English High Court Considers Presumption Of Advancement Between Parent And Child In Context Of Parent's Bankruptcy Following Substantial Gifts To Child

In Nicholas Stewart Wood and David John Standish (as the joint trustees in bankruptcy of Karl Eric Watkin) v Kate Rebecca Watkin [2019] EWHC 1311 (Ch), trustees in bankruptcy sought to establish that a bankrupt (the Bankrupt) was the sole beneficial owner of three properties (the Properties), ostensibly purchased by him for his adult daughter. The High Court refused the application and held that the Bankrupt was not the sole beneficial owner of the Properties.

In considering the application, the Judge considered issues regarding the presumption of advancement. This article will focus on two main aspects: firstly, the scope and strength of the presumption of advancement, particularly to adult children financially independent of their parents, and secondly, whether liability under a mortgage used to fund part of the purchase price might be treated as a contribution giving rise to a resulting trust. It will further discuss the alternative claims brought under the Insolvency Act 1986 (IA) and the comments made by the judge regarding the written evidence advanced by the applicants.

Background

The Bankrupt was a successful entrepreneur involved in a number of start-ups and listings on the UK stock market. The Bankrupt's adult daughter described her upbringing to be extremely privileged. She continued to receive a monthly allowance of £320, paid from the joint account of her parents (the Joint Account), until she started paid employment in 2007. The Bankrupt's children were also able to invest in a number of companies in which he was involved. Any bequests, inter vivos gifts from family members and gains realised from such share sales were paid into the Joint Account.

The Properties were purchased in 2003, 2006 and 2007 and registered in the sole name of the Bankrupt's adult daughter. The Properties were purchased using funds from the Joint Account, a mortgage advance and funds from a third party. There was no evidence that the Bankrupt was in financial difficulty at the time of any of the purchases.

The bankruptcy order was made in December 2012. The joint trustees in bankruptcy applied for declarations and other relief in respect of the Properties, claiming that the Bankrupt was the sole beneficial owner of such properties at all material times based on resulting trust principles. Alternatively, they claimed that that the transactions defrauded creditors pursuant to section 423 IA, or that the transactions were at an undervalue pursuant to...