The Developing Concept of Enforcement Against Pension Funds

In good news to creditors seeking enforcement of a debt against an individual, the recent Court of Appeal case of Bacci and others v Green [2022] EWCA Civ 1393, [2022] All ER (D) 75 (Oct) demonstrates how much the Court is prepared to assist judgement creditors in enforcement of judgement debts against pension funds. 

As previously (and very elegantly) reported by my colleague, Frances Boxall, a judgment creditor is able to recover its debt from the judgment debtor’s pension fund by virtue of section 37(1) of the Senior Courts Act 1981 (see “Can you recover your judgment debt from a debtor’s pension?”). This is a developing area of debt recovery law, not least because generally, pension funds do not constitute debts due and payable to the judgment debtor. By way of illustration, all rights and benefits under approved pension arrangements are excluded from a bankrupt’s estate. 

The question of pensions and enforcement was once again brought before the Court in the recent Court of Appeal case of Bacci and others v Green [2022] EWCA Civ 1393, [2022] All ER (D) 75 (Oct). The appellant, Mr Green, had borrowed sums from a lender. Having failed to repay the sums, the lender issued proceedings against Mr Green and obtained summary judgment for approximately £3m. The lender entered into administration and the judgment debt was assigned to the respondent. In addition, Mr Green was made bankrupt after judgment had been entered. However, because the judgment was based on a fraud, the judgment debt survived Mr Green’s bankruptcy pursuant to section 281 of the Insolvency Act 1986. 

As I say, rights and benefits under approved pension schemes do not fall into a bankrupt’s estate. Such is due to section 11 of the Welfare Reform and Pensions Act 1999. Here, Mr Green has rights under the Richard Green (Fine Paintings) Executive Pension Scheme to the tune of approximately £8.5m, being his principal asset. Those funds were kept from the clutches of Mr Green’s trustee-in-bankruptcy.

Mr Green benefited from “enhanced protection” under the Finance Act 2004, which can be revoked by giving notice to HMRC. Revocation of the “enhanced protection” would enable Mr Green to receive (1) a tax free Pension Commencement Lump Sum (PCLS); and (2) a Lifetime Allowance Excess Lump Sum (LAELS), subject to a 55% tax charge. At first instance, the Court made an order pursuant to section 37(1) requiring Mr Green to delegate to the respondent’s solicitors his power to notify HMRC that he is revoking his “enhanced protection” and power to elect to draw down on his pension.

In the appeal, Mr Green argued that (1) the power to revoke “enhanced protection” was neither property or amounted to ownership, such that it could not be subject an order under section 37(1); (2) it was contrary to public policy to exercise section 37(1) so as to deprive a person who has become bankrupt of pension rights; and (3) that revocation would occasion large tax liabilities which made it inappropriate to make an order providing for revocation.

The appeal was dismissed. The Court found that Mr Green’s right to revoke his “enhanced protection” did not have to be either property or amount to ownership for it to have been proper for the Judge to make the order he did. Mr Green’s rights to call for payments of lump sums under the pension scheme could be the subject of a receivership order, which the Court has the power to make under section 37(1). In respect of the public policy argument, the Court held that the public policy which led Parliament to protect pension rights from trustees in bankruptcy was of very limited significance in such circumstances where the court was considering whether to grant relief to a creditor in respect of a judgment founded on fraud. Finally, the Court held that the fact that the execution of the first instance order would occasion a tax charge was not a bar to making it.

The concept of enforcement of judgment debts against pension funds will be of interest to creditors. Whilst the above case is perhaps nuanced because it involves elements of fraud, it does demonstrate how much the Court is prepared to assist judgment creditors in enforcement. In particular, it is willing to be flexible in its exercise of section 37(1) of the Senior Courts Act 1981. Such should provide creditors with some additional comfort in respect of enforcement of a debt against an individual. 

Written by : Richard David, Legal Executive

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