Judgement of the ECJ of 11 November 2021

John Briggs has written a case analysis of the Judgement of the ECJ of 11 November 2021

Case C-168/20

EU administered pensions and bankruptcy in UK; exclusion of pension rights from the bankrupt’s estate

Joint Trustees in bankruptcy of M v Mrs M, MH, ILA and M


On a preliminary reference from the High Court[1], the ECJ has held that Article 49 TFEU[2] (prohibiting restrictions on the freedom of establishment) precludes a provision such as s11 of the Welfare Reform and Pensions Act 1999 (“WRPA 1999”) which makes the automatic exclusion from the bankrupt’s estate of pension rights dependent on the requirement that at the time of bankruptcy the pension scheme be tax approved in that Member State where that requirement is imposed in a situation where an EU citizen who, prior to becoming bankruptcy moved to that Member State for the purpose of pursuing a self-employed activity there, has pension rights accrued under a pension scheme established and tax approved in his home Member State unless the restriction on freedom of establishment constituted by the national provision is justified by an overriding reason in the public interest and is appropriate for the attainment of the objective pursued.

John Briggs, Barrister, South Square

The practical implications of this case

The ECJ continued to have jurisdiction under Article 86(2) of the Withdrawal Agreement since the request for a preliminary ruling was made before the end of the transition period which ended on 31 December 2020.

Although the UK is no longer a Member of the EU, the ruling of the ECJ that the provisions of s 11 WRPA are indirectly discriminatory is still of significance in relation to cases where the bankruptcy proceedings were opened before the end of the transition period (Article 67.3 (c) of the Withdrawal Agreement applying EU Regulation 848/2015).

On a more general level, the decision raises the wider question whether it can be argued that s 11 WRPA 1999 is discriminatory and incompatible with Article 1 of the First Protocol (Protection of Property) and Article 14 (Prohibition of discrimination) of the European Convention on Human Rights as set out in Sch 1 of the Human Rights Act 1998.   

The background

M was an Irish property developer who moved to London in 2011 following the crash in the Irish property market and at a time when he had very large personal liabilities. In 2002 by payment of a single premium of €6,161,256 he had established an occupational pension scheme through an Irish company in the form of an insurance policy taken out with ILA and governed by Irish law.

This pension policy was transferred in 2009 into another pension scheme set up by a new Irish company S Industries also governed by Irish law and approved as a retirement benefits scheme for the purposes of the Irish tax legislation. M was a director of S Industries until April 2012 and an employee until January 2011, shortly before he came to live in the UK where he rented offices and set up as a property and construction consultant.

In November 2012 M was declared bankrupt in the High Court in London on his own petition.

In November 2018 the Trustees in bankruptcy claimed that the benefits deriving from the pension policy vested in them because the pension rights were not registered with the UK tax authorities under s 153 of the Finance Act 2004 and so not an “approved pension arrangement” as defined by s 11(2) (a) of the WRPA 1999 the rights of which are excluded from the bankrupt’s estate by s 11(1).

In his defence M claimed that EU law principally Articles 21, 45 and 49 TFEU (the “freedoms of movement and establishment”) require that any rights accrued under the pension scheme be excluded from the bankrupt’s estate and that s 11 must be “read down” to give it a conforming interpretation to eliminate the discrimination.

What the ECJ decided

First, that M having left Ireland where he was pursuing a self-employed activity with a view to settling permanently in the UK in order to pursue the same activity in the UK property market, the situation is clearly covered by the principle of non-discrimination on the ground of nationality given effect in the area of freedom of establishment by Article 49 TFEU.

The ECJ recognised that the UK rules provided two levels of protection; a “gold standard” constituting full and automatic protection for “approved pension arrangements” including pension schemes registered pursuant to s 11 WRPA 1999 and “qualifying overseas pension schemes” within the meaning of s 308A ITEPA 2003 and a “bronze standard” of protection under s 12 WRPA 1999 for rights in “unapproved pension  arrangements” constituting protection which is partial and excludes pension rights only to the extent required to meet the future needs of the bankrupt and his family and discretionary by means of either agreement with the trustee in bankruptcy or by court order.

A provision of national law even if it applies to all workers regardless of nationality must be regarded as discriminatory if it is intrinsically liable to affect workers who are nationals of other Member States. Self-employed migrant workers will in most cases have pension rights accrued under schemes established and registered in their home Member State and since the referring court is of the view that administrators of such overseas schemes will generally not take the steps necessary, even if not difficult per se, to ensure that such schemes are also approved in the UK the ECJ finds that s 11 is precluded by the rule of equal treatment in Article 49 TFEU unless justified by an overriding reason relating to the public interest.

It is for the referring court to ascertain whether as regards pension arrangements already tax approved in an EU Member State but not in the UK the requirement of additional approval by the UK tax authorities in s 11 WRPA 1999 is proportionate to the objective pursued by that provision.

However, among other factors, the ECJ noted that the UK Government had made no submissions in the proceedings and it follows from the guidance issued by the UK Insolvency Service[3] that a requirement of parity of treatment for pensions recognised or approved in Member States must be applied so that rights under those schemes must be able to benefit from the exclusion laid down in s 11, suggesting, as M maintains, that unequal treatment cannot be justified by an overriding reason relating to the public interest.    

[1] Judgment of Nugee J; [2020] EWHC 98 (Ch)

[2] Treaty on the Functioning of the European Union

[3] Technical Guidance for Official Receivers Chap 57.39

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