Horton v Henry

Mr Henry, who was born on 7 October 1954, was adjudged bankrupt on his own petition on 18 December 2012. The evidence before me disclosed the existence of claiming creditors in large amounts. The official receiver's schedule of creditors of 22 March 2013 disclosed creditor claims in excess of E6.5 million. It is nevertheless right to record that Mr Henry, whilst acknowledging an indebtedness of €387,075, disputes the true value of creditors' claims. I am, of course, not in a position to make any ruling on what may or may not have been owed at the date of the bankruptcy order.

The assets of Mr Henry on the date of the bankruptcy included 4 pension policies, i.e. the SIPP and 3 further personal pension policies which I have already mentioned. The policies do not form part of the bankruptcy estate. Nevertheless, it is money potentially payable under these policies which the Trustee now seeks to have made the basis for an IPO, The Trustee was appointed as such on 15 March 2013 and filed the present application on 17 December 2013, the day before Mr Henry's discharge. Mr Henry was then aged 59. The application was adjourned by Chief Registrar Baister for hearing before a Judge because it raises for consideration the correctness of the decision of Mr Bernard Livesey QC, sitting as a Deputy Judge of the Chancery Division, in Raithatha v Williamson [2012] 1 WLR 3559.

The value of Mr Henry's SIPP will necessarily vary from day to day. It is only when it falls into payment that definite sums become payable. However, it is material to have regard to the contractual terms in order to see the context of the present application.

Mr Henry took out the SIPP with Suffolk Life on 29 March 2007. In doing so he selected a retirement age of 67 with a retirement date of 7 October 2021. However, the selected retirement date has no contractual force; it is used for illustrative purposes and ultimately as a trigger for prompting a reminder of retirement from Suffolk Life. Paragaph 4 of the SIPP scheme terms provides for members to make contributions at any time and, as with any SIPP, a member such as Mr Henry will have control over the investments funding the eventual pension. For present purposes Paragraph 12, headed "Pension benefits" is critical. I set out some important extracts from this Paragraph:

Turning to the personal pension policies, there are 3 policies taken out under the National Provident Association Retirement Plan — With Profit. The policies have now been transferred to Phoenix Life Limited. I refer to them as the Phoenix Life policies. They each provide for an annuity payable on the pension date, being in Mr Henry's case his 70^th birthday. This would be in October 2024. However, the plan does provide for the possibility of an annuitant such as Mr Henry giving written notice to vary the date for taking benefits under the policies provided that the date falls between the annuitant's 60^th and 75^th birthdays. Paragraph 8 of the plan sets out the various forms of benefit which an annuitant my elect to receive. Thus, there is an option to commute part of an annuity by taking a lump sum "not exceeding three times the annual amount of the part of that annuity which is not commuted". Furthermore, there are various forms of annuity for which an annuitant may elect. Thus, it may be of level or variable amount, payable at and from different dates, provide for a minimum payment term or provide for a widow's pension as well. All the different options are to be exercised by notice in writing but if the annuitant has not exercised his elections by age 75 he receives a simple annuity of level amount. In this event, the frequency of payment and any minimum guaranteed period of payment are at the discretion of Phoenix Life.

The above is based on the terms of the policies and taxation rules as they now are. It is, of course, well known that there are proposals to make sweeping legislative changes in the field of pensions and taxation. I mention this because the Trustee's solicitors have suggested in correspondence that further application may be made during the currency of an IPO if one is made.

In the case of the Suffolk Life SIPP, a valuation of the underlying fund as at March 2014 was given as E929,818.23. Based on this figure there could be a potential 25% tax free lump sum of about €232,454 available plus recurring drawdown and/or annuity payments in accordance with elections made. A more recent valuation as at 9 October 2014 gives a lower valuation for the fund of

In the case of the Phoenix Life policies, there is no fund value. There is a guaranteed annuity income of €2,450.68 for each policy at the age of 70. But, as I noted above, there would be the opportunity, now that Mr Henry has just attained the age of 60, for him to elect to take a lump sum with a consequential reduction in the amount of the annuity ultimately payable.

Section 310 of the Insolvency Act 1986, as it now stands, provides in material part:

payments by way of guaranteed minimum pension

The Application Notice of 17 December 2013 is in the following terms:

The decision in Raithatha has undoubtedly given rise to much comment. It was described by the District Judge in Re X (Application for Income Payments Order) [2014] BPIR 1081 at [51] as "controversial". The District Judge went on to say at [52]:

In Raithatha there never was a decision on the amount of the IPO because, I understand, the case was ultimately compromised. For the same reason, although the Deputy Judge gave permission to appeal, the Court of Appeal never had the opportunity of considering the correctness of the decision.

Against the above background I turn to the issues before me. These were two:

At the forefront of his argument Mr Passfield for Mr Horton put the submission that I should follow the Raithatha decision. Although not technically binding on me, it is well-established that a Judge at first instance should in general follow another decision at first instance unless convinced that the decision was wrong. I was referred to Police Authority for Huddersfield v Watson [1947] KB

As a matter of language, Mr Henry was "entitled" to payment under all the possible options under the SIPP and pension policies. The underlying statutory scheme on analysis did not assist Mr Henry. And Mr Passfield submitted that the Trustee was indeed entitled both to require Mr Henry to crystallise the pensions and to tell him how to make his elections. Support for this proposition could be found in section 333(1) of the Insolvency Act 1986 under which a bankrupt has a duty to do what a trustee may reasonably require for the carrying out of the trustee's functions. These functions include getting in the estate.

