August 28, 2013

Historically, pensions could be claimed by a Trustee in Bankruptcy (TIB) for the benefit of creditors, subject to certain exceptions. The Welfare Reform and Pensions Act 1999 and the Welfare Reform and Pensions (Northern Ireland) Order 1989 (both referred to as “WRPA)” brought in welcome changes for bankrupts regarding the rules for pensions in bankruptcy. The WRPA provided that a bankrupt’s approved pension arrangement would not be included within a bankruptcy estate unless a bankrupt had already drawn down their pension either before or during the bankruptcy. The WRPA also provides that any “income” payable to a person under a pension may be taken into consideration by a TIB if making an application for an Income Payments Order (pursuant to Section 310 of the Insolvency Act 1986 and Article 283 of the Insolvency (Northern Ireland) Order 1989).

In the case of Raithatha v Williamson [2012] EWCH 909 (Ch), the Court provided further interpretation on what is defined as “income”, and what powers are open to a TIB and the Court to claim against a pension when the Bankrupt has a power to elect to draw down, but has chosen not to.

In this case, Mr Williamson was adjudicated bankrupt at a time when he was entitled to draw his personal pension but had chosen not to do so. Before he was discharged from Bankruptcy his TIB made an application for an Income Payments Order (IPO) pursuant to Section 310 of the Insolvency Act 1986 and claimed three years of pension income, as well as the pension commencement lump sum. The Bankrupt defended the application and argued that the TIB’s right to claim such payments did not apply in a case where a Bankrupt had not elected to receive such payments, and further that any such payments did not qualify as “income” that could be taken into consideration by a Trustee when making an application for an IPO.

Deputy Judge Livesey QC did not accept the Bankrupt’s argument and considered that the government was unlikely to have intended to create an anomaly between bankrupts who had decided to draw their pensions before bankruptcy (and who would therefore be susceptible to an IPO) and those who had not, as to do so would be discriminatory.

The decision in this case was appealed to the Court of Appeal but vacated upon settlement. The case does however provide persuasive authority in NI that regardless of whether a bankrupt elects to draw down income; the very existence of an entitlement to payment may enable the TIB to compel the bankrupt to make the draw down. This income can then be used by the TIB in the calculation for an IPO.

Furthermore, in the case of Blight & Others v Brewster [2012] EWHC 165 (Ch), the court held that if the Bankrupt did not exercise his/her power to elect, the Court could order a third party to elect for him i.e. the TIB. In this case the court was tasked to consider whether judgment debts against a bankrupt could be enforced against a pension, where a Bankrupt who had the power to elect to draw down a lump sum, but had elected not to do so. Deputy Judge Moss QC held that bankrupts who were subject to an order for enforcements of a judgment, had to take both the benefits and burdens of their bankruptcy and were therefore are “not allowed to hide their assets in pension funds when they had a right to withdraw monies needed to pay their creditors”. In practical terms, this means the court may now order a bankrupt to delegate his power of election to his trustee in bankruptcy who can claim a lump sum amount on behalf of creditors.

It should be noted that the case of Raithatha v Williamson applies only to personal pensions and it is not yet clear how occupational pensions can dealt with. Hopefully this will be subject to judicial scrutiny in both the English and Northern Ireland courts in the near future; having regard to recent the case law and the areas that still remain unclear for TIB and Bankrupts following the Raithatha judgement. Both of these cases are however likely to be welcomed by Trustees in Bankruptcy and creditors alike, as the power to compel a draw down will undoubtedly in certain cases, increase the value of the pot available for creditors.

It is of course worth noting that when making an application for an Income Payments Order or Income Payments Agreement (pursuant to Articles 283 and Article 283A of the Insolvency (Northern Ireland) Order 1989 respectively); a TIB is required to consider the reasonable domestic needs of the Bankrupt and his family. It may therefore be the case that even with a lump sum and/or income from a pension, there will be a minimal surplus to be introduced to the bankrupt estate. The possible swelling of bankruptcy funds will therefore vary on a case by case basis.

What these cases should do, is put to bed the belief that debtors may have that by adjudicating themselves bankrupt, their pension will remain completely protected and outside the grasp of their TIB to the detriment of their creditors if they haven’t elected to draw down their pension. Bankrupts or individuals facing insolvency who believe they have a pension pot that may now possibly be subject to attack by a TIB should take advice. Professionals advising debtors should also be aware of these cases and how they may effect a debtor’s position in bankruptcy.

This Article was produced by Caitriona Flanagan, Assistant Solicitor at Cleaver Fulton Rankin, and Anna McClimmonds, Trainee Solicitor. Caitriona works in the insolvency department, advising local and national insolvency practitioners and accountants, as well as individual debtors.

Should you require any further information about the contents of this article please do not hesitate to contact Caitriona Flanagan at

T. 028 9024 3141