The not so artful dodger: art dealer ordered to draw maximum pension sums to pay creditors
3 Mar 2023
4 min read
This article was written by Justin Briggs and Sara Charteris-Black.
Click here for more detail on this case, including an explanation of the Court’s reasoning.
Summary
In the recent Court of Appeal decision Bacci v Green [2022] EWCA Civ 1393 the Court, upholding the decision of the High Court, held that a judgment debtor can be ordered to delegate authority to waive valuable tax protection and draw pension where doing so would enable creditors to extract what they were owed.
The Facts
In 2017, Matthew Green, son of established Mayfair art dealer Richard Green, committed fraud in obtaining loans from FundingSecure.
Mr Green was subsequently declared bankrupt with the result that most of his assets fell into his bankrupt estate. However, given the public policy of protecting pension rights in bankruptcy, Mr Green’s right to a pension from age 55 was excluded from falling into his bankrupt estate (s. 11 Welfare Reform and Pensions Act 1999).
Mr Green’s interest in his pension scheme - which included a share of a prime piece of property in Mayfair, last valued at £55 million - was well in excess of the judgment debt. The issue for his creditors was how to extract what they were owed from his pension in the face of:
- Mr Green’s claim for ‘enhanced protection’ from the Lifetime Allowance charge, meaning he was limited to withdrawing £375,000 from his pension. If he revoked this enhanced protection, he would be entitled to withdraw a Lifetime Allowance Excess Lump Sum to the tune of around £1.6 million.
- An unhelpful Court of Appeal decision (Horton v Henry) which concluded that the present right to elect to draw a pension in the future is not income to which the debtor is entitled under section 310(7) Insolvency Act 1986, and;
- Various additional statutory protections which appeared to favour the rights of debtors over those of creditors.
The creditors applied for injunctive relief under section 37(1) of the Senior Courts Act 1981, which provides that the High Court may grant an injunction or appoint a receiver where it is just and convenient to do so.
The specific orders sought by the creditors were for Mr Green to delegate to their solicitors:
- his right to instruct the pension scheme trustees to put his pension into payment and to provide him with a Pension Commencement Lump Sum, and;
- his power to notify HMRC that he wished to revoke his enhanced protection and draw a Lifetime Allowance Excess Lump Sum.
The intention was that the pension payments and the two lump sums would be paid into one of Mr Green’s UK bank accounts (nominated by the creditors). At that point the creditors would enforce their judgment in the normal way, via a third party debt order, requiring the bank to pay those sums to the creditors.
The Decision
The High Court made the orders sought by the creditors, and Mr Green appealed the decision.
The Court of Appeal upheld the decision of the High Court, finding that:
- The power to revoke enhanced protection did not have to be “property” or “tantamount to ownership” in order to grant injunctive relief under section 37(1) of the Senior Courts Act 1981;
- It did not matter that the order was unprecedented in nature, as the power to grant injunctions can develop incrementally;
- The tax charge that Mr Green would incur as a result of the order was not a bar to granting it, and;
- The public policy of protecting pension rights in bankruptcy had limited significance where the judgment was founded on fraud by the debtor.
Takeaways
Fraudsters should be under no illusions that they will be able to cling on to valuable pension benefits, as this case demonstrates just how creative the Court is willing to be when exercising its section 37(1) jurisdiction. This creative approach may come to favour liquidators as it suggests there is scope for looking beyond assets in the debtor’s control and to assets that the debtor may be entitled to in future.
The Court of Appeal in Bacci v Green orders a debtor to delegate authority to waive valuable tax protection and draw pension to satisfy a judgment debt