Director forced to draw down pension

Manolete Partners Plc v White [2023] EWHC 567 (Ch)
Can a director be compelled to draw down his pension benefits to satisfy a judgment debt for breach of director’s duties brought following the administration and voluntary liquidation of the employer?

Overview

In this case, the Court ordered a director to draw down his pension benefits to satisfy a judgment debt for breaching his director’s duties following the administration and voluntary liquidation of his employer. The Court emphasised the principle that debtors should not be allowed to hide assets away in a pension fund which they have a right to withdraw, and which are needed to pay creditors. The Court found that it had the jurisdiction to make the order under section 27 of the Senior Courts Act 1981, and that section 91 of the Pensions Act 1995 was not a bar to the making of the order.

Background

The respondent Ian White was a director of Lloyds British Testing Limited, a prominent provider of inspection, testing and repair services of lifting equipment, from 2002 to 2016. The company entered into administration on 24 November 2016 and then into creditors’ voluntary liquidation on 28 November 2017.

On 26 August 2020, the applicant Manolete took an assignment of claims that Mr White had breached fiduciary duties owed to the company by causing it to make various payments during the 20-month period leading up to the company’s administration. These included payments towards a Bentley Flying Spur and a Bentley Continental, two Lamborghinis, a Porsche, foreign holidays in the Caribbean and the Maldives, Mr White’s home, the rent of his son’s flat, substantial direct payments to Mr White, and the cost and expenses of acquiring and operating a helicopter.

Manolete issued an insolvency originating application against Mr White on 19 April 2021. The Court found that Mr White had, in fact, made various payments in breach of his fiduciary duties to the company and ordered him to pay a total judgment debt of £996,014.22, payable within 14 days (by 8 September 2022). To date, Mr White has not paid down any of this debt.

Manolete then brought an application to compel Mr White to drawn down his benefits under an occupational pension scheme which had been financed by the company in order to pay:

1. first, any outstanding sums owed to Barnett Waddingham Trustees Limited, the former professional trustee of the pension scheme;

2. second, any tax owing to HMRC as a result of the pension drawdown; and

3. third, to Manolete (and to the company’s creditors, since Manolete is under a contractual obligation to return a substantial part of any net recoveries to the company’s insolvent estate) up to the outstanding amount of the judgment debt.

The Court’s Decision

It was undisputed that Mr White was the only beneficiary of the scheme, and that the scheme’s only asset was an income-producing commercial property which had been acquired by the company. Mr White submitted that the application should be refused on the grounds that the Court was unable to restrain him from receiving his occupational pension by s. 91 of the Pensions Act, the relief sought was premature, and his financial circumstances were such that the Court should not exercise its discretion against him in any event.

Manolete argued that Mr White should be required to draw down his pension pot in order to pay his substantial judgment debt to the company’s creditors, and that he should not be permitted to keep the benefit of a £800,000 property, and annual income of £60,000, to the detriment of his creditors.

The Court began by reviewing the relevant statutory provisions, including:

1. section 37 of the Senior Courts Act 1981, which provides that the High Court may grant an injunction, appoint a receiver or make any such order as the Court thinks just;

2. section 39 of the Senior Courts Act 1981, which provides that where the High Court has directed a person to execute any conveyance, contract or other document, or to indorse any negotiable instrument, and the person does not do so, the Court may order that it be executed or indorsed by another person nominated by the Court, and that the document shall operate as if it had been executed or indorsed by the person originally directed to execute or indorse it; and

3. section 91 of the Pensions Act 1995, which provides that a person’s rights under an occupational pension scheme cannot be assigned, charged, or set off, subject to certain prescribed exceptions, including an exception to enable the employer to obtain the discharge of some monetary obligation due to the employer arising out of a criminal, negligent or fraudulent act or omission by the person entitled to the pension (s. 91(5)(d)).

