Third Party Debt Orders Against Pension Funds
Getting a judgement for a debt is only the first part as a judgement, is only worth the paper it is written on without actual payment of the debt.
Enforcement of a judgement can be as, if not more difficult, to obtain.
You could obtain an assets search/report on the debtor to decide on the best method of enforcement. You could also apply for an order for a debtor to attend court to give information under oath about their financial situation under the Civil Procedure Rules (“CPR”) 71.
One of the methods which may be appropriate for enforcement of a judgement debt is to secure a third party debt order under CPR 72. The order allows a third party who is holding funds belonging to a debtor, to pay this to the creditor, in satisfactions of the judgement. They are usually applications made against banks. It requires a debt due from a third party.
However, they have also recently been used more innovatively against pension policies which can be substantial assets to enforce against. We take a look at some of these cases below:
Blight v Brewster (2012)
Mr Brewster owed a debt to Mr Blight having defrauded him (and others). Mr Brewster had a personal pension fund and as he was over 55 years old, could elect to draw down 25% of the pension policy as a tax free lump sum.
The court allowed under s39 of the Senior Courts Act 1981 for Mr Blights’ solicitor to make an election to draw down on the lump sum on Mr Brewster’s behalf, having first imposed an mandatory injunction for Mr Brewster to delegate his power of element to Mr Blights’ solicitor. Once this was drawn down then it was a debt owed by the pension company to Mr Brewster against which Mr Blight could secure a third party debt order against.
The court felt that, “There is a strong principle and policy of justice to the effect that debtors should not be allowed to hide their assets in pension funds when they had a right to withdraw monies needed to pay their creditors”.
Bacci and others v Green (2022)
A judgement for fraud in excess of £3,000,000 plus costs had been obtained. This was also protected by a worldwide freezing order for just under £3,000,000.
Mr Green was declared bankrupt but his rights under the Pension Scheme fell outside if his estate in bankruptcy.
Mr Green had a pension fund worth around £8.5m, although 56.1% of that belonged to Mrs Green as a result of a Pension Sharing Order. That fund was subject to various rules governing the means by which Mr Green could elect to receive his benefits. However, there was a route through which Mr Green could immediately access a substantial proportion of that fund (albeit subject to a tax charge), leaving a sum of about £1,000,000 to provide him with a pension.
The court again found it ‘just, equitable and convenient’ to make an order against Mr Green.
Lindsay v O’Loughnane (2022)
This was enforcement of an award for substantial damages and costs owed, following proceedings in which deceit had been found.
Mr O’Loughnane had a number of person pensions plans held with different companies. However, Mr O’Loughanane was not in fact old enough to draw down on his pension policies.
The judge instead ordered that notice be given in advance of the anticipated date for any drawn down of his pensions, with liberty to apply in the event of default. Mr Lindsay in the meantime was protected as he had also had the benefit of a freezing order over the pension policies.
Brake and Brake v Guy (2022)
This was enforcement of a costs order and in particular an order for a payment of account of costs for £70,000, which was not paid.
Mr Brake had a pension policy held with James Hay Partnership and the documentation showed that Mr Brake had three main ways to benefit from his pension, he could elect
- to purchase an annuity for his life
- to take lump sums, or
- for income withdrawal, called “flexi-access drawdown”.
Mr Brake took out 25% of the fund straight away (with no tax consequences) and could now withdraw any amount over whatever period he chooses as an income withdrawal so had unrestricted access to the funds.
In the end the judge concluded:
“…it is indeed just and convenient for the court to make an injunction ordering Mr Brake to exercise his right to draw down his remaining pension entitlement from the third party. Mr Brake has been ordered to pay to the successful respondents their costs of his unsuccessful appeal. He has an asset which can be realised for their benefit. The authorities make clear that it does not matter that the asset concerned is a pension entitlement.”
It did not concern the court that the pension funds were invested so in cash, or that the 25% tax free lump sum had already been taken, so any further withdrawal would attract taxes and fees, or that there was no fraud in this case.
We recently had a similar case when a pension policy consisted of a property so was not liquid, but the court did not see any issue with granting a third party debt order where the 25% lump sum had already been withdrawn.
Given the requirement for auto enrolment into pension schemes, pensions are probably the second most valuable asset anyone will have after properties. It should therefore not be overlooked in the question of enforcement and courts have been ready to do justice by allowing creditors access to them as valuable assets to avoid unfairness of debts going unsatisfied.
If you’re in need of expert advice relating to debt enforcement please call our highly experienced Dispute Resolution team today on 0808 271 9413 to talk through your situation with us. Alternatively, you can request a call back or get in touch with us online.