Synopsis: Horton v Henry: the impact on a trustee in bankruptcy’s power to exercise options on behalf of the bankrupt.

On 17 December 2014, the High Court made that scenario highly unlikely following the judgment in Horton v Henry [2014] EWHC 4209 (Ch) where Mr Robert Englehart QC (sitting as a Deputy Judge of the Chancery Division) declined to follow the decision of Raithatha v Williamson and make an Income Payments Order (IPO) compelling a bankrupt of pensionable age to draw down his pension and pay their lump sum and any income derived from the pension to his Trustee in Bankruptcy.

Raithatha v Williamson [2012] EWHC 909 (Ch) extended the scope of an Income Payment Order (IPO) to include a personal pension entitlement which a bankrupt was entitled to receive but which he had not yet elected to receive. This created a risk that the new flexibility in pension drawdown could endanger the pension savings of those declared, or at risk of being declared, bankrupt. It was feared that someone subject to an IPO could be compelled to elect for uncapped income withdrawals to satisfy their debt, where the lump sum exceeds the bankrupt’s reasonable needs.

The Case

When Mr Henry was adjudged bankrupt, he was 58 and had an interest in a Self-Invested Personal Pension (SIPP) which had an approximate value of £930,000. Mr Henry therefore could, if he had wished, taken a 25% tax free lump amounting to £232,500. However the precise value of the SIPP would not be known until it was crystallised. In addition, Mr Henry had three other personal pension policies which would provide an annual annuity income of £2,450 but also (as he was aged 60 at the time of the hearing), could now under the scheme rules be taken as a lump sum.

The Trustee in Bankruptcy sought an IPO which in effect sought the lump sum and the annuity in the next three years.

In his evidence, Mr Henry stated that he did not require the pensions to meet his ordinary domestic needs so had no intention of drawing down his pension for “as long as possible”. Instead he wished to “preserve the maximum capital value” of the policies in order to transfer them to his children when he died. He also said in cross examination that in the absence of drawing down his pension, he hoped that “God would provide”.

The Issues

The issue of general principle was whether the Court has a power under section 310 Insolvency Act 1986 to make an IPO in respect of a pension which is not in payment. The prominent point of contention was the definition of the ‘income of the bankrupt’ (against which the IPO will be made) in s310(7); particularly, whether a bankrupt ‘becomes entitled’ to a payment under an uncrystallised pension even though he would not be receiving any payments from the pension trustees and would have no enforceable claim against them.


In Horton, the Judge was asked to consider:

1. Whether in principle, the Court had the power under s310 IA86 to make an IPO for a pension that was not in payment; and

2. If there was such a power, on the facts what sums should be retained by Mr Henry rather than paid to the Trustee.

In Raithatha, Bernard Livesey QC considered a bankrupt was entitled to payment under a pension scheme not in payment where under the scheme rules, he would be by “merely asking for payment”. In Horton, the Judge believed he needed to determine whether a bankrupt “becomes entitled” to payment under an uncrystallised pension even though he is not receiving any payment from the pension trustees and would have no enforceable claim against them.

Therefore unlike in Raithatha, the Judge considered the word “entitled” suggested a reference to a pension that was in payment under which definite amounts had become contractually payable.

Furthermore the Judge considered that s310 IA86 did not give the Court the power to decide how a bankrupt should exercise the different elections open to him for his pension, or alternatively, any obvious route instead for a Trustee to have that power to elect (as had been the issue in Re X (Application for an Income Payments Order [2014] BPIR 1081). Furthermore, for a Trustee in Bankruptcy to have the ability to determine how the contractual rights in a SIPP or personal pension should be exercised, did not reconcile with the intention of the Welfare Reform & Pensions Act 1999 which excluded a bankrupt’s rights in a pension scheme from his bankruptcy estate.

Therefore the Judge concluded that:

“I have most anxiously considered the decision in Raithatha but I have, albeit with considerable reluctance, come to a different conclusion. Mr Henry is not entitled to payment under his pensions “merely by asking for payment”. There is a considerable variety of options open to him. It would only be after he had made elections that any payment would be due to him. Only then would he become entitled to any payment. I do not consider that there is any power in the court under s310 or in the Trustee to require Mr Henry to elect in any particular way.”

As a consequence the Trustee’s application was dismissed.

It therefore appears that any thoughts Trustees in Bankruptcy were heading “Back to the Future” may have been premature. For the time being at least, a Trustee in Bankruptcy cannot force a bankrupt to draw down a pension that is not in payment.

We understand that permission to appeal has been granted and this case will now be considered by the Court of Appeal in Spring 2015, when we should then have clarity on this issue once and for all. However in the meantime if a bankrupt’s pension is in payment, there is no reason why a Trustee in Bankruptcy should not seek an IPO in appropriate cases.

What does this mean?

The immediate upshot of the decision is that the uncrystallised pension pots of a bankrupt are under a lesser threat than they were after Raithatha. The chances of a bankrupt being forced to draw down on a pension which is not yet in payment have been reduced. However, the decision in Horton is a direct contradiction of Raithatha at the same level of authority. Clarity in the law will be delayed until the Court of Appeal hears the case in the spring.

Why not talk to the professionals about properly managing your finances

Call us on 01273 457100 020 7871 5387 01403 333666

Or email us on

Or just take a look at how we help our clients

Leave a Reply

Query Form