The Court then reviewed the relevant case law, including the seminal case of Blight v Brewster [2012] EWHC 165 (Ch), a fraud case where the High Court ordered the defendant to exercise an election to draw 25% of his pension scheme as a lump sum to satisfy a judgment debt. The Deputy High Court Judge held that there was a strong principle and policy of justice that debtors should not be allowed to hide assets away in a pension fund which they have a right to withdraw, and which are needed to pay creditors. The Court also held that it has the jurisdiction under s. 37(1) to grant an injunction ordering the defendant to make the election where justice requires.

The Court then considered Bacci v Green [2022] EWHC 486 (Ch), another fraud case where the Court held that the making of an order which affects that part of the judgment debtor’s pension which cannot be withdrawn without incurring a liability to tax is not an impermissible extension of Blight v Brewster, and that s. 91 of the Pensions Act is no obstacle to the Court ordering a judgment debtor to access their pension pot. The High Court’s decision was upheld on appeal.

The Court then turned to Brake v Guy [2022] EWHC 1746 (Ch), which was not a fraud cause, where the High Court rejected any suggestion that the nature of the judgment debt was of any real relevance to the exercise of the court’s discretion in granting an injunction, and made the order sought notwithstanding that the debt was not perpetrated by a fraud.

Finally, the Court considered Lindsay v O’Loughnane [2022] EWHC 1829 (QB), where the the Deputy High Court Judge affirmed many of the legal principles above and made a Blight v Brewster order, and added that a judgment debtor’s impecuniosity itself is not decisive of the outcome of an application.

The Court was satisfied that Manolete had established that Mr White had sufficient power to exercise the drawdown rights under the scheme rules. If this required Mr White to take the prior step of asking for his fund to be designated as a “drawdown pension fund”, the Court was satisfied that it had the necessary power under s. 37(1) to require him to take this prior step.

Subject to the potential bar presented by s. 91 of the Pensions Act, the Court found that it clearly had the necessary jurisdiction to grant an injunction requiring Mr White to exercise his rights to draw down his pension pot to enable him to satisfy his judgment debt. The Court derived no assistance from the exception in s. 91(5)(d) of the Pensions Act, which is directed to charges, liens and set-offs, and not to the grant or withholding of injunctive relief, and relates to criminal, negligent or fraudulent acts or omissions, and not to misfeasance as a company director.

The Court ultimately relied on the reasoning in Bacci v Green, finding that, provided the payment is directed to be made to a nominated UK bank account in the name of Mr White, there will be no contravention of the statutory prohibition in s. 91 of the Pensions Act. This is because, as explained by the Deputy Judge in Bacci v Green, the order will not have the effect of restraining Mr White from receiving the pension pot but rather the opposite: it will ensure that the payment of that pension pot is made to Mr White, rather than remaining within the scheme wrapper. It made no difference that the order was motivated by the objective of enabling the pension pot to be applied in satisfaction of a pre-existing judgment debt owed to Manolete.

Finally, the Court found that it was appropriate to exercise its discretion to order Mr White to exercise his rights to draw down his pension pot to enable him to satisfy, at least in substantial part, his liability under the judgement to the benefit of the company’s creditors in its liquidation. A highly important consideration in the present case which served to distinguish it from many other cases was that the principal asset comprised with Mr White’s pension fund was derived entirely from funds provided by the company. The judgment debt was the result of Mr White’s misfeasance and breaches of fiduciary duty whilst acting as the company’s controlling director and shareholder. It was neither just, nor convenient, nor equitable that Mr White should be entitled to retain his pension, derived entirely from moneys provided by the company, whilst the judgment debt entered against him in favour of that company’s assignee remained wholly unsatisfied.

Judge: Judge Hodge KC

Counsel: Joseph Curl KC of 9 Stone Buildings and Jon Colclough of New Square Chambers (instructed by Addleshaw Goddard) for Manolete; Tom Asquith of 4 New Square Chambers (instructed by Farleys Solicitors) for Mr White