In Blight v Brewster [2012] EWHC 165 (Ch) the High Court allowed a creditor to enforce his judgment debt against a debtor's pension funds. The court followed a 2011 Privy Council case (Tasarruf Mevduati Sinorta Fonu v Merrill Lynch Bank and Trust Company & ors) in holding that it had jurisdiction to do so under section 37 of the Senior Courts Act 1981. Section 37 provides that the court may appoint a receiver in all cases in which it appears to the court to be just and convenient to do so.

Raithatha v Williamson (4 April 2012) and Blight and others v Brewster (9 February 2012)

Most pension schemes give the beneficiary an option as to when to start to draw the pension, and whether or not to draw a tax free lump sum. These two cases confirm that a trustee in bankruptcy and a judgment creditor are each entitled to compel a debtor to draw the maximum permitted by the scheme rules, so that the monies realised as a result are available to pay the debt.  

Pension schemes and bankruptcy

The High Court has recently considered whether a bankrupt individual of pensionable age can be forced to draw his pension to pay his creditors.

Raithatha v. Williamson [2012] EWHC 909 (Ch)

Background

A bankruptcy order was made against Mr Raithatha on 9 November 2010. Mr Raithatha's trustee in bankruptcy applied for an income payments order (IPO) against Mr Raithatha's pension shortly before he was due to be discharged from bankruptcy. Mr Raithatha was then aged 59 and his pension scheme allowed him to draw a pension from age 55.

Many employers dread triggering debts under section 75 of the Pensions Act 1995 within their defined benefit pension scheme, but in some circumstances it simply cannot be avoided.  Once a section 75 debt has been triggered it is important that the debt is calculated properly.  The Actuary is required to calculate the difference between the value of the scheme's assets and the cost of purchasing annuities to secure all of the liabilities of the scheme.  But what if there is a delay in calculating the debt?  At which date is the Actuary required to ascertain the cost of bu

Pension scheme assets can rise and fall. So can liabilities. The timing of the section 75 debt calculation is, therefore, critically important to the ability of the scheme to meet its liabilities.

So when should trustees calculate their section 75 debt? Can they use one date to calculate scheme assets and choose a different date to calculate the cost of buying out the scheme’s liabilities?

On December 29, 2011, the US Court of Appeals for the Third Circuit issued an opinion in the chapter 11 bankruptcy case In re Nortel Networks, Inc., holding that the "automatic stay" on creditor collection actions outside the bankruptcy applied to prevent the UK Pension Protection Fund and the Trustee of the UK Nortel Pension Plan from participating in UK pensions proceedings initiated by the UK Pensions Regulator.

The Pensions Regulator (the PR) is a non-departmental public body in the United Kingdom entrusted with powers designed to protect the benefits of members of work-based pension schemes. Where an employer is insufficiently resourced – a technical term meaning that it lacks sufficient assets to meet 50 per cent of the estimated debt of the pension scheme – the PR may issue a financial support direction (FSD) requiring another employer or an individual or company associated with the employer to put in place financial support for the scheme.

One exception to the otherwise far-reaching scope of the automatic stay is the “police power” exception, which permits a governmental unit to commence or continue an action or proceeding that is in furtherance of its police and regulatory powers (section 362(b)(4) of the Bankruptcy Code). In the past, bankruptcy courts have held that the “police power” exception extends to actions taken by the Pension Benefit Guaranty Corporation, the agency charged with protecting pension benefits in private-sector defined pension plans.

This appeal was brought by the insolvency practitioners dealing with the Nortel and Lehman Brothers companies. The Regulator’s Determinations Panel has, in relation to both the Nortel and Lehman Brothers pension schemes, issued warning notices of its intention to issue Financial Support Directions (FSDs) against group companies.

The UK Supreme Court has recently overturned a much-criticised and controversial ruling of the Court of Appeal by finding an ambiguously worded advance payment bond effective in the case of insolvency. In doing so, it clarified the proper role and application of considerations of business common sense when interpreting commercial contracts. Where a clause is capable of two or more possible interpretations, Rainy Sky SA v Kookmin Bank held that the court should prefer the one which is most consistent with common business sense.