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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

Guildhall Chambers , 14 JAN 2015

Horton v Henry: The Death of Raithatha?

Simon Passfield


Horton v Henry: The Death of Raithatha?

In Re Landau [1998] Ch 223, it was held that the bundle of contractual rights under a pension policy formed part of a bankrupt’s estate. In consequence, a trustee in bankruptcy was entitled to all income derived from such policy, irrespective of whether the pension was in payment prior to bankruptcy.

The combined effect of the Pensions Acts 1993 and 1995 (which applied solely to occupational pensions) and the Welfare Reform and Pensions Act 1999 (which extended the protection to “approved pension arrangements”) was to remove those rights from a bankrupt's estate.

At the same time, those Acts made consequential amendments to s 310(7) of the Insolvency Act 1986 (“IA”) to confirm that pension payments received by a bankrupt could nevertheless be claimed for his estate by way of an income payments order[1].

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The relevant part of that sub-section (as presently enacted) provides that 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...(despite anything in section 11 or 12 of the Welfare Reform and Pensions Act 1999) any payment under a pension scheme...”

In Raithatha v Williamson (a bankrupt) [2012] EWHC 909 (Ch); [2012] 1 WLR 3559, Bernard Livesey QC controversially held that this definition applied not only to payments which a bankrupt had elected to receive from a pension, but also extended to payments which he was entitled to elect to receive, notwithstanding that he had not yet done so. In reaching that conclusion, the learned Judge relied primarily on the fact that to hold otherwise would produce an unjustifiable anomaly. That decision has been the subject of considerable criticism.

In the recent case of Horton v Henry [2014] EWHC 4209 (Ch), Robert Englehart QC reached the contrary conclusion, holding that s 310(7) IA only applies to “a pension in payment under which definite amounts have become contractually payable.” In a surprisingly short judgment, the learned Judge relied on the fact that there is no obvious wording in s 310 IA which would give the Court or the trustee the power to decide how a bankrupt is to exercise the different elections open to him under an "uncrystallised" pension.

Generally, where there are two conflicting decisions of the High Court, the latter decision should be treated as being correct, provided it was reached after full consideration of the earlier decision (Colchester Estates (Cardiff) v Carlton Industries Plc [1986] Ch 80). Accordingly, for the time being, it must be taken as settled law that a bankrupt’s pension fund will be entirely protected from the claims of his creditors unless and until he elects to receive payment.

Permission has been granted to appeal the decision in Horton v Henry to the Court of Appeal. Accordingly, as the learned Judge expressly noted, it is to be hoped that there will soon be some much needed clarity.

[1] In addition, s 342B IA was introduced to enable a trustee in bankruptcy to challenge excessive pension contributions.