The European Court of Justice (ECJ) has found that the inclusion of overseas pension rights as an asset that falls within a bankrupt’s estate under UK law is a restriction on freedom of establishment which could not be justified as being in the public interest.
The Trustee in Bankruptcy (TiB) of an Irish Citizen made bankrupt in England and Wales (R), claimed that R’s Irish pension rights should be included in the bankruptcy estate. In contrast, UK law (the Welfare Reform and Pensions Act 1999 (“WRPA 1999“)) excludes UK pension rights from falling within the bankrupt estate.
The ECJ found that the provision of the WRPA 1999 which makes the exclusion of pension rights contingent on such rights arising from an approved scheme in the relevant Member State was contrary to the EU law.
It was held that it would be discriminatory for R’s Irish pension to be included in the bankruptcy estate. If R had held a UK pension, it would not be included and would not vest with the TiB. Including pensions in the bankruptcy estate where they did not arise from an approved scheme would restrict the freedom of establishment, which underpins the mobility of businesses and professionals within the EU. Such a restriction could only be justified if it was found to be in the public interest.
This case fell within the transitional provisions as it was referred to the ECJ prior to 31 December 2020. Had the bankruptcy proceedings commenced post-Brexit, the outcome could have been different.
It remains to be seen whether legislative reform to the WRPA 1999 regime may be considered by the Government in response to the ECJ’s decision.
This case acts as a reminder to IP’s that the decisions of the ECJ may still have an impact post Brexit, particularly where there are international considerations involving the UK and EU Member States.
The insolvency and restructuring team at Michelmores has a varied international practice and has expertise in assisting with issues such as this.