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I’ve been instructed in a series of these applications this year and produced the notes below for the assistance of various District Judges before whom they have been listed.
An individuals rights under a pension arrangement are excluded from the bankrupt estate unless the contributions made that give rise to those rights are excessive and shown to have been made for the purpose of putting assets beyond the reach of an individual’s creditors or any of them. Further, that the amount of the contributions or any of them was excessive in view of the individual’s circumstances at the time the contributions were made (see s342A(6) IA)

Guidance as to “putting beyond reach” for the purposes of s342A, may be found by reference to cases decided in relation to s432(3) IA which contains similar requirements  for consideration by the court when it is looking at transactions which defraud creditors. The key point is the intention of the Bankrupt in making the contributions.

The Applications in which I was instructed, the Trustee in Bankruptcy sort to trace and recover pension contributions made by Directors of a company in respect of which they had been previously found to to have breached their fiduciary duty and to have stripped of funds. Briefly, the company had gone into liquidation and during the administration it was found that the Directors had pocketed in excess of £5M of company funds. The company brought proceedings against the Directors and it was found that the evidence of their fraud against the company was overwhelming. An order was made for repayment of the money and the Director’s promptly declared themselves bankrupt.

The Trustee in Bankruptcy (the same of each of them) found pension fund comprised of commercial property of which the Directors together with a company administering the fund were the beneficial owners. The property had been purchased with funds paid out each of their individual accounts to the pension provider. Given that each of the Director’s pension “pots” had quadrupled in a 22 month period during which the company was trading before insolvency and their individual earning s as self-employed people had likewise escalated, the court in each case had no difficulty in finding that the contributions were both excessive and made to put funds beyond the reach of creditors.

You may find it useful.
Just the law – nothing more.
  1. By operation of section 342A of the Insolvency Act 1986 (IA), where an individual who is adjudged bankrupt has rights under an approved pension arrangement or has excluded rights under an unapproved pension arrangement, the trustee of the bankrupt’s estate may apply to the court for an order for the recovery of excessive pension contributions. A copy of the relevant legislation is attached hereto marked “A”
  1.  If the court is satisfied:
    1. that the rights under the arrangement are to any extent, and whether directly or indirectly, the fruits of relevant contributions, and
    2. that the making of the relevant contributions (the excessive contributions) has unfairly prejudiced the individual creditors

It may make such order as it thinks fit restoring the position to what it would have been had the excessive contributions not been made [s342A(2) IA].

  1. “Relevant contributions” means contributions to the arrangement or any other pension arrangement –
    1. which the individual has at any time made on his own behalf, or
    2. which have at any time been made on his behalf

[s342A(5) IA]

  1.  The court shall, in determining whether it is satisfied under ss342A(2)(b), consider in particular –
    1. whether any of the contributions were made for the purpose of putting assets beyond the reach of the individual’s creditors or any of them, and
    2. whether the total amount of the any contributions –

i. made by or on behalf of the individual to pension arrangements, and

ii. represented (whether directly or indirectly) by rights under approved pension arrangements or excluded rights under unapproved pension arrangements,

                         is an amount which is excessive in view of the individuals circumstances when those contributions were made.

  1. For the purposes of s342A IA, rights of an individual under an unapproved pension arrangement are excluded rights if they are rights which are excluded from his estate by virtue of regulations under s12 of the Welfare Reform and Pensions Act 1999 (WRPA).
  1. By virtue of s11 WRPA an “approved pension arrangement” means-
    1. A pension scheme registered under section 153 of the Finance Act 2004
    2. an occupational pension scheme set up by a government outside the United Kingdom for the benefit, or primarily for the benefit of its employees;
    3. an annuity purchased for the purpose of giving effect to rights under a scheme within paragraph (a) including an annuity in payment before 6 April 2006, giving effect to rights under any scheme approved

                              i.  before that date under Chapters 1,3 or 4 of Part 14 of the Taxes Act; or

                             ii. any relevant statutory scheme, as defined by section 611 of that Act;

    1. any pension arrangement of any description which may be prescribed by regulations made by the Secretary of State.
  1. By operation of s12 WRPA, an unapproved pension arrangement is any arrangement which is not an approved arrangement.
  1. The relevant regulations are the Occupational and Personal Pension Schemes (Bankruptcy) (No 2) Regulations 2002 SI 2002/836.
  1. XXXX XXXX’s pension arrangement is an approved arrangement for the purposes of s342A IA [see bundle X page Y] and accordingly if the court is satisfied in accordance with the provisions of s342A that pensions contributions made by him to the arrangement in the period xx/xx/xxxx – xx/xx/xxxx were, inter alia, made to remove the funds concerned from the reach of creditors and were excessive, it can make the order sort by the trustee and order that the funds be repaid to the bankrupts estate.
You can access
  • a copy of the relevant sections of the Welfare Reform and Pensions Act 1999 here
  • a copy of s342A of the Insolvency Act here
  • a copy of the Occupational and Personal Pension Schemes (Bankruptcy)(No 2) Regulations here