Sir Jonathan Cohen: LSPO and Periodical Payments from debt. H appeal against orders allowed.

Background

The parties met in 2003 and started an ‘on/off period of cohabitation’. They married in August 2008, separated two months later, and divorced in 2012 by which time they had two children. The financial remedies proceedings concluded in February 2013, and along with a small capital sum, noting H’s debt amounted to c.£600k at that time, W was awarded periodical payments for a period of ten years for both herself and the children separately. In February 2023, just as the order was about to lapse, W sought a variation.

H was ordered to pay interim periodical payments of £1,010 per month, backdated to 16 March 2023 until September 2023, and from 1 October 2023 an increased sum of £3,510 to meet W’s rental payments of £2,500 per month. Further, H was ordered to pay an LSPO of £4,000 per month, for four months, making provision until the FDA listed on 22 June 2023.

At the time of the order in April 2023, Recorder Tidbury found H’s indebtedness to be £1.7m, a significant amount of which was owed to HMRC (£500k) and a Directors Loan Account (£625k), which if unpaid would result in a further tax liability.

Whilst the Recorder found H’s net income as averaging £200–£250k, H’s evidence, which had gone unchallenged, was that he had received no income since January 2023, and there was little prospect of any income in the foreseeable future. In any event, his income was only sufficient to service his significant debts. H was seemingly borrowing further to meet his needs.

W’s finances were similarly dire, and although W had a modest income of £3,250 per month her income was fully accounted for such that she was unable to meet her rental payments. Whilst W had paid a year’s rent in advance, by October 2023 when the lease was due to renew, W felt unable to commit to a further tenancy and left. Since then, W and the parties’ daughter (16) had been staying with friends, and on occasion in hotels.

H sought permission to appeal the order and Moor J granted permission to appeal on the first of three grounds, namely:

‘whether an order should be made in circumstances where the payer has no assets and no income and is very heavily indebted, so that any payment made would be from borrowed funds which would add to an already unsustainable level of debt.’

Moor J noted the ground had ‘a real prospect of success and that in any event, it is right for the court to hear argument as to the correct approach to funding interim orders from debt’.

By the time of the appeal, W no longer retained her solicitors owing to non-payment of fees.

Held

1. As a matter of principle, it is not necessarily wrong for orders for maintenance to be paid by debt. Whilst not exhaustive, the following circumstances may justify payment of maintenance by debt where:
1. history demonstrated the debt is unlikely to be called in;
2. the debt is likely to be met by a third party for example a trust, or generous parent; and
3. it is foreseeable money will be forthcoming by sale of property, inheritance, gift, or some successful business venture (presumably also by way of a resumption of income).
2. W no longer had a home, and therefore the increased order from October 2023 to meet W’s rental payments was no longer relevant.
3. W no longer retained solicitors and the LSPO was discharged.
4. Whilst W’s needs were obvious, in respect of the remaining £1,010, the court considered this was not a case where payment of maintenance by debt could be justified in circumstances where:
1. there is no identifiable source of funds;
2. there can be no extension of the director’s loan account;
3. there is no identifiable commercial lender;
4. there is no individual willing to advance funds to H in the circumstances where there is no security; and
5. maintenance would only drive H into further indebtedness.

The appeal was allowed, and the court discharged the orders for maintenance and LSPO.