Horton v Henry

Power of trustee in bankruptcy to compel bankrupt to draw down payments from personal pensions

Bankruptcy – Pensions – Income Payment Orders – s.310 Insolvency Act 1986 – s.11 Welfare Reform and Pensions Act 1999

The trustee applied for an IPO in respect of payments that the bankrupt would be entitled to only if he exercised his rights, being of pensionable age, to trigger such payments from his SIPP and personal pension policies. The trustee sought both a tax free lump sum and ongoing payments during the IPO period. The bankrupt did not otherwise intend to draw down those sums for the foreseeable future.

The application had been rejected at first instance, where the judge declined to follow the decision in Raithatha v Williamson [2012] EWHC 909 (Ch) in which an effectively identical IPO had been granted.

The Court of Appeal dismissed the appeal and disapproved Raithatha. There was common ground that the bankrupt’s pension rights were excluded from the bankruptcy estate by section 11 of the Welfare Reform and Pensions Act 1999 (‘the WRPA’). It followed, said the court, that they could not fall within the scope of an IPO as payments in the nature of income to which the bankrupt from time to time became entitled under section 310 of the Insolvency Act 1986. The Insolvency Act and the WRPA draw a clear distinction between rights and payments.

Nor could the trustee compel the bankrupt to exercise his rights so as to convert an excluded right into a payment that could be captured by an IPO. Bankrupts can be compelled to assist the trustee to perform his functions. That might encompass, for example, issuing an invoice to generate income for an IPO. But the trustee has no functions in relation to property that was expressly excluded from the estate. A further obstacle was that the exercise of such pension rights involved choices as to how the payments would be structured, but there were no statutory criteria by which the court could determine the appropriate approach.

The Court of Appeal has provided clarity on a point of some practical significance for trustees, which had been the subject of conflicting authorities. Unexercised pension rights, in addition to being excluded from the estate, are beyond the reach of IPOs.