In June this year we reported on the unintended consequences for bankrupts and their trustees of the government’s drive to liberalise the pensions regime (Lamborghini pensions – trustee in the driving seat). The liberalisation process of permitting the pensioner greater access to the pension pot seemed to resonate with trustees in bankruptcy. The strategy adopted by trustees in bankruptcy has been to use the income payment order ( “IPO” ) provisions in section 310 of the Insolvency Act 1986 to have the bankrupt bring into account uncrystallised pension rights and to provide to the estate any resultant lump sum and annuity that would be in excess of the bankrupt’s reasonable domestic needs. That excess might then be claimed for the bankrupt’s creditors, as would the excess of any income from a pension in payment. This IPO strategy had a foot hold in the judgment of Deputy Judge Livesey QC in the matter ofRaithatha v Williamson. (1)
In a surprise judgment handed down today in the Chancery Division of the High Court by Deputy Judge Robert Englehart QC in the matter of Horton v Henry (2), this court of equal jurisdictional competence has now set itself against the reasoning of its own earlier findings in Raithatha. Having re-heard the same arguments previously put in Raithatha by the bankrupt, the court has now held that the language of section 310 does not allow the IPO strategy to be used for a pension that has yet to be drawn down.
In a decision that recognised that the facts in Henry could not be distinguished from the facts in Raithatha, Deputy Judge Englehart held “with considerable reluctance” that he had come to a different conclusion than his fellow judge, Deputy Judge Bernard Livesey. Although counsel for the trustee had invited Deputy Judge Englehart only to depart from the Raithatha decision were he persuaded that it had been wrongly decided, Deputy Judge Englehart came to the view that the court has no power under section 310 that would allow Mr. Henry’s pension rights to be realised for the benefit of creditors as part of an IPO.
In evidence Mr. Henry had suggested that the pensions were not necessary for his domestic needs, and that he preferred not to draw on the pensions so as to maintain tax free capital growth and to allow that they might in due course be left as an inheritance for his children. Perhaps for those reasons, and of course because the present decision means that Raithatha is now unsafe, permission to appeal was given to the trustee.
In giving permission Deputy Judge Englehart hoped that the Court of Appeal might soon have the opportunity of deciding which of Raithatha or Henry is correct. Until then, whilst excess income from a pension in payment remains at the mercy of an IPO, the trustee cannot require the bankrupt to draw down a pension pot for the benefit of creditors, no matter how large the pot or for what purpose it is being maintained.
Should you wish to discuss any of the issues raised in this blog please do not hesitate to contact Simeon Gilchrist or Sophia Mew, who were instructed by Mr. Robert Horton of Auria Recovery LLP, the trustee of the bankrupt estate of Mr. Michael Henry.
Counsel for Mr. Horton was Simon Passfield of Guildhall Chambers, Bristol.
(1)  EWHC 909
(2)  HC 11 C 03085
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