In this case, the Court of Appeal upheld a decision of the High Court delegating to the creditors’ solicitors the bankrupt’s ability to exercise certain rights to drawdown funds from his pension scheme.
Mr Green fraudulently obtained loans from FundingSecure Ltd (“FSL“) in 2016/17. FSL subsequently obtained judgment and a worldwide freezing injunction against him. FSL then entered administration and assigned its rights as judgment creditor.
Mr Green was declared bankrupt in February 2019. Mr Green’s bankruptcy was later discharged, releasing him of most of his debts. However, the debts incurred in respect of the fraud against FSL were not released, pursuant to s281(3) Insolvency Act 1986.
Mr Green’s main asset was his entitlement under an occupational pension scheme and he was approaching the age (55) where he would be entitled to take a lump sum from his pension tax free (the “Pension Commencement Lump Sum“).
Pension rights usually fall outside of the bankruptcy estate and are not therefore available to creditors (s11 Welfare Reform and Pensions Act 1999).
Mr Green had claimed enhanced protection in respect of his pension. The effect of this was to limit the Pension Commencement Lump Sum to £375,000. Mr Green was entitled to revoke his enhanced protection and take an additional sum (called the Lifetime Allowance Excess Lump Sum). If he did this, he could take around £1.6 million from his pension.
The claimant applied for relief that was injunctive in nature, requesting that the court give directions that Mr Green delegated to the claimant’s solicitors his power to revoke his enhanced protection and request the maximum payments for the Pension Commencement Lump Sum and the Lifetime Allowance Excess Lump Sum.
The High Court made an order delegating the powers to (1) revoke enhanced protection and (2) elect to draw down on the pension to the creditors’ solicitors.
Mr Green appealed the decision of the High Court on the following grounds.
The High Court did not have the power to make the order under s37(1) Senior Courts Act 1981 as the power to revoke enhanced protection was not property or tantamount to ownership. He asserted that revoking the enhanced protection does not realise existing property, but instead creates new property.
The Court of Appeal upheld the decision of the High Court.
It considered that there was no need for a right to be property or tantamount to ownership for it to be the subject of an order under s37(1) of the Senior Courts Act. In reaching this conclusion the Court considered that there was no reason why the Court’s powers should not extend to contingent rights and that the Court’s power to grant injunctions could be developed incrementally.
Further, the usual public policy considerations which underpinned the decision to exclude pension rights from the bankruptcy estate were of very limited significance in the case of fraud.
Additionally, the fact that an order will have tax consequences is not of itself a bar to making that order and there was no reason to depart from the order made by the High Court.
This case highlights that whilst a bankrupt’s pension will usually be beyond the reach of creditors, in the right circumstances (e.g. in the case of fraud) the Court is willing to exercise its powers to make those funds available. Fraud was the relevant factor in this case, but, as noted in the judgment, the power of the Court to grant injunctions can be developed incrementally so it seems possible that it may not be required in the event of some other factor being present.
Additionally, the willingness of the Court to view its powers under s37(1) in a flexible manner and develop their use incrementally may assist insolvency practitioners with the recovery of a broad range of assets on behalf of creditors. It seems from this judgment that creativity may be rewarded when identifying assets not directly under the bankrupt’s control, but from which they may benefit in the longer term, especially when dealing with a bankrupt that has been found guilty of wrongdoing.