In the case of Wilson v McNamara [2020] EWHC 98 (Ch) the High Court of England and Wales (the Court) considered whether the EU principle of freedom of establishment requires that a pension held in another EU member state (Ireland) should be excluded from a bankruptcy estate under UK law in the same manner as a UK pension would be in a UK bankruptcy. Mr Justice Nugee decided in order to decide the case the Court needed to refer a preliminary reference to the European Court of Justice (CJEU) on a question of EU law.

How did the question of an Irish pension arise in a UK bankruptcy?

Mr McNamara was an Irish property developer who moved to London in July 2011 having previously lived in Ireland. He was made bankrupt in the UK in 2012 and the Court accepted that he had moved his centre of main interests from Ireland to England by the date of presentation of the petition.

The Joint Trustees in Bankruptcy of Mr McNamara (the Joint Trustees) claimed that the beneficial interest in an Irish pension scheme worth in excess of €6m and approved by the Irish Revenue Commissioners (the Policy) remained with Mr McNamara at the time of his bankruptcy and so vested in the Joint Trustees as part of his bankruptcy estate.

UK law on bankruptcy

UK legislation excludes a bankrupt's rights from the bankruptcy estate where held in an approved pension arrangement, i.e. any UK pension scheme that has been registered with HMRC. The Joint Trustees' position was that as the Policy was not registered with HMRC it was not excluded from the bankruptcy estate. Irish legislation provides that, in general, assets under a relevant pension arrangement, which includes a retirement benefits scheme, retirement annuity contract, PRSA, overseas pension plan etc, shall not form part of the bankruptcy estate and shall not vest in the Official Assignee.

Freedom of Establishment under EU law

Mr McNamara relied on freedom of establishment, a fundamental principle of EU law, which entitles a person to carry on an economic activity in one or more member states in a stable and continuous way.

He asserted that the fact that UK law required a pension policy to be registered with HMRC for it to be excluded from a bankruptcy estate meant that UK workers who become bankrupt had greater protection in respect of their pension rights compared to workers from other EU member states who move to the UK, have a pension policy in another EU member state not registered with HMRC, and then become bankrupt.

He argued that he should enjoy the same rights as UK workers and that as the Policy was registered with the Irish Revenue Commissioners it should be excluded in the same manner a pension scheme registered with HMRC would be excluded. Mr McNamara also claimed that it was a violation of EU Treaty rights not to treat the Policy in the same way as an UK policy.

The Joint Trustees argued that UK personal insolvency laws did not restrict Mr McNamara's freedom of establishment as he had exercised this right by relocating to the UK.

The Court held that the impact of insolvency on the accrued pension rights of a person exercising the right of establishment in another member state is “sufficiently connected” with that activity to fall within the scope of EU law. However, the specific question of whether the impact of an insolvency on pension rights fell within the scope of the freedom of establishment was self-evidently a matter of EU law and made a reference to the CJEU to rule on the question.

What next?

The ruling of the CJEU will provide a helpful clarification to determine whether rights over pension schemes fall within the scope of freedom of establishment and could have the benefit of local member state law where an EU citizen moves from one jurisdiction to another. Once the CJEU answers the preliminary reference the UK High Court will then give judgment in the case applying the answer to the EU law question to the facts of the case.