The case of Collardeau v Fuchs and another [2025] EWFC 36 demonstrates the Court’s willingness to undo sham arrangements and acts as a warning to those attempting to escape financial obligations through disposing of assets.

The Background to the Case:

Following a divorce settlement, a Final Order was made for the Husband to pay his Wife a lump sum of approximately 19 million pounds.

Following the Husband’s failure to pay, enforcement proceedings were brought and resulted in an Order for Sale, including the sale of the Husband’s property in the Cotswolds.

During the sale process, it was discovered that a lease for the Cotswolds property was granted by the Husband to a business ran by his friend. Supposedly, the lease was created for the Husband’s friend to rent the property and the Husband would receive a share of the profit.

However, the Wife applied for an Order under Section 37 of the Matrimonial Causes Act 1973 (the 1973 Act) or in the alternative, under the Insolvency Act 1986 Section 423, for the Lease to be set aside or declared a sham.

The Legal Principles Considered:

Section 37 of the 1973 Act provides the Court with the power to set aside a disposition of an asset that a party has made, so as to bring it back into the control of the parties. In simple terms, the court could potentially reverse the granting of the lease.

The Court considered whether the lease fell under Section 37, whether the Husband intended to grant the lease to prevent the Wife from receiving funds and whether the Husband’s friend acted in bad faith and on notice of Husband’s intent when entering the Lease.

The Court held that the lease could be classed as a “reviewable disposition” under Section 37 and that the rent payments were thought to be repayments of a prior to loan disguised as rent payments. Moreover, the Husband’s conduct was criticised for the following reasons:

1. He failed to disclose the lease in the original enforcement proceedings,
2. He failed to engage in these proceedings and adverse inferences were drawn by his non-attendance at hearings,
3. The lease was drafted in a way which lacked commercial justification despite the Husband and his friend’s business backgrounds, and
4. There were no consequences when the Husband’s friend breached the lease terms.

The Insolvency Act 1986 was not relied on in this case, but Mr Justice Poole acknowledged that to do so, the Wife would have had to show the lease was entered into at an undervalue.

The Outcome:

The court concluded that the Lease “has all the appearance of being hastily put together”, finding it a sham and used its discretionary powers to set it aside.

It was clarified that in circumstances such as this there will be a presumption that the disposition was made with bad intention unless the contrary is proven and that the evidential burden lies with a respondent. Furthermore, the bad intention does not need to be spelt out, it just needs to be ‘quite clear’.