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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

11 APR 2012

Guest Post: Stephen Hunt on Raithatha v. Williamson [2012] EWHC 909 Ch - Forcing a bankrupt to take an exlcuded pension

"I think this is a wrong decision.  Leave has been given to appeal.

I think the judge got confused and ran the argument backwards. He said that a pension could be income and then said nothing in the Welfare Reform Act prevents him requiring the bankrupt to elect to take his pension.  I think he should first have looked at whether a Trustee or an insolvency court can interfere in an excluded asset (no caselaw cited on that as far as I can see) and only if he found a method by which the court can interfere should he then have turned his mind as to whether he should and whether s.310 would bite as a result.

Funnily enough, my thought on reading this came up with a more entertaining solution.  The court should have ordered the IPO at an amount based on the income to which the bankrupt was 'entitled', regardless of whether he elected to draw it.  It would then have been the bankrupt's problem as to how to pay it!

I am afraid to say I have my doubts. I have read the judgment with interest and enjoyed the argument put forward. However, on my reading of it the Deputy Judge first made a finding that income from an excluded pension could be income and then found that nothing in the Welfare Reform Act prevented the insolvency court from ordering the bankrupt to take that income. I think that is wrong. The real question should have been whether the court has any role in an excluded asset and I saw nothing in the material I have seen to show if the Deputy Judge was taken to cases on that point. Only after finding a way to control the bankrupt and his decisions over excluded assets should there have been a discussion on whether the pension was income and attackable. 

I have to say that when I saw the arguments about income 'to which the bankrupt is entitled' I thought the court would take a different line. The court might have made an IPO against the bankrupt and in its calculations included the assumed pension income, even the lump sum, to which the bankrupt was entitled. It would then be for the bankrupt to find the money. It would be hard for the bankrupt to succeed on a s.310(2) defence of being unable to meet the domestic needs of his family because it is clear to all that he would be able to do so if he elected to take his pension. Perhaps if you think this has merit you could use it as a backup plan if the appeal goes wrong. Contributors on here may also have some ideas. 

That said, I hope I am wrong. It would be a handy power for a Trustee to have.

I would suggest that Malcolm v Official Receiver [1999] B.P.I.R. 97, which was mentioned in this judgment, gives support for an order along the lines I set out above. In that case there was no question of the court being able to use s.310(3)(b) as that was not applicable to dealing with notional expenditure. The only difficulty the court had in that case was the practical difficulty the bankrupt had in obtaining rented accommodation at the level expected by the OR. In the pension case the bankrupt would be unable to run that point. 

If the bankrupt chose to not elect and default on the IPO then I am not convinced that even then the court could order the pension company to pay up under s.310(3)(b). You can't get round the fact that the bankrupt merely has a contractual right to exercise an entitlement, which is not yet income. 

I suppose what is most difficult to understand about this judgment is that Landau was won on the basis that a pension was not an income but an asset of the bankrupt, and this case relies on it being income!"

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