Horton v Henry (Rev 1)

An unexercised contractual right to draw or crystallise benefits under a private pension is not a payment in the nature of income for the purposes of section 310(7) of the Insolvency Act 1986. The provision applies to pension payments actually made, or to which the bankrupt has become entitled following the relevant election. It does not permit a trustee to require a bankrupt to exercise protected pension rights to generate income for an income payments order.

The statutory protection for pension rights under section 11 of the Welfare Reform and Pensions Act 1999 cannot be circumvented through the trustee's general powers. Parliament instead provided a distinct remedy for excessive pension contributions.

The trustee in bankruptcy applied for an income payments order against a bankrupt who could elect to crystallise a self-invested personal pension and take benefits under three personal pension policies, but chose not to do so. He wished to preserve the pension funds for his children and did not presently need the income because his family supported him.

The High Court dismissed the application, declining to follow Raithatha v Williamson [2012] EWHC 909 (Ch). The trustee appealed. The central issue was whether an unexercised present right to draw pension benefits was income to which the bankrupt had become entitled within section 310(7) of the Insolvency Act 1986.

1. Appeal dismissed unanimously. The bankrupt's unexercised rights to elect for pension benefits were not income capable of being claimed by an income payments order under section 310 of the Insolvency Act 1986.

2. Section 310(7) concerns a payment in the nature of income which has been made to the bankrupt or to which he has become entitled. In the pension context, that means an actual payment, or an actual right to receive a payment once the necessary election has been made. It does not include the underlying bundle of contractual rights under a pension scheme to choose whether, when and how to crystallise benefits.

3. Section 333(1) did not enable the trustee to compel the bankrupt to exercise those rights merely to create income for an income payments order. Nor could the court use section 363(2) or a general jurisdiction for that purpose. Such a course would defeat the statutory exclusion of approved pension rights from the bankrupt's estate under section 11 of the Welfare Reform and Pensions Act 1999, and from the after-acquired property regime.

4. The legislation deliberately distinguishes pension rights from pension payments. It preserves the possibility of an income payments order where pension income is in payment, but leaves the trustee to the distinct excessive-contributions remedy in sections 342A to 342C of the Insolvency Act 1986 where pension contributions have unfairly prejudiced creditors. The absence of statutory criteria for directing the form and extent of a pension election reinforced that construction.

5. The court rejected the reasoning in Raithatha v Williamson [2012] EWHC 909 (Ch). It distinguished Blight v Brewster [2012] 1 WLR 2841, which concerned pre-bankruptcy enforcement by an individual judgment creditor, rather than the statutory protections applicable after bankruptcy.

• Court of Appeal (Civil Division): Dismissed the trustee's appeal and upheld the refusal of an income payments order: [2016] EWCA Civ 989.
• High Court (Chancery Division): Mr Robert Englehart QC, sitting as a deputy High Court judge, dismissed the trustee's application for an income payments order: [2014] EWHC 4209 (Ch); [2015] 1 WLR 2488.