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England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Scottish Equitable Plc, Re  EWHC 1439 (Ch) (15 June 2017)
Cite as:  EWHC 1439 (Ch)
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QUEEN'S BENCH DIVISION
Fetter Lane, London, EC4A 1NL
B e f o r e :
| In the Matter of Scottish Equitable Plc
|- and –
|In the Matter of Rothesay Life Plc
Crown Copyright ©
Mr Justice Warren Thursday, 15th June 2017
Ruling by MR JUSTICE WARREN
General Principles Relating to Scheme:
"The court must consider that, in all the circumstances of the case, it is appropriate to sanction the Scheme."
"Although the statutory discretion is unfettered, it must be exercised according to principles which give due recognition to the commercial judgment entrusted by the company's constitution to its board. The court in my judgment is concerned in the first place with whether a policyholder, employee or other person would be 'adversely affected' by the scheme in the sense that it appears likely to leave him worse off than if there had been no scheme. It does not however follow that any scheme which leaves someone adversely affected must be rejected. For example, as we shall see, one scheme which might have been adopted in this case would have adversely affected many London Life's employees because they would have become redundant. But such a scheme might nevertheless have been confirmed by the court. In the end the question is whether the scheme as a whole is fair as between the interests of the different classes of persons affected. But the court does not have to be satisfied that no better scheme could have been devised. A board might have a choice of several possible schemes, none of which, taken as a whole, could be regarded as unfair. Some policyholders might prefer one such scheme and some might think they would be better off with another. But the choice is in my judgment a matter for the board."
"(1) The 1982 Act confers an absolute discretion on the court whether or not to sanction a scheme but this is a discretion which must be exercised by giving due recognition to the commercial judgment entrusted by the company's constitution to its directors.
"(2) The court is concerned whether a policyholder, employee or other interested person or any group of them will be adversely affected by the scheme.
"(3) This is primarily a matter of actuarial judgment involving a comparison of the security and reasonable expectations of policyholders without the scheme with what would be the result if the scheme were implemented. For the purpose of this comparison the 1982 Act assigns an important role to the independent actuary to whose report the court will give close attention.
"(4) The FSA by reason of its regulatory powers can also be expected to have the necessary material and expertise to express an informed opinion on whether policyholders are likely to be adversely affected. Again the court will pay close attention to any views expressed by the FSA.
"(5) That individual policyholders or groups of policyholders may be adversely affected does not mean that the scheme has to be rejected by the court. The fundamental question is whether the scheme as a whole is fair as between the interests of the different classes of persons affected.
"(6) It is not the function of the court to produce what, in its view, is the best possible scheme. As between different schemes, all of which the court may deem fair, it is the company's directors' choice which to pursue.
"(7) Under the same principle the details of the scheme are not a matter for the court provided that the scheme as a whole is found to be fair. Thus the court will not amend the scheme because it thinks that individual provisions could be improved upon.
"(8) It seems to me to follow from the above and in particular paragraphs (2), (3) and (5) that the court, in arriving at its conclusion, should first determine what the contractual rights and reasonable expectations of policyholders were before the scheme was promulgated and then compare those with the likely result on the rights and expectations of the policyholders if the scheme is put into effect."
"7. So far as the first part of that citation is concerned, in my view it is applicable to the transfer of long-term business, in particular the transfer of with-profits business. That was the issue in the London Life case. The emphasis is there on fairness as between the interests of different classes of persons and whether the terms of the scheme could have been improved. In my judgment, fairness is not usually, if ever, an issue which arises in relation to the transfer of general business. As I have said, the concern of general insurance policyholders is whether their claims will be paid. That is not a question of fairness; it is a question of ensuring that the transferee is in a financial position to meet those claims as and when they are made. In contrast, fairness is at the heart of the conduct of with-profits business in circumstances where the insurer, through its own appointed actuary, has to make judgments as to how profits are to be allocated, the extent to which there are to be bonuses, whether on an annual or terminal basis, and judging the interests of different groups of policyholders, as well as the company and its shareholders."
The Expert's Reports:
"6. Notwithstanding that detailed perusal of a proposed Scheme both by an independent expert and by the FSA are conditions precedent to the exercise of the court's discretion to sanction it, the discretion remains nonetheless one of real importance, not to be exercised in any sense by way of rubber stamp. The principles to be applied by the court in considering whether to exercise its discretion are well settled. They were first set out by Hoffmann J (as he then was) in the unreported decision Re: The London Life Association Limited and others on 21st February 1989, albeit then under section 49 of the Insurance Companies Act 1982, and more recently reaffirmed by Evans-Lombe J in Re: Axa Equity and Law Life Assurance Society plc and another  2 BCLC 447, in particular at paragraph 6 of his judgment. The relevant principles are concisely summarised in the following passage from the judgment of Mr Justice Rimer in Re: Hill Samuel Life Assurance Limited  3 All ER 176, at 177:
"'Ultimately what the court is concerned with is whether the scheme is fair as between different classes of affected persons, and in arriving at a conclusion as to whether or not it is, amongst the most important material before the court is material which the Act requires to be before it, namely, the report of an independent actuary as to his opinion on the scheme'."
"I am satisfied that the implementation of the Scheme will not have a material adverse effect on:
"1. The security of benefits of the policyholders of SE and Rothesay; or
"I am satisfied that the Scheme is equitable to all classes and generations of Rothesay and SE policyholders."
"My conclusions remain unchanged whether or not the LGAS scheme and/or the Zurich scheme is sanctioned."
"SE and RL each have slightly different methods of calculating their technical provisions. This includes an increase in absolute levels of excess assets over SCR from 142 per cent in SE to 162 per cent in RL."
"The transferring SE policies are all non-profit in payment or deferred annuities and therefore policyholders' reasonable expectations are respect of their policies are principally that:
1. "They received their income as guaranteed under the policy or the date specified from the point of purchase;
2. The administration, management and governance of the policies are in line with the contractual terms under the policies; and
3. The standards of service are at least as good as those they currently receive."
" A - I do not like Rothesay. I do not want to have anything to do with Rothesay. I believe that Rothesay will pursue policies to maximise their profit and the profits of their shareholders without proper regard for policyholders like me.
B - SE/Aegon have entered into these arrangements with Rothesay with no regard for my interests as a policyholder. Policyholders had not been asked to consent, let alone told before the actual economic deal was done. The money passed to Rothesay in April 2016 but the policyholders were not told, let alone asked, and they were given no choice.
C - The Scheme is a stitch-up. The court has effectively been presented with a fait accompli. It will be told that if it does not sanction the Scheme well, frankly, it makes no difference. If the law requires those transferring the insurance business to inform the policyholders and obtain the sanction of the court before the transfer takes place, the law has been made a mockery."
"Rothesay is a subsidiary of Rothesay HoldCo, which in turn is owned by Goldman Sachs (32.7 per cent), the Blackstone Group LP (26.5 per cent), the Government of Singapore Investment Corporation (26.5 per cent), Mass Mutual Financial Group (6.5 per cent), and Management Employment and Elian Employee Benefit Trustees Limited (7.8 per cent)."