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Satisfying judgment from scheme assets following bankruptcy discharge

Handed down on 26th July, the latest in a long line of cases in which a judgment creditor has sought to enforce their debt from the pension scheme assets of the debtor is Cohen v O’Leary [2023] EWHC 1939 (Ch), a decision of Louise Hutton KC, sitting as a Deputy Judge of the High Court.

The current state of the law is that the Court has jurisdiction to order an injunction requiring the judgment debtor to withdraw their pension scheme benefits in order to pay the debt. Amongst the cases establishing this proposition is the Court of Appeal’s decision in Bacci v Green [2022] EWCA Civ 1393.

In Cohen v O’Leary, the debtor was liable pursuant to an order of the Royal Court of Jersey to pay the creditor some £32m for breach of trust. Having been declared bankrupt, the debtor faced an application against him and his trustees in bankruptcy for permission under s.285(3) of the Insolvency Act 1986 (‘IA 86’) to apply for a Bacci v Green injunction to require his pension benefits to be drawn down, with that order taking effect from the anticipated date of the debtor’s discharge from bankruptcy.

By s.285(3) IA 86, permission of the Court is required before any legal proceedings can be commenced against an undischarged bankrupt. The applicants sought permission on the basis that the balance of the application was concerned with enforcing a debt which would survive the bankrupt’s discharge against an asset which the debtor’s trustees in bankruptcy had stated was not available to them in the bankruptcy. This was opposed on the basis that permission to apply for the injunction should have been made before application for the injunction was made. The Deputy Judge (at [16]) rejected that argument, as permission could be granted retrospectively and therefore, as here, at the outset of an application, and there was no suggestion of prejudice to the bankruptcy process.

As for the substantive application, the debtor first argued that the judgment debt would not survive the his discharge from bankruptcy as it constituted a bankruptcy debt which was released on discharge pursuant to s.281(3) IA 86. This was rejected, as the Deputy Judge held (at [25]) that the debt came within the exception in s.281(3) IA 86 for debts incurred in respect of fraud or fraudulent breaches of trust to which the bankrupt was a party.

A problem facing the application for an order that the debtor’s pension benefits be drawn down was that the applicants had very little information as to those benefits: all that they knew was that the debtor had a private pension worth around £1m. The applicants therefore first sought an order that the debtor disclose details of his pension, as well as an order that those benefits be drawn down. The Deputy Judge held (at [45]) that it would not be just and convenient to grant the substantive relief sought by the applicants in the absence of evidence as to the nature of the debtor’s pension scheme and his rights and benefits under that scheme. The Deputy Judge accordingly gave permission (at [51]) under s.281(3) IA 86 to order a witness statement from the debtor giving the information sought by the applicants as to his pension benefits and to authorise the applicants to communicate with the debtor’s pension provider to obtain information about his pension.

Additionally, the debtor argued that the relief sought against his pension benefits should not be made because of his impecuniosity. The applicants contended that there was insufficient evidence before the Court of the debtor’s financial position, and that a similar argument had been dismissed due to insufficient evidence in Lindsay v O’Loughnane [2022] EWHC 1829 (QB). However, following an undertaking given by the debtor not to dispose, deal with or diminish the value of his pension assets until further order of the Court, the Deputy Judge (at [51]) adjourned the substantive application to give the debtor time to put in evidence of his financial state.

The judgment in Cohen v O’Leary can be read here.

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