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Horton v Henry - protected pension rights in bankruptcy

11 October 2016

The Court of Appeal has declined to follow the controversial decision in Raithatha v Williamson which allowed a trustee in bankruptcy to compel a bankrupt to elect to draw pension entitlements and to claim those entitlements as income under an income payments order for the benefit of the bankruptcy estate.

In reaching that decision the court held that a trustee has no functions in relation to property which is expressly excluded from a bankruptcy estate and, what is more, the court has no power to decide how a bankrupt should exercise the different elections to trigger payment from a pension plan.

This decision also reflects the protections afforded to a bankrupt’s pension rights by the Insolvency Act and pension legislation and provides some much needed clarity in this area.

From the perspective of an elderly debtor, or a creditor of an elderly debtor, it is also a useful reminder of the different attitudes toward asset recovery prior to and after bankruptcy. Prior to bankruptcy, a debtor with eligible but undrawn pension entitlements could be subject to a third party debt order whereas a bankrupt will only suffer the same fate if they are already receiving income from a pension.

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