Pensions and enforcement of judgment debts

Aadal Shafiq examines recent caselaw, revealing a growing trend to prioritise creditors' rights in debt recovery from pension funds.

Published November 2023

Historical protection of pensions

Until fairly recently, pension funds were protected from enforcement by creditors with court judgments against non-paying debtors. This was still the case in 2003 in Field v Field, where the court held it had no power to allow enforcement of an ancillary relief order made in a divorce against the non-paying party.

The judgment in Field v Field examines section 37 Senior Courts Act 1981. This provision gives the court wide powers to grant injunctions for the purpose of enforcing judgment debts against assets. The court concluded that the power could not be used as a 'stand-alone'. It can only be exercised when the claimant has an existing right to enforce against a particular asset, for example, a property.

More recent decisions show courts beginning to grant injunctions using this power. Scrutiny of the timeline of recent cases presents an approach that is becoming less tolerant of debtors who appear to hide their wealth in pension funds to the detriment of their creditors. 

A change in the courts' approach 

In 2012, Blight v Brewster marked the first shift in the courts' approach. The court restored a third-party debt order to access a 25% lump sum from the judgment debtor's pension. A third-party debt order is a method of enforcement that allows a judgment creditor to access assets of the debtor, most commonly money in a bank account.

The judge commented 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”. The court found that it had jurisdiction under section 37 Senior Courts Act 1981 to grant an injunction ordering the debtor to draw down on their pension.  

This opened up the possibility of the enforcement of a judgment debt against a debtor’s pension where the debtor is over the age of 55 and has not yet accessed their pension fund.

Application of Blight v Brewster

There have been several court cases including four notable judgments since 2022, adopting a ‘Blight v Brewster’ relief approach.   

In Bacci v Green (2022), the judgment debtor had held an interest in an occupational pension scheme. The court imposed an injunction under section 37 Senior Courts Act 1981 ordering Green to delegate the right to call for a lump sum under the pension scheme once he turned 55. The lump sum was to satisfy outstanding debts that had been incurred fraudulently.

Not just for fraud - Brake v Guy, Lindsay v O'Loughnane 

In both the Blight case and Bacci case, the debts related to fraud. That changed in 2023, with Brake v Guy. This protracted litigation is better known for its mental health crisis moratorium implications. Here, the judgment debt was not fraudulently incurred, yet an injunction was granted ordering the debtor to exercise their right to draw down their pension entitlement under a third-party debt order. The proceedings had been hostile throughout, and some commenters noted this was the judgment of a court at the end of its tether.

Breach of directors duties  

The court had already extended the potential scope for enforcement of judgments against pensions in the 2022 case of Lindsay v O'Loughnane. The judgment against the defendant was not incurred through fraud, but rather through a breach of directors’ duties and subsequent insolvency.  

The court ordered O’Loughnane to give written notice to his pension providers requesting access to the funds on the retirement date, or age 55 if later. It required the pension provider to pay the claimant directly. This demonstrates that a court can order payment of the entirety of the pension to be paid to a creditor and not just the tax-free lump sum. The judge felt that the starting presumption in these situations is "…that the court should assist the judgment creditor to recover the debt due to him” and that it was "just, equitable and convenient" to make the order.  

Manolete Partners v White [2023]  

In October 2023, Manolete Partners PLC v White saw the court grant an injunction forcing the respondent to draw down his pension for breach of director’s duties. The court followed the principles laid down in the earlier cases.   

Mr White was a director of Lloyds British Testing Limited until the company went into liquidation in 2017. Over 20 months before the company’s liquidation, Mr White had accessed company assets to make various purchases. These included luxury cars, luxury holidays, and a helicopter. He had acquired property for himself and his son.

The court held that the payments were made for the defendant's financial benefit. The payments were a clear breach of Mr White’s duties as director. He was ordered to pay just under a hundred thousand pounds.

Application to access the pension funds 

Manolete Partners applied to the High Court for an injunction under section 37 Senior Courts Act 1981 to force Mr White to draw down his pension (within the pension scheme rules) and to satisfy some of the judgment debt. Manolete was aware that Mr White had pension funds in the sum of £237,000.  

Mr White’s main defence relied upon section 91 Pensions Act 1995 (Inalienability of occupational pension), stating that he would be restrained from receiving his pensions if an injunction were made forcing him to draw down his pensions.  

The High Court had to consider whether Mr White was required to draw down his pension to partially satisfy the judgment.

The court's decision  

The court followed the approach taken in Blight v Brewster and held that it could, and should, compel Mr White to draw down on his pension fund to satisfy a judgment debt for breach of director's duties. It was appropriate for the court to exercise its jurisdiction under section 37 Senior Courts Act 1981 to make the order sought.   

The court confirmed that section 91(2) Pensions Act 1995 is no bar to the making of this order. An order would require a payment to be made to Manolete rather than remaining tied up in the pension scheme.  

The court followed the approach of the court in Lindsay v O’Loughnane by ordering the respondent to give written notice to the scheme trustees asking for the remaining pension fund to be changed to a Drawdown Pension Fund. The pension fund is then to be directed to the respondent’s bank.  

Mr White’s pension consisted of funds provided by the liquidated company and the court considered this highly important in reaching its decision This, coupled with Mr White’s misfeasance and breaches of fiduciary duties as director, convinced the court that it was "neither just, nor convenient, nor equitable" that he should be allowed to keep his pension (paragraph 77).

Risks of pensions enforcement for judgment debtors  

The Manolete case is the most recent example of courts making orders to force debtors to draw down on their pensions even in non-fraud cases. Debtors should be warned of the possibility that creditors might try to enforce judgments against undrawn pensions in this way.  

In any case, it is worth noting that a court's decision can differ from case to case depending on its facts. The above cases involved debtors involved in some kind of misconduct, such as fraud or a breach of duties. They are not average debtors with consumer debts and a regular occupational pension. Advisers need not be unduly concerned with the application of these cases to clients who have not been involved in fraud or misconduct.

Find a case summary for Manolete Partners v White on Shelter Legal.

About the author

Aadal Shafiq is a specialist debt adviser at Shelter, a member of the Quarterly Account editorial board, and a co-author of the Legal Action debt update.