Recent years have seen a number of decisions on the interpretation of s 310 of the Insolvency Act 1986 (IA) and s 11 of the Welfare Reform and Pensions Act 1999 (WRPA).
Section 310 IA provides for Income Payment Orders (IPOs). It allows the court to make an IPO claiming for a bankrupt’s estate so much of the income of the bankrupt during the period for which it is in force as it may specify. Section 310(7) IA 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. Section 11 WRPA deals with the effect of bankruptcy on pension rights. It provides that where a bankruptcy order is made, any rights from an approved pension arrangement are excluded from the bankrupt’s estate. However, in making an IPO, s 310(7) IA includes in the income of the bankrupt any payments under a pension scheme (save as excluded by s 310(8) IA), and is expressed as being despite anything in s 11 WRPA.
Until the decision of the Court of Appeal in Horton v Henry  EWCA Civ 989
, there was a tension between the decided cases as to whether a bankrupt’s present entitlement to compel payment of benefits fell within the ‘income of the bankrupt’. In Raithatha v Williamson (a bankrupt)
 EWHC 909 (Ch), a deputy judge of the Chancery Division held that it did. However, in Re X
 BPIR 1081 and Hinton v Wotherspoon
 EWHC 623 (Ch), a District Judge and High Court Bankruptcy Registrar respectively had held that it did not.
In Horton v Henry
, the Court of Appeal answered the question definitively. Giving judgment, Lady Justice Gloster (with whom Lord Justice McFarlane and Sir Stanley Burnton agreed).
Horton v Henry
The facts (paras  and )
The appellant (A) was the trustee in bankruptcy of the respondent (R), who had been adjudged bankrupt on his own petition on 18 December 2012. At the date of judgment in the Court of Appeal, R was aged 61.
A was appointed R’s trustee on 15 March 2013. There were creditor claims in excess of £6.5 million. R acknowledged indebtedness of £387,075, but disputed the true value of the creditors’ claims.
At the date of the bankruptcy, R’s assets included four pension policies. These comprised two groups:
- A Self-Invested Pension Policy (SIPP) with Suffolk Life. R had taken this out in 2007. At October 2014, the SIPP had a value of £848,022-76. Its terms entitled R to ‘crystallise’ some or all of its separate units on or after his 55th birthday, taking 25% of the crystallised amount (subject to the lifetime allowance) as a pension commencement lump sum without incurring a tax charge. Based on the valuation of £848,022-76, the maximum 25% tax free lump sum would be around £212,0005, together with recurring drawdown and/or annuity payments in accordance with elections made. There was, however, a measure of uncertainty as to what would be available if the SIPP were crystallised, because the investments in the underlying fund were not all readily realisable shares (para [7(iv)(a)]).
- Three personal pension policies, with Phoenix Life Limited (the Phoenix Life policies). Each provided for an annuity payable on R’s 70th birthday (October 2024). The plan entitled R to give written notice to vary the date for taking benefits, provided that the date fell between his 60th and 75th birthdays. The forms of benefit which an annuitant might elect included an option to commute part of an annuity by taking a lump sum, ‘not exceeding three times the annual amount of the part of that annuity which is not commuted’ and various forms of annuity. The options were to be exercised by written notice. However, if an annuitant had not exercised them by the age of 75, he received a simple annuity of level amount. The Phoenix Life policies had no fund value. There was simply a guaranteed annuity income of £2,450-68 of each at age 70, subject to the lump sum option at age 60 (para [7(iv)(b)]).
The applications (para [7(v)-(viii)])
R’s discharge from bankruptcy was on 18 December 2013. The day before, with R aged 59, A filed an application under s 310 Insolvency Act 1986 for an IPO requiring R to pay A a sum equal to:
- the percentage of the pensions presently available to be drawn down by him as a tax free lump sum; and
- such further periodic income as might also be derived from the pensions for the 3-year duration permitted by s 310(6)(b) IA.
At 17 December 2013, R was entitled to crystallise all or part of the SIPP, to draw benefits and to take up to 25% of the amount crystallised as a tax free lump sum. On 7 October 2014, R became entitled to receive benefits under each of the Phoenix Life policies.
R opposed the application. He submitted that:
- The pension benefits were not income to which he had ‘become entitled’ for the purposes of s 310(7) IA.
- It was in any case unreasonable in all the circumstances to require R to elect to draw any benefits, because he wished to ‘preserve the maximum capital value’ of the pensions for ‘as long as possible’ (until his 67th birthday on 7 October 2021) with a view to transferring the remaining balance to his children.
The question (para )
The Court of Appeal formulated the question as:
‘Does a pension entitlement in respect of which a bankrupt has a present right to elect to draw down payment (but which he has not yet exercised) fall to be included in the assessment of his income ‘to which he from time to time becomes entitled’ within the meaning of section 310(7) of the Insolvency Act when the court is considering whether and, if so, on what terms, to make an IPO under section 310?’
The decision of the High Court (paras  and )
Mr Robert Englehart QC, sitting as a deputy High Court judge, had answered that question ‘no’. The word ‘entitled’ in s 310(7) IA suggested a reference to a pension in payment under which definitive amounts had become contractually payable. Nothing in s 310 IA obviously gave the Court power to decide how a bankrupt was to exercise the different elections open to him under an uncrystallised SIPP or personal pension, and there was no obvious route to find that a trustee had the power. Various commentaries supported this.
However, the learned deputy judge held that if he had jurisdiction to make an IPO, he would have done so to the full extent claimed. This was for the factual reason that on R’s evidence, none of the pension entitlement was needed for meeting R’s reasonable needs or those of his family.