Costello J in the High Court recently gave judgment in the case of In re James Coady (a Former Bankrupt)  IEHC 653. In this case the Official Assignee ("OA") had sought directions in respect of what rights could vest in the OA from the bankrupt's pre-retirement personal pension policy (the "PP"). The bankrupt had reached normal retirement age under the PP after he was adjudicated bankrupt but before he was discharged from bankruptcy. The bankrupt was not entitled to income from the PP but had a number of contractual retirement options to exercise which he had not yet selected The key issue for the Court to consider was whether the OA could have recourse to the bankrupt's pension, automatically or alternatively by way of court order.
Automatic vesting in OA?
Costello J considered Section 44A of the Bankruptcy Act 1988 in detail and concluded:
- Payments received or payments which a bankrupt was entitled to receive at the date of adjudication under a relevant pension arrangement vest in the OA;
- The underlying assets relating to the relevant pension arrangement do not automatically vest in the OA;
- If a bankrupt has an entitlement to perform an act or exercise an option under the relevant pension arrangement, the OA may perform the act or exercise the option in place of the bankrupt (in accordance with tax legislation);
- If the act or option would cause the bankrupt to receive an income the bankrupt is considered to be in receipt of the income. If the act or option would cause the bankrupt to receive an amount of money other than income, the lump sum vests in the OA.
- As the bankrupt in this case had not exercised his options under the PP, it was open to the OA to exercise one of the options pursuant to Section 44A (if he considered that to do so would be beneficial to the creditors).
Bankruptcy payment order required
The PP provider argued that a bankruptcy order was required to have income paid directly to the OA. Costello J confirmed that Section 85D of the the Bankruptcy Act 1988 did contemplate an order of the court directing a person from whom the bankrupt is entitled to receive the pension or payment. Therefore the OA required an order under Section 85D in this instance before the provider could pay sums due directly to the OA. Costello J found that to construe Section 85D any differently would be inconsistent with Section 44A(1) which did not automatically vest the right to the payment in the OA and would be by-passing Revenue rules.
This case confirms that where a bankrupt has an option under a personal pension policy to an annuity, the OA can access this by obtaining a bankruptcy order under Section 85D. For an occupational pension scheme, were a member to enter into bankruptcy, section 36 of the Pensions Act 1990 will apply. Section 36(2) would allow the trustees of a scheme to use their discretion to forfeit a member's benefit and pay it to an OA (only where the trust deed and rules allows for such forfeiture).