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Property settlement set aside for failure to notify creditors

In Cantrell & North and Anor [2020] FamCAFC 175 (23 July 2020) the Full Family Court (Ryan, Aldridge & Austin JJ) decided a case where a couple had entered into consent orders transferring the former matrimonial home to the wife. The Supreme Court of New South Wales later declared the transfer was void against a creditor of the husband and set aside the order under s 79A of the Family Law Act.

At the date of the appeal, the creditor was owed $381,000 plus interest, arising from costs orders made against the husband in commercial litigation. The consent order left the husband without property in Australia, while the wife retained the matrimonial home where she had lived for 20 years. In their application, the couple had “wrongly and misleadingly answered ‘No’” as to whether there were any creditors entitled to become a party to the case.

The Supreme Court had appointed a receiver to sell the home and the wife claimed that the Supreme Court erred in setting the orders aside as it had not considered whether substantially different orders would have been made in consideration of her contributions to the family as a homemaker, had there been proper disclosure.

The wife appealed against the orders and instituted a second appeal against the trial judge’s dismissal of her cross-claim for property settlement orders.

The wife argued that the Court should only act under s 79A(1)(a) of the Act if it was satisfied that the orders that should have been made, assuming proper disclosure, were substantially different to those that were made.

The Court did not agree and said it should not be used to delay or defeat the legitimate rights of third party creditors. A creditor must be given notice of the application so they can intervene to protect their rights. As creditors are unlikely to know of the parties’ matrimonial affairs and could not suggest what orders would be just and equitable between the parties to a relationship, it was a denial of procedural fairness to take away their right to recover a debt.

The final step in assessing a miscarriage of justice may involve a comparison between the orders made and those that were likely to be made, but that is not the only consideration in varying or setting aside orders. Failing to disclose and notify the creditor is a circumstance leading to a miscarriage of justice justifies the setting aside of the orders.

The appeals were dismissed by the Full Court of the Family Court.


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Please note that this article has been prepared by Margaret Miller, partner of Bell Legal Group, for information purposes only. It is not legal advice nor should it be relied upon as such.