Creditor refused injunction to deprive debtor his pension

Ian White owned and controlled Lloyds British Testing Limited (the company) and was the only member of an occupational pension scheme established for his benefit by the company. The company went into administration and then liquidation where the liquidators assigned to Manolete Partners Plc (Manolete) certain claims against White for breach of his fiduciary duties. Manolete obtained a judgment against White for £1 million. To enforce the judgment debt, Manolete sought an order that would entitle its solicitors to draw down White’s pension and pay it to Manolete to discharge the debt.

However, section 91 of the Pensions Act 1995 (the Act) provides that a person’s right or entitlement to a future occupational pension scheme cannot be assigned, commuted or surrendered and, in particular, section 91(2) prohibits the court from making any order “the effect of which would be that [that person] would be restrained from receiving that pension”. The order sought by Manolete was therefore prohibited by section 91(2) of the Act insofar as it required White’s pension to be paid to Manolete. To skirt this issue, Manolete obtained a revised order that would instead require White to draw down the funds from his pension scheme into an account in his own name. 

White appealed arguing that the revised order remained prohibited under section 91(2) as it would still prevent him from accessing his pension entitlement. However, Manolete disagreed, and said they were not prohibited as they were not seeking an order that prevented him from drawing down his pension but requiring him to do so. There was nothing, they argued, that would prevent White from using the funds drawn down for his own benefit. 

The court rejected Manolete’s argument, finding that their application was part of a wider pre-planned sequence of steps that were designed to enable them to enforce the judgment debt from White’s pension scheme. As an example, the previous order granted by the High Court included provisions that would enable Manolete to “police” the order so that it could prepare itself to make an enforcement application if necessary. If White did not pay the drawn down funds to discharge the judgment debt, then it was Manolete’s intention that they would compel him to do so. As a result, the Court of Appeal found that the mandatory injunction was part of a wider plan intended to have the prohibited effect of preventing White from receiving his future pension entitlement.

In its decision, the court discussed the rationale and intention behind the legislation and drew a distinction between funds already drawn down by a member of an occupational pension scheme and future pension entitlements. The former will have no protection when the funds are already in the hands of a pension scheme member. The latter, however, would require an agreement between White and the trustees of his pension scheme to draw down further funds. As it stood, there was no such agreement in place and White would have no right to any immediate payment from the pension scheme.

The court also drew heavily on the rationale and policy considerations behind section 91 of the Act which were in place to support members on their retirement and to reduce the state’s need to provide retirement support, rather than to build up an assignable asset for the benefit of creditors.

This decision is consistent with the court’s treatment of occupational pensions schemes in bankruptcy handed down in the 2016 case of Horton v Henry where the court ruled that “approved pension schemed”, including occupational pension schemes, do not form part of a bankruptcy estate and, as a result, a trustee in bankruptcy could not compel a bankrupt to draw down or crystalise their future pension entitlements for the benefit of creditors.

This court’s decision in this case highlights the need for creditors seeking to enforce debts from future occupational pension entitlements to be mindful of their intentions. As this case demonstrates, any order that affects a judgment debtor’s rights to their occupational pension scheme will be refused even if such orders do not, on their own, offend section 91 of the Act. The usual methods of enforcement would need to be explored in the alternative.

Co-written by Stephen Cope of Pinsent Masons.