Raithatha v Williamson

The court held that an income payments order under section 310 of the Insolvency Act 1986 may be made in respect of a bankrupt's pension entitlement even where the bankrupt has not yet exercised an election to draw the pension, if under the rules of the scheme the bankrupt would be entitled to payment merely by asking for it. The court construed s.310(7) to include one‑off lump sums as payments "in the nature of income" and rejected arguments that the Welfare Reform and Pensions Act 1999 s.11 preserved the bankrupt's election right so as to exclude such entitlements from s.310. The court also held that a without‑notice prohibitory injunction preventing the bankrupt from dealing with pension rights was properly granted on evidence of a real risk of dissipation and was continued until final determination unless a suitable undertaking were given.

Background and parties: The trustee in bankruptcy applied under section 310 of the Insolvency Act 1986 for an income payments order in respect of the respondent's substantial pension fund, and sought and obtained a without‑notice injunction restraining the respondent from dealing with pension rights. The respondent, discharged shortly after the application, had not elected to draw his pension despite being entitled by age to do so.

Nature of the application: (i) an application by the trustee for an income payments order under s.310 in respect of pension entitlements which the bankrupt had not elected to draw; (ii) a without‑notice application for a prohibitory injunction to prevent the bankrupt dealing with pension rights pending determination.

Issues framed:

• whether pension entitlements which the bankrupt has the right to elect to take, but has not yet elected to take, amount to "income" within s.310(7) so as to permit an IPO;
• whether it was appropriate to grant a without‑notice injunction preventing the bankrupt from exercising or dealing with pension rights pending determination.

Reasoning and decision: The judge rejected the submission that lump sums cannot be "payments in the nature of income" and accepted authority supporting a broad meaning of income for s.310 purposes. The court interpreted s.310(7) purposively and concluded that the legislature could not have intended the anomalous result that a bankrupt who had elected prior to bankruptcy would be subject to s.310 while one who had simply not yet made an election would be immune. The reference in s.310(7) "despite anything in s.11 or 12 of the Welfare Reform and Pensions Act 1999" precluded reading s.11 as preserving the right of election so as to exclude the entitlement from s.310. ECHR and discrimination arguments raised by the respondent were rejected on the authority and reasoning cited in In re Malcolm. On the injunction issue, the court found sufficient evidence of risk of dissipation and devious transactions to justify the without‑notice injunction and continued it until final determination unless an agreed undertaking was given.

The trustee's application succeeded. The court held that an IPO under s.310 may be made in respect of pension entitlements which the bankrupt could require to be paid by asking for payment even if he has not yet elected to draw the pension; s.310(7) includes lump sums as payments in the nature of income and the statutory reference to the Welfare Reform and Pensions Act 1999 does not prevent an IPO in these circumstances. The without‑notice prohibitory injunction was properly granted on evidence of a real risk of dissipation and was ordered to continue until final determination unless a satisfactory undertaking were agreed.