EU pension schemes and bankruptcy

McNamara was an Irish property developer made bankrupt in England following a change of COMI. The question was whether his valuable rights under an Irish occupational pension scheme could be claimed for the estate by his Trustee in Bankruptcy.

Under section 11 of the Welfare Reform and Pensions Act 1999, only pensions registered with HMRC are excluded from the bankrupt estate. McNamara’s pension scheme was not (as is the case with most foreign pension schemes), but it had equivalent approval in Ireland. A reference to the ECJ was made on the question of whether section 11 was incompatible with EU Law by constituting a restriction on the freedom of establishment. 

The ECJ’s ruling was that it did. As the ECJ’s rulings bound member states on the interpretation of EU law, this would mean all UK courts needing to interpret section 11 so it applied to all EU tax approved schemes, not just those approved by HMRC. However, the ECJ also stated it was up to national courts to determine whether or not this restriction could be justified as being proportionate to its aims. That was referred back to the High Court, but the justification defence had not been argued by the trustee at all during the application and it held it was now too late to do so. Therefore, McNamara’s pension rights did fall outside the bankruptcy estate.

Although the decision relates to a point of EU Law, it is nevertheless relevant to bankruptcies  before the end of the Brexit transitional period on 31 December 2020 where the individual has rights under a scheme approved in another EU state. In those circumstances, a Trustee in Bankruptcy seeking to claim those entitlements will need to successfully argue that restriction in section 11 is justified.

Wilson v McNamara [2022] EWHC 243

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