Hinton v Wotherspoon

May 19, 2016

Bankruptcy – pensions – SIPPs – income payment orders – s. 310 Insolvency Act 1986

The bankrupt had a SIPP, the terms of which permitted him to decide the annual income he could receive from his fund. He had historically set this at the maximum and the fund was in drawdown when he was adjudged bankrupt. His trustee applied under section 310 of the Insolvency Act 1986 for an income payment order.

The Registrar considered the first instance authority on the application of section 310 to personal pensions. In Raithatha v Williamson [2012] EWHC 909 (Ch), the court had suggested that a bankrupt would be “entitled” (for the purposes of section 310) before having elected whether to take any pension as a lump sum, or income, or to purchase an annuity. The Registrar, however, preferred the later, and conflicting, decision in Re Henry [2014] EWHC 4209 (Ch).

He held that there was a distinction between cases where the sum payable is unknown and cases where it is liquidated. Section 310 will only apply when the sum is liquidated. A bankrupt is not “entitled” (within the meaning of section 310) to funds in a SIPP if there are still elections to be made, for example, whether to purchase an annuity or take income or leave the fund in drawdown. The court (nor the trustee) has no power to compel the bankrupt to make those elections nor to make the election for him.

In this case, the Registrar concluded that as the bankrupt had elected to receive income from his drawdown fund each year, he had become entitled to be paid that sum as income for each of the three years that an income payment order would operate. Section 310 applied.

Having held that the bankrupt was entitled to receive income from his drawdown fund up to the maximum limit, the court then assessed the bankrupt’s reasonable domestic needs. The court rejected the bankrupt’s assertion that he and his wife split domestic expenditure equally and ordered that 37.5% of the income was above the sum required for his reasonable domestic needs.

This is a useful review of the circumstances where trustees in bankruptcy will be able to claim pension payments. However, given that there remains conflict between first instance decisions that this judgement will not settle, the area remains ripe for appellate consideration.