(UK) Pensions – A Pot to Play for?
Thursday, May 25, 2023

The recent case of Re Lloyds British Testing Ltd [2023] is a reminder not to forget that in the right circumstances a director’s occupational pension pot might be a valuable source of funds that an Insolvency Practitioner (IP) can access to recover an unpaid debt due from a former director.

Background

In this case, an application was brought by Manolete Partners Plc seeking an order to compel the judgment debtor, a former director of Lloyds British Testing Ltd (the “company”) to draw down his pension to satisfy an outstanding judgment debt.

Manolete had previously taken an assignment of a claim from the liquidator of the company against Mr White, the former director, for breach of his fiduciary duties.

Mr White had, amongst other things, used company funds to make payments towards several super-cars, an array of luxury holidays, personal payments towards living costs and the operation of a helicopter.  The court found in earlier proceedings that Mr White was in breach of his duties resulting in an order to pay nearly one million pounds.

Mr White did not pay the judgment debt.

The director was the sole beneficiary of an occupational pension comprising a commercial property worth £800,000 which generated an income of £60,000 per annum. Central to this case was that the pension pot was derived entirely from funds provided by the company and as such, related directly to the court’s previous finding of misfeasance against the director.

Manolete therefore issued an application to compel Mr White to draw down his pension to satisfy the debt.  He opposed saying, amongst other things, that the court could not make the order sought because of s91 of the Pensions Act 1995 (the “Act”) because the scheme was an occupational pension scheme and, due to his personal situation (the property was all that he had), the court should exercise its discretion in his favour.

As part of their claim Manolete relied on previous authority where the courts have ordered a defendant draw down their pension.  The director however argued that s91 of the Act barred the court from making such an order in this case.

Decision

The court relied on the principle that debtors should not be allowed to hide assets in pension pots (as was established in Blight v Brewster) and that s91 of the Act did not prevent the court making that order. In the circumstances, it was just and equitable that the pension pot be drawn down to satisfy the debt, particularly since the debt was a direct result of the director’s misfeasance and the funds were entirely derived from company money.

Commentary

An important consideration, when deciding whether to bring a claim against a former director and/or settle, is the ability of the director to pay.  An IP has to weigh up the costs of bringing a claim and the potential returns to creditors against the litigation risk and ability of the director to pay even if the claim is successful.

Often, as with this case, an IP will assign a claim to a third party funder, but similar consideration will apply to the funder when deciding whether to take an assignment of the case.

This case is a helpful reminder that in corporate insolvencies, pensions pot might be available to satisfy a successful claim and should be taken into account when deciding whether to pursue a claim.  Contrast this to the position in bankruptcy, where the bankrupt’s pension pot is protected.

Although this particular decision was fact specific, it is not unusual in misfeasance type cases to find that a director has used company monies to fund their lifestyle and when determining whether to exercise discretion to order that a pension pot is drawn down, that type of behaviour is.

Elliot Hill also contributed to this article.

 

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