Wilson & Anor v McNamara & Ors

This is a first-instance judgment on a preliminary EU law issue in the bankruptcy of Mr Michael McNamara concerning whether accrued rights under an Irish occupational pension scheme should be treated, for the purposes of section 11 of the Welfare Reform and Pensions Act 1999, as rights under an "approved pension arrangement" and therefore excluded from the bankrupt's estate. The court considered the domestic statutory scheme (ss.11–12 WRPA 1999 and the 2002 Regulations) which distinguishes between approved (tax-registered) and unapproved pension arrangements, the tax-registration and qualifying overseas pension regime under the Finance Act 2004 and ITEPA 2003, and the relevant EU free movement provisions (in particular Article 49 TFEU and Article 24 of Directive 2004/38/EC).

Mr Nugee J concluded that whether insolvency law's effect on accrued pension rights falls within the scope of Article 49 TFEU is a matter of EU law and that he could not resolve it with complete confidence. He therefore made a preliminary reference to the Court of Justice of the European Union (CJEU) on that question. Provisional judicial views were expressed to the effect that (i) the impact of insolvency on accrued pension rights of a person exercising the right of establishment may be sufficiently connected with that activity to fall within Article 49; and (ii) if the CJEU so rules, a conforming interpretation of s.11 WRPA 1999 extending protection to overseas pension schemes which are "recognised for tax purposes" in their state of establishment would be an appropriate remedy.

Background and parties. The joint trustees in bankruptcy (applicants) sought to include a unit-linked retirement policy held by trustees of an Irish occupational pension scheme (the Simcoe Scheme) in the bankrupt's estate. Mr McNamara (joined as party by order) contended that, as a migrant who had moved his centre of main interests (COMI) to England before bankruptcy, his pension rights under the Irish scheme should be treated the same as rights under a UK registered pension scheme and therefore excluded from the estate by s.11 WRPA 1999 under EU law.

Nature of the application / relief sought. The preliminary issue was whether, by virtue of Articles of the Treaty on the Functioning of the European Union and Article 24 of Directive 2004/38/EC (and related provisions), the bankrupt's rights under the Irish Simcoe Scheme were to be treated as rights under an "approved pension arrangement" for the purposes of s.11 WRPA 1999 and therefore excluded from his bankruptcy estate.

Procedural posture. The application raised a pure point of EU law to be decided as a preliminary issue on agreed/assumed facts (order of ICCJ Mullen dated 18 June 2019). The court heard argument on whether the UK statutory scheme discriminated or otherwise restricted the freedom of establishment and whether a domestic conforming interpretation was available.

Facts (concise). The Simcoe Scheme (established 2009) is an Irish occupational retirement benefits scheme holding a transferred, unit-linked policy issued by Irish Life. The policy had been assigned into the Simcoe Scheme. Mr McNamara and his wife moved to London in 2011 and he was made bankrupt in England on 2 November 2012. It was assumed for the purposes of the issue that Mr McNamara had not received his full entitlement from the Simcoe Scheme before bankruptcy.

Issues framed by the court.

• Whether the protection given by s.11 WRPA 1999 (to approved pension arrangements) and the s.12/2002 Regulations regime for unapproved arrangements constitute a restriction or discrimination contrary to Article 49 TFEU and Article 24 of Directive 2004/38/EC in circumstances where migrant persons hold pension rights in schemes established in other Member States.
• Whether the effect of insolvency on accrued pension rights is within the scope of Article 49 TFEU when the person has exercised the right of establishment as self-employed in another Member State.
• If there is incompatibility with EU law, what remedy is appropriate domestically (reading-down/conforming interpretation or other relief).

Court's reasoning (concise). The court analysed the domestic statutory framework: s.11 gives broad protection to pension rights under approved (generally UK-registered) schemes subject to anti-abuse powers (ss.342A–342C IA 1986) and income payments orders; s.12 and the 2002 Regulations create a different and more limited regime for unapproved or overseas arrangements (including time limits, discretionary exclusion orders and qualifying agreements). The Finance Act 2004 / ITEPA 2003 regime permits, in principle, overseas schemes to be "qualifying overseas pension schemes" but (i) it is a voluntary, tax-driven regime and (ii) many overseas schemes will have little practical incentive to take the steps required for recognition/registration.

The court accepted the submission that the EU free movement provisions applicable to workers and the self-employed share common principles but are not identical; however, on the crucial point the judge provisionally concluded that the impact of insolvency on accrued pension rights of a self-employed person exercising the right of establishment can be sufficiently connected with that activity to fall within Article 49. Because the question was not acte clair and was critical to the decision, the judge referred a question for a preliminary ruling to the CJEU. The court indicated a provisional view that, if the CJEU confirms that Article 49 applies, a conforming interpretation of s.11 WRPA 1999 (so as to extend approved status to overseas schemes "recognised for tax purposes" in their Member State) would be appropriate to remove the discrimination.

Subsidiary findings and practical points. The judge recorded that the Insolvency Service guidance and practice favoured entering unconditional qualifying agreements in many EU-pension cases to secure parity of treatment; he noted the practical burdens of UK registration and the reasons why overseas schemes might not register with HMRC; and he observed the limited time-limits and discretionary nature of relief under reg 5–6 of the 2002 Regulations.

First-instance: the court could not with complete confidence determine whether the impact of insolvency on accrued pension rights of a person exercising the right of establishment is within Article 49 TFEU. The court made a preliminary reference to the Court of Justice. The judge expressed a provisional view that Article 49 is engaged and that, if the CJEU so rules, a conforming interpretation of s.11 WRPA 1999 extending protection to overseas pension schemes "recognised for tax purposes" in their state of establishment would be appropriate. The court invited the parties to agree a draft order and questions for referral to the CJEU.

Not an appeal. Procedural history in the judgment: Mr McNamara was made bankrupt on 2 November 2012 (Registrar Jones). The substantive application was issued on 1 November 2018 by the Joint Trustees in Bankruptcy. By order dated 18 June 2019 ICCJ Mullen ordered that Mr McNamara be joined and that his EU law point be tried as a preliminary issue on agreed or assumed facts (the question appears as set out in the judgment). The present hearing decided to refer a question to the Court of Justice of the European Union for a preliminary ruling.