Payment of an $100,000 inheritance into a family trust by a Christchurch bankrupt will be of interest to Insolvency Service. Any inheritance arising whilst bankrupt is ‘after-acquired’ property which goes to pay prior bankruptcy creditors.
Associate judge Lester indicated details of litigation between trustees of a Canterbury family trust should be copied to Insolvency Service. The litigation revealed funding for purchase of a Picton Avenue property in Christchurch came in part from an inheritance that should have been disclosed to Insolvency Service.
Errol Hawkins together with his wife Denise were bankrupted in 2009. The High Court was told they set up a family trust shortly after, with three named trustees: son Samuel, daughter Angela and a corporate trustee: St Martins Law Ltd. Samuel and Angela were to later disagree over whether a trust in fact existed and how it operated. The evidence was that their parents subsequently used trust assets as if they were their own and the trustees were only called into action when legal documents had to be signed on behalf of the Trust.
The Trust’s first major transaction was to purchase a section in Timaru costing some $42,000. This was funded with a $45,000 ACC payment received by mother Denise. She was bankrupt at the time, but the ACC payment did not have to be surrendered to Insolvency Service. It is now disputed whether her $45,000 payment to the Trust was a loan or a gift. On the death of Errol’s mother about a year later, Errol arranged for the Trust to purchase her Picton Avenue home as accommodation for himself and wife Denise. Errol was still bankrupt at the time. The purchase was funded by his estate inheritance and a bank loan taken in Samuel’s name with guarantees from all three trustees. Picton Avenue was sold in 2016 to fund a planned purchase by Errol and Denise of South New Brighton Motor Camp.
The trustees fell out with arguments over how the motor camp purchase should be financed with proceeds from sale of Picton Avenue. Two trustees, Angela and St Martins Law, wanted to see trust monies advanced as a loan; Samuel instead used the funds to capitalise a company owned by himself, his wife and his father with this company purchasing the camp ground.
Samuel was sued for breach of trust. In response, Samuel denied a trust ever existed; the Trust was a sham and did not represent the factual realties, he said.
At a preliminary High Court hearing, Judge Lester ruled detailed evidence in court was needed to determine circumstances surrounding the creation and the operation of the supposed Trust. He suggested Insolvency Service be notified immediately of circumstances surrounding Errol’s inheritance from his mother’s estate at the time when he was bankrupt.
Hawkins v. Hawkins – High Court (17.06.21)
21.101