EU pensions in insolvency proceedings—equal treatment under EU law (Re Michael Bernard McNamara)

EU pensions in insolvency proceedings—equal treatment under EU law (Re Michael Bernard McNamara)  

The High Court has considered whether EU law requires pensions registered in another EU Member State to be exempted from a bankrupt’s estate in the same manner as a UK pension registered with HMRC. Mr Justice Nugee decided to make a reference to the Court of Justice to determine a preliminary issue in the bankruptcy of Michael McNamara, an Irish property developer who had been made bankrupt in the UK. It was argued on behalf of Mr McNamara—as part of an application to claim for the benefit of his estate in bankruptcy an Irish pension scheme—that to read UK law literally would mean that UK workers would receive a greater degree of protection than EU workers moving to the UK in respect of protection of their pension rights should they become bankrupt. Written by Harry Gillow, barrister, at Monckton Chambers.

Re Michael Bernard McNamara [2020] EWHC 98 (Ch)

What are the practical implications of this case?

This case has obvious implications for creditors where an EU national becomes bankrupt in the UK.

If the Court of Justice agrees with the submissions advanced on behalf of Mr McNamara, then EU nationals will automatically benefit from the protection accorded (in the vast majority of cases) to the pension rights of UK national bankrupts. This will reduce the assets available to creditors in such bankruptcies.

Furthermore, it is notable that Nugee J in effect decided to ignore the submissions on behalf of Mr McNamara’s trustees in bankruptcy that Mr McNamara was attempting to pick and choose the parts of the UK insolvency regime that suited him. If the Court of Justice agrees with Nugee J, it may serve to make the UK insolvency regime more attractive to EU citizens hoping to take advantage of the new protection offered to pension schemes alongside other elements of the regime.

Finally, the Court of Justice’s judgment will be highly relevant to the question of the scope of Article 49 of the Treaty on the Functioning of the European Union (TFEU), and particularly to the extent to which factors not at first glance connected to self-employment may nevertheless provide a restriction on freedom of establishment. As Nugee J noted, the question of when a factor may be considered to be connected to the right to freedom of establishment is ‘not […]entirely easy’, and the reference will provide the Court of Justice with an opportunity to consider this point further.

What was the background?

The judgment related to the determination of a preliminary issue in an application in Mr McNamara’s bankruptcy.

Mr McNamara was a property developer operating primarily in Ireland who had in 2012 been made bankrupt in the UK on his own petition.

Mr McNamara had, prior to his bankruptcy, ran a company, Michael McNamara & Co, which had been placed into receivership in Ireland in 2010. Prior to this, in July 2009, Mr McNamara had established a new company with his wife, Simcoe Industries Ltd, and in August 2009, the Simcoe Industries Ltd Retirement Plan (Simcoe Scheme) was established, a pension scheme governed by Irish law and whose members were Mr and Mrs McNamara and their son.

Mr McNamara moved to London on a full-time basis in June 2011, before petitioning for bankruptcy in November 2012.

Mr McNamara’s trustees in bankruptcy brought the application to claim an investment in the Simcoe Scheme for the benefit of the bankruptcy estate, on the basis that it comprised part of the bankruptcy estate and vested in them—it was not an ‘approved pension arrangement’ and was therefore not excluded from the bankruptcy estate by section 11 of the Welfare Reform and Pensions Act 1999 (WRPA 1999).

It was argued on behalf of Mr McNamara that as a matter of EU law, his pension rights in the Simcoe Scheme should be excluded from his estate as if the Simcoe Scheme had been registered with HMRC in the UK. To do otherwise would disadvantage EU workers moving to the UK, contrary to the principle of freedom of movement enshrined in EU law. Reliance was placed primarily on Article 49 of the TFEU, prohibiting restrictions on freedom of establishment of EU nationals in another Member State.

What did the court decide?

Nugee J decided—unprompted by either party—to refer to the Court of Justice the question of whether the exclusion of pension rights on bankruptcy was something that could impact on the right of establishment, or otherwise fell within the scope of Article 49 of the TFEU. While the judge considered that the effect of insolvency on pension rights was not something that directly constituted an obstacle to or restriction on freedom of movement, self-employment often involved incurring personal liabilities in connection with business activities, and as a general rule it could therefore be said that the risk of personal insolvency was connected with the right of establishment.

Nugee J went on to provide his own view on the matter, which was that the impact of insolvency on pension rights was of someone exercising their rights of establishment as a self-employed person was closely connected enough with that activity to fall within the scope of Article 49 of the TFEU. Accordingly, there was not equal treatment of UK and other EU nationals, as a UK national who becomes bankrupt is far more likely that an EU national to have pension rights in a scheme registered with HMRC and therefore protected under WRPA 1999, s 11. The judge considered that if the Court of Justice agreed with this interpretation, it would be possible to read the provisions of the WRPA 1999 in such a way as to conform with UK law, which would not undermine or be inconsistent with the legislation.

Case details

  • Court: High Court, Chancery Division  
  • Judge: Nugee J  
  • Date of judgment: 23 January 2020

Harry Gillow is a barrister at Monckton Chambers. If you have any questions about membership of LexisPSL’s Case Analysis Expert Panels, please contact caseanalysis@lexisnexis.co.uk.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

 

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About the author:

Zahra started working as a paralegal at LexisNexis in the Lexis®PSL Banking & Finance and Restructuring & Insolvency teams in April 2019 and moved to the Corporate team in June 2020, where she currently works as a Market Tracker Analyst. Zahra graduated with 2.1 honours in BA French and Spanish and completed the GDL at BPP University. She has undertaken voluntary work for law firms in London, Argentina and Colombia.