Can a trustee in bankruptcy force a bankrupt to crystallise a pension policy?

Can a trustee in bankruptcy force a bankrupt to crystallise a pension policy?

How safe is the pension of a bankrupt from a trustee in bankruptcy (trustee)? Steve Dillon, a partner and head of insolvency at Gosschalks, says that, although a recent decision concerning an income payments order (IPO) suggests that there is no need to panic now, the prudent pension advisor will err on the side of caution until the Court of Appeal has an opportunity to settle the issue.

Original news

Horton v Henry [2014] EWHC 4209 (Ch), [2014] All ER (D) 193 (Dec)

Mr Henry was made bankrupt. His assets on the date of the bankruptcy included four pension policies. Mr Henry did not wish to crystallise the policies and, without crystallisation, the precise value of the policies could not be determined. The applicant trustee, Mr Horton, applied to the court for an IPO, effectively seeking that Mr Henry be ordered to crystallise his policies and to exercise his elections in a manner desired by Mr Horton. The Chancery Division held that there was no power to require Mr Henry to elect in any particular way. The application would be dismissed.

What particular issues were considered in this case?

The case concerned whether a trustee was entitled to an IPO under the Insolvency Act 1986 (IA 1986), s 310, in particular in connection with the pension of a bankrupt.

The key issue was whether sums which Mr Henry could elect (but had not elected) to receive under pension policies during the currency of or before his bankruptcy amounted to monies to which Mr Henry was entitled (within the meaning of IA 1986, s 310(7)) and therefore could be the subject matter of an IPO. Put another way—could the court, on the application of a trustee, force a bankrupt to make the election(s) required to crystallise a pension policy to enable the sums realised thereby to be appropriated for the bankruptcy estate?

In considering the issue, Mr Robert Englehart QC (sitting

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About the author:

Stephen qualified as a solicitor in 2005 and joined the Restructuring and Insolvency team at Lexis®PSL in September 2014 from Shoosmiths LLP, where he was a senior associate in the restructuring and insolvency team.

Primarily focused on contentious and advisory corporate and personal insolvency work, Stephen’s experience includes acting for office-holders on a wide range of issues, including appointments, investigations and the recovery and realisation of assets (including antecedent transaction claims), and for creditors in respect of the impact on them of the insolvency of debtors and counterparties.