Insolvency legal services
The level of insolvency in the UK is increasing. Figures released by the Government indicate that in the first three months of 2006, the number of insolvencies increased by 7.6% on the previous period and were up 17% on the same period last year. This could make uncomfortable reading for those businesses or individuals who know they have debtors who are causing them some concern.
Amongst the UK population there is an increasing number of people who, lured by the thought of sunshine and a cheaper cost of living, are packing their bags to start anew in another country. Many of these UK migrants are leaving a string of debts behind them or taking assets with them to re-invest overseas.
So how do you recover assets if someone has fled to the sun or used the money they owe you to buy that villa in the sun? Law firm, Irwin Mitchell, has been able to use its presence in the UK and Spain to develop a unique approach to one such tricky situation.
The case in question will highlight the close relationship between professionals in the UK and Spain, and how using this relationship and a little creative thinking can provide speedy and effective results. Speed is definitely of the essence when defendants or debtors are likely to breach a court order, risk proceedings for contempt and put all sorts of obstacles in the way of recovering money.
We were instructed by an Interim Receiver who had been appointed by an Order of the English court under the Proceeds of Crime Act (POCA). The Order was made against a number of Defendants, all members of the same family, some of whom were in the jurisdiction and some of whom were not. The Order froze the Defendants property and prevented them from dealing with it. In addition, the Defendants had to provide disclosure of their assets and had to sign instructions to transfer funds held in a bank account in Spain to an account in England in the name of the receiver. The Order gave the receiver certain powers over the Defendants property, including powers of seizure and of management and the power to execute documents in the name of or on behalf of the Defendants and any other person as might be necessary to manage the property.
The order had the usual provision that unless it were declared enforceable by a court outside the jurisdiction it would have no effect on any person outside the jurisdiction other than on a Defendant, an officer or agent of a Defendant appointed by power of attorney, or a person subject to the jurisdiction of the court who had been given written notice of the order and who could lawfully prevent acts outside the jurisdiction which would constitute a breach of the order.
The Defendants disclosed real property, cars and bank accounts in England and Wales and a bank account in Spain, which was in the name of one Defendant who was the elderly mother of the main Defendant. The mother was in the jurisdiction, her son, the main Defendant, was not. There was no problem for the receiver in freezing the assets in England and. We were asked to provide advice about seeking the enforcement of the order in Spain, about seeking information in relation to the funds in the bank account in Spain and to try to obtain their repatriation to England.
Enquiries were made of the bank by our Spanish lawyers, which revealed that the funds in the mothers account had already been dissipated by the son, who was in Spain, using a power of attorney. The son had visited the bank with a local lawyer and demanded the transfer of funds. The bank had notice of the Order but it was not binding on the bank as it had not been declared enforceable in Spain. Further enquiries revealed two valuable real properties in Spain which were held in the name of the mother.
There was no reason to believe that the mother had ever had sufficient wealth to buy 2 such valuable properties and in our view they were clearly held by her for her son. Given the dissipation of funds from the bank account, there was a real concern that the son would try to sell the two properties using his power of attorney and dissipate the sale proceeds beyond the reach of the receiver. Enforcement of this type of Order in Spain was uncertain at best and enforcement would, in any event, take several months. There was no other way that the properties could be protected from sale through the Spanish courts.
We approached the mothers solicitors with questions about the two properties and asked for her cooperation. The mothers solicitors claimed their client might now lack mental capacity and so she could not help us. Concerned about the risk of imminent dissipation of the properties, we decided to try an approach which, we are sure, had not been used before.
We decided to make an application to the English court to amend the Order in 2 principal ways. First, to give the receiver power to actually transfer title to the properties in Spain into his own name. The powers of the receiver in the Order as it stood were only to seize and take physical possession of property and these were not considered sufficient. Second, to give the receiver power to execute all documents not only in the name of or on behalf of the Defendants (and any other person as may be necessary) to manage the property but to extend that so that he could execute all documents as may be necessary to deal with the Defendants property, including transferring title.
The English court has power to deal with real property abroad under POCA and under POCA a receiver may be authorised to take any steps the court thinks appropriate for the purpose of securing the detention, custody or preservation of the property to which an Order applies. However, the proposed Order was novel as the Order would involve the actual transfer of title to real property outside of England and Wales and so would involve interference with property rights in relation to immoveable real property abroad by the English court.
The plan was to use a Power of Attorney in relation to the mothers affairs which the receiver would grant to himself (in circumstances, of course, where the Defendant might lack capacity) and which the receiver would then use to transfer the property from the name of the mother into his own name. As part of the application, the receiver would undertake not to sell the properties pending further order.
The application was successful. The court also granted us a grace period of two weeks to enable us to arrange for the transfer of the properties in Spain without the knowledge of the Defendants, who might otherwise have sought to interfere. The properties were transferred into the name of the receiver, which did require a lot of work in liaising with the local notary. Transfer taxes and some capital gains and other local taxes had to be paid but were considered well worthwhile given the value of the properties and the likelihood of a final recovery order and subsequent sale of them.
From enquiries made of the bank, we also obtained information that the money had been paid into another bank account in the name of the mother. We persuaded the second bank using the power of attorney and the Order to transfer the balance of the account into an account in England in the name of the receiver, although the order had still not been declared enforceable in Spain. The bank complied because the receiver had a power of attorney granted to himself over the account holders property and the account holder had an obligation to repatriate the money.
The operation was therefore a great success and demonstrated how innovative thought, specialist skills and knowledge and the coordination of lawyers in our London and Spanish offices can achieve a speedy and effective outcome for the client in difficult circumstances.