did not alter this finding.

It is clear from the case law that the bar to succeeding in having a transfer declared void is relatively low, if it can be established that the necessary or probable consequence of such a transfer is to prejudice present or future creditors.  Transfers to family members effected without valuable consideration would appear to be particularly vulnerable to challenge.

Section 74(4)(a) of the 2009 Act provides parties to an impugned transfer with potential grounds for defending an application to have the transfer declared void, where it can be established that the property was “conveyed for valuable consideration to any person in good faith not having, at the time of the conveyance, notice of the fraudulent intention”.  It remains to be seen how this provision will be applied by the Courts.

If you have any queries with regard to the foregoing, please contact Tom O’Byrne (tob@ofx.ie).

 

 

[1] Dana Doherty (a person of unsound mind not so found) suing by her Next Friend, Fintan Gallagher v Michael Quigley and Alice Quigley [2015] IECA 297.

[2] See the decision of the Court in Re Moroney, a Bankrupt [1887] 21 LRIR 27, made under the Bankruptcy (Ireland) Amendment Act 1872.

[3] See, for example, McQuillan v Maguire [1986] 1 ILRM 394, and MIBI v Stanbridge and Others [2008] IEHC 389.

[4] Keegan Quarries Limited v Michael McGuinness and Marie McGuinness [2011] IEHC 453.