On the facts, Mr Henry made out no case for any reduction of an IPO on account of the reasonable needs of himself or his family. He did not claim that he needed the pensions. He was able to support himself through his family and friends, and his expressed wish was to maintain his SIPP unvested so as to be able in due course to pass on the funds to his children. Accordingly, Mr Passfield submitted, an IPO should be made for the full amount sought by Mr

Mr Sykes on behalf of Mr Henry further developed some, but not all, of the unsuccessful arguments made in Raithatha. He did not, however, maintain that

Mr Sykes invited my attention to the statutory background and the way in which pensions had attained a privileged status for the purposes of insolvency law. He also referr'ed me to the way in which section 310 had been regarded in the Insolvency Service's guidance notes prior to the Raithatha decision, the HMRC Manual on Registered Pension Schemes and the Explanatory Notes to the

Against the above background, Mr Sykes made the following submissions. The statutory reference to "becomes entitled" is more naturally as a matter of ordinary language to be read as comprising a case where an actual right to payment had arisen. This accorded with the observations of Neuberger J (as he then was) in Barclays Bank plc v Holmes & Ors [2000] Pensions L.R. 339 at [129]. On the Trustee's approach, it could not be said that a bankrupt "becomes" entitled because he would always have been entitled. Section 310 provides no power for a court to decide when and how the holder of a pension is

Finally, Mr Sykes referred me to Mr Henry's statement of monthly income and expenditure in the insolvency. If I were minded to follow the Raithatha decision, then I should at least make some deduction for Mr Henry's continuing living expenses.

Before turning to the language of section 3 10, I should first set out the statutory background against which the section has to be considered. Although following section 91 of the Pensions Act 1995 rights under most occupational pension schemes may have been inalienable, the decision in Re Landau [1996] Ch 223

In short, the position since 1999 has been that rights under personal pension arrangements do not in general vest in a trustee in bankruptcy. Nevertheless, as has always been the case with occupational pensions, provision has been maintained for an IPO to be made in certain circumstances. It may be thought that the parenthetical words in section 310(7) were required in order to ensure that the position under personal pension policies did not diverge from that applicable to occupational pension schemes. There was to be no question of the 1999 Act going so far as to protect from creditors all income of a banla•upt even where such income stems from a pension. This was also the case as regards occupational pensions under the 1995 Act: see section 91 (4).

Against the above background I turn to the language of section 310 itself. The critical sub-section is section 310(7). Paynents made to a bankrupt under a

The essential question is whether a bankrupt "becomes entitled" to a payment under an uncrystallised pension even though (leaving aside all questions of bankruptcy) he would not be receiving any payments from the pension trustees and would have no enforceable claim for payment against them. I am of the view that the word "entitled" suggests a reference to a pension in payment under which definite amounts have become contractually payable. Some support för this approach is to be found in the judgtnent of Neuberger J (as he then was) in Barclays Bankplc v Holmes [2000] Pensions L.R. 339 at [129]:

There is for Mr Horton the formidable problem to which the District Judge

Mr Passfie]d's ingeniously suggests that it is section 333(1)(c) of the Insolvency Act 1986 which entitles a trustee in bankruptcy to decide how the elections under a bankrupt's SIPP or personal pension policy are to be exercised. Under section 31()(5) of the 1986 Act "sums received by the trustee under an income payments order form part of the bankrupt's estate" and under section 305 it is the function of a trustee to get in the estate. Section 331 (1) provides:

I am fortified in my view that section 310 of the 1986 Act does not provide a basis for an IPO in respect of an uncrystallised pension by the various commentaries to which Mr Sykes has referred. They are, of course, not an aid

I entirely accept Mr Passfield's submission that I should be most wary of differing from another decision of a judge at first instance. He was right to remind me that I should only come to a different conclusion if I were persuaded that the earlier decision was wrongly decided. I have most anxiously considered the decision in Raithatha but I have, albeit with considerable reluctance, come to a different conclusion. Mr Henry is not entitled to payment under his pensions "merely by asking for payment". There is a considerable variety of options open to him. It would only be after he had made elections that any payment would be due to him. Only then would he become entitled to any payment. I do not consider that there is any power in the court under section 3 1 () or in the trustee to require Mr Henry to elect in any particular way.

Finally, I should say that, if I had thought there was power to make an IPO effectively requiring Mr Henry to elect how, when, in what amounts and on what terms to take his pensions, I would agree with Mr Passfield that this is not a case for any reduction on account of section 310(2). Mr Henry's evidence is not that he needs any of his pensions in order to meet the reasonable domestic needs of himself or his family. On the contrary, his aim is to preserve the underlying pension funds intact for as long as possible. In particular, his evidence is that he would ideally like to pass on his SIPP to his children in due course. On the evidence as it is, despite the fact that it is not easy to see how Mr Henry is currently able to fund his living expenses, I agree with Mr Passfield that section 310(2) is not engaged. If it were open to me to make an

In the result I dismiss the present application. I regret having had to reach a different conclusion from that reached in Raithatha. But it is to be hoped that the Court of Appeal will soon have the opportunity of considering which of these two first instance decisions is correct. I will, of course, hear the parties on any matters consequential upon this judgment.