In our recent article of 4 November 2014 we referred to a new case where the controversial decision in Raithatha v Williamson would be reconsidered.
On 17 December 2014 the High Court handed down judgment in the case of Horton v Henry. The decision has been highly anticipated.
The Horton case was an application by a trustee in bankruptcy for an income payments order (IPO) against pension policies not yet crystallised. The bankrupt had refused to draw down any entitlements under his pension pots. The trustee was seeking an order requiring the bankrupt to draw down his 25 per cent lump sum, together with 36 monthly payments. The trustee also reserved the right to apply for a variation of the IPO at a later date, to enable him to require the bankrupt to draw down the balance after the change in the pension legislation in April 2015.
The earlier case of Raithatha had decided that such an order could be made, but in light of the decision the parties came to a settlement so the judgment was never appealed. Raithatha had been widely criticised and was causing particular concern because of the pension changes coming in next year. It potentially opened the floodgate for trustees to get their hands on entire pension pots.
In Horton the Court decided that section 310 of the Insolvency Act 1986 did not provide a basis for an IPO in respect of an uncrystallised pension. The crux of the Court’s decision was in recognising the distinction between a pension already in payment, and an uncrystallised pension.
In reaching this conclusion the judge recognised that he was differing from another decision of a judge at first instance, which he could only do if he was convinced that the first decision was wrongly decided. Accordingly, the Court declined to follow Raithatha, recognising in doing so that the conflicting decisions could only be resolved by the Court of Appeal.
It is not yet known whether the trustee will appeal.
Practitioners are now faced with two conflicting cases at the same level and an appeal to the Court of Appeal would be welcomed to resolve the issue. In the meantime, practitioners are left in an invidious position in respect of bankrupts with undrawn pensions who have reached their normal minimum pension age and no agreed IPO or agreement in place. Care must be taken in the approach to these matters until the issue is finally resolved by the Court of Appeal, or by an amendment to statute.
Furthermore, in the light of this decision, insolvent individuals would be well advised to avoid drawing down on their pensions prior to bankruptcy. Conversely, IVAs may be more palatable to creditors if pension incomes or lump sums are included in the proposals, where arguably they might not be available in bankruptcy.
In any event, the issue rumbles on…