Mr Situl Devji Raithatha (as Trustee in Bankruptcy of Mr Michael Roy Williamson) v Mr Michael Roy Williamson
| Jurisdiction | England & Wales |
| Judgment Date | 04 April 2012 |
| Neutral Citation | [2012] EWHC 909 (Ch) |
| Docket Number | Case No. 6349 of 2011 |
| Court | Chancery Division |
| Date | 04 April 2012 |
[2012] EWHC 909 Ch
IN THE HIGH COURT OF JUSTICE CHANCERY DIVISION
IN BANKRUPTCY
Bernard Livesey QC (Sitting as a Deputy Judge of the Chancery Division)
Case No. 6349 of 2011
Christopher Brougham QC and David Eaton Turner, instructed by Spearing Waite LLP of Leicester, appeared for the applicant.
Alaric Watson, instructed by EMW Law LLP of Milton Keynes, appeared for the respondent.
The principal issue in this case is whether an income payments order ('IPO') pursuant to s. 310 of the Insolvency Act 1986, may be made where the bankrupt has an entitlement to elect to draw a pension but has not, at the time of the application, exercised it.
A second issue is whether it was in all the circumstances appropriate for the applicant ["the Trustee"] to apply without notice for, and to obtain from Norris J on 27 September 2011, an injunction preventing the respondent from dealing with the rights, interests and entitlements under a pension scheme of which he is a member.
I will deal with the issues separately, starting first with the principal issue.
The Background Facts :
The Respondent was for many years one of two shareholders and directors of Phoenix Contracts (Leicester) Limited ["Phoenix"], a quasi-partnership company. The other director and shareholder was a Mr Martin Shepherd.
In late 2007 the relationship between the two broke down and in January 2009 Mr Shepherd issued a Petition pursuant to s. 994 of the Companies Act 2006 complaining of unfair and prejudicial behaviour by the respondent towards him as a shareholder and seeking an order that the respondent should purchase his shares in Phoenix.
On 24 September 2010 Proudman J gave judgment [2010] EWHC 2375 (Ch) for Mr Shepherd and ordered the respondent to purchase the shares at a valuation fixed at November 2007 and for the costs of the action to be paid by the respondent on an indemnity basis.
A bankruptcy petition was presented by Mr Shepherd in respect of those costs and on 9 November 2010 a bankruptcy order was made against the respondent in the Leicester County Court. On 10 th November 2010 the applicant was appointed the trustee in bankruptcy. The total indebtedness amounted to something in the order of £1,249,653. Of this, the major creditor was and is Mr Shepherd, whose claims have been admitted to proof in the sum of £1,215,043. The other creditors amounted in all to an additional sum in the region of £34,610.
The sums which the trustee has been able to get in have not been sufficient to discharge the indebtedness. The respondent was discharged from his bankruptcy on 8 November 2011.
On 23 September 2011, that is to say some 6 weeks before the date of discharge, the trustee applied to the Court for an IPO pursuant to s. 310 of the Insolvency Act 1986. The application was transferred to this Court the same day.
On 27 September 2011 the trustee made a without notice application for an injunction to restrain the respondent "from taking any steps to activate, draw down, dispose of, or otherwise howsoever exercise or deal with any of his rights, interests or entitlements, whether to the payment of a lump sum and/or income, arising under any pension scheme of which he is a member or in which he has an interest".
On 27 September 2011 Norris J granted the injunction; it was later continued by consent until the hearing of this application by order of Floyd J dated 11 October 2011.
The substantive application arises out of the disclosure by the respondent in his Bankruptcy Questionnaire that he has various pension policies and other pension entitlements amounting to a fund estimated at that time at between £900,000 and £990,000; most of the policies are aggregated in a scheme run by the Berkeley Burke Private Pension Plan. The rules of this pension scheme provide that the minimum age at which the pension can be taken is 55 years of age. The respondent is now 59 years old; he will be 60 in July 2012. In response to enquiries, the trustees of the funds provided the information that the respondent's "fund" might provide both a tax free lump sum of £248,708 (i.e. at the maximum level of 25% of the overall funds) plus a pension from the residual fund, the value of which would depend upon the type of pension selected – but might be an annuity in the range from £23,000 to £43,000. There may well be disagreement about the accuracy of these figures and challenge to the basis on which they were given, but the precision of the figures does not affect the legal principle on which I am invited to rule.
