Tucked away quietly in the Property (Relationships) Act 1976 is Section 47 (s47). Under-utilised and under-celebrated, it relates to separation agreements that have been entered into by parties to a relationship (i.e. a husband and wife), in order to defeat creditors – or an agreement that has the effect of defeating a creditor.
“For example, the wife may act as a guarantor for her company. To keep that company’s assets out of reach of its creditors, the wife may, as part of the separation agreement, transfer the assets to her husband. At that stage, it becomes out of reach of the creditors” says Harriet Krebs, solicitor at K3 Legal.
“Essentially, when creditors invoke the Act, it allows Courts to deem that part of a separation agreement void,” says Harriet. “It’s a really useful piece of legislation, but it’s tended to be overlooked as creditors have traditionally sought restitution via the High Court rather than the Family Court.”
Toni Brown, Director of K3 Legal, agrees that when a relationship property agreement is disadvantaging creditors, they need to proceed through the Family Court instead, as that Court has exclusive jurisdiction over the Act which governs relationship property agreements.
“The Family Court has the necessary functions required to apply to s47,” says Toni.
The primary difficulty lies in determining whether the creditor has standing as an applicant under the Act. After all, the Act primarily relates to dealings between a couple about their relationship property.
“At first glance, this would limit the ability of creditors to commence proceedings against parties to a relationship property agreement,” says Harriet. “However, given the Act has been amended numerous times, and s47 has remained throughout, it is clear that Parliament’s intent is to enable creditors to use this as a tool to recover debts.”
However, the application of s47 is not always clear cut, with creditors also relying on two separate sections on the act, which provide them access to the Act and therefore to s47.
“For creditors to be eligible to file under s47, the applicant must have standing, be a creditor in accordance with s47, and a couple’s relationship property agreement must have been made with the intention of, or have the effect of, defeating creditors,” says Hariett.