Raithatha v Williamson

For the purposes of an income payments order under section 310(7) of the Insolvency Act 1986, a pension payment may constitute income even where it is a one-off lump sum. A bankrupt has an entitlement to payment where, under the pension scheme rules, he qualifies for payment and can obtain it merely by asking, even though he has not exercised the election. The court may therefore make an income payments order in respect of that entitlement. The order must remain subject to the statutory protection for the bankrupt’s reasonable domestic needs and to a fair assessment of the competing interests of the bankrupt and creditors. A without-notice injunction restraining dealings with pension rights may be justified where the evidence establishes a sufficiently serious risk of dissipation.

The applicant was the trustee in bankruptcy of the respondent, who had been adjudged bankrupt following substantial liabilities arising from company litigation. Before his discharge, the trustee applied under section 310 of the Insolvency Act 1986 for an income payments order concerning pension arrangements worth approximately £900,000 to £990,000.

The respondent was aged 59 and eligible to draw benefits, but had not elected to do so. The trustee also obtained a without-notice injunction restraining the respondent from dealing with his pension rights. The principal questions were whether an unexercised pension entitlement fell within section 310(7), and whether the injunction had properly been obtained and should continue.

1. Income payments order. The application was properly available in relation to the respondent’s pension entitlement. Section 310(7) covers every payment in the nature of income which is made to the bankrupt or to which he becomes entitled from time to time. A lump sum is capable of being such a payment. The words do not require payments to be regular or periodical. The court followed the reasoning of Supperstone v Lloyd’s Names Association Working Party [1999] BPIR 832.

2. The contractual rights in the pension remained vested in the bankrupt under section 11 of the Welfare Reform and Pensions Act 1999. That did not prevent the court applying section 310(7), which expressly operated despite sections 11 and 12. The court rejected the argument that the absence of an election meant that no relevant entitlement existed. A distinction between bankrupts who had elected before bankruptcy and those who had not would create an unjustifiable anomaly. The proper construction was that an entitlement arose where, under the scheme rules, the bankrupt could obtain payment merely by asking.

3. Any income payments order would require an assessment of what was fair and just between the bankrupt and the creditors, while preserving what was necessary for the bankrupt’s reasonable domestic needs. The statutory period could extend beyond discharge but could not exceed three years from the order.

4. The court rejected the respondent’s property and Convention objections. The reasoning of Chadwick LJ in In re Malcolm [2005] 1 WLR 1238 was equally applicable. The court did not finally determine the precise form of an order compelling an election, since that issue would require further argument about any lump sum and periodical payments.

5. The without-notice injunction was justified and should continue until final determination, unless the parties agreed a satisfactory undertaking. There was sufficiently serious evidence of a risk that the respondent might dissipate or otherwise place pension rights beyond the trustee’s reach. The criticisms of the trustee and counsel were rejected.