The respondent has not exercised his right to elect to take a pension: he says that he is presently in work and has no intention to take his pension in the foreseeable future. He says that he has no obligation to take his pension now and ought not be compelled to do so. He resists the application and argues that there is no jurisdiction in the court to enable an IPO to be made for reasons I will come to in a moment.
S. 310 of the Insolvency Act 1986 provides, so far as material, the following:
'(1) The court may make an order ("an income payments order") claiming for the bankrupt's estate so much of the income of the bankrupt during the period for which the order is in force as may be specified in the order.
(1A) an income payments order may be made only on an application instituted –
(a) by the trustee, and
(b) before the discharge of the bankrupt.
(2) The court shall not make an income payments order the effect of which would be to reduce the income of the bankrupt when taken together with any payments to which subsection (8) applies below what appears to the court to be necessary for meeting the reasonable domestic needs of the bankrupt and his family.
(3) An income payments order shall, in respect of any payment of income to which it is to apply, either –
(a) require the bankrupt to pay the trustee an amount equal to so much of that payment as is claimed by the order, or
(b) require the person making the payment to pay so much of it as is so claimed to the trustee, instead of to the bankrupt.
(5) Sums received by the trustee under an income payments order form part of the bankrupt's estate.
(6) An income payments order must specify the period during which it is to have effect; and the period –
(a) may end after the discharge of the bankrupt, but
(b) may not end after the period of three years beginning with the date on which the order is made.
(7) For the purposes of this section the income of the bankrupt comprises every payment in the nature of income which is from time to time made to him or to which he from time to time becomes entitled, including any payment in respect of the carrying on of any business or in respect of any office of employment and (despite anything in s. 11 or 12 of the Welfare Reform and Pensions Act 1999) any payment under a pension scheme but excluding any payment to which subsection (8) applies."
The reference to s. 11 of the Welfare Reform and Pensions Act 1999 relates back to the decision of Ferris J. in In re Landau (A Bankrupt) [1998] Ch 223, in which he ruled that (a) a trustee in bankruptcy was entitled to receive all sums payable under a pension policy and (b) that the bundle of contractual rights under a pension policy constituted a chose in action, and was therefore "Property" within s. 436 of the Insolvency Act 1986: therefore the benefits of the policy vested automatically in the trustee on his appointment. It became the practice of trustees, following this decision, to lay claim to a bankrupt's rights in his pension and to exercise the rights of the bankrupt under the policy in any way the trustee chose.
S. 11 of the 1999 Act provides that where a bankruptcy order is made against a person on a petition presented after the coming into force of the section, any rights of his under an approved pension arrangement are excluded from his estate.
The effect therefore of s. 11 was to reverse the effect of the decision in In re Landau. That means that the "bundle of contractual rights" and benefits of the respondent's pension policy does not vest in the trustee on his appointment and will not do so unless the court has the power to make and does make an order pursuant to an application by the trustee under s. 310, which was itself amended at the same time to permit the trustee to apply for an IPO in relation to such a pension.
The position now is that, where the bankrupt has, prior to the bankruptcy order, given notice to the pension fund of his election to take up his rights under the pension scheme, the operation of s.310 will present no problem. In the light of any lump sum or periodical payment paid or to be paid pursuant to that election, the sums remain the property of the bankrupt save to the extent that the trustee has applied for and obtained an order pursuant to s. 310. On such an application, before making an IPO, the court will evaluate what is fair and just between the competing interests of in particular the bankrupt and his creditors and make an order which is appropriate in all the circumstances of the case.
While dealing with the order which a court can make in these circumstances, the court's powers are set out in subsection (3) of s. 310 (subject of course to the limitation in subs. (6)(b)). It was suggested in argument that the court...
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