In Re Equitable Life Assurance (4 December 2019) Zacaroli J sanctioned a scheme of arrangement in respect of England’s first mutual assurance society, which had been in solvent run-off since 2000. Equitable presented a scheme to address unfairness which would arise from the tontine effect in the run-off of Equitable’s with-profits business (by removing the with-profits business in exchange for the conversion of those policies to unit-linked policies but with an uplift in value). However, the immediate effect of the scheme would be that Equitable would hold insufficient capital to meet its own capital requirements. Equitable and another insurer, Utmost Life and Pensions, therefore also sought sanction of a scheme to transfer Equitable’s business to Utmost.
Zacaroli J sanctioned the schemes and provided guidance, inter alia, on:
- Class composition – Where as in this case, the court had (at the convening hearing) provided a reasoned judgment as to class composition in circumstances where scheme creditors had been given sufficient notice of the issues that were to be determined at that first stage, then while the decision made at the convening hearing was not binding on the court, in practice the court at that later stage would not re-open the issue of class composition.
- Voting – It is the majority of those who vote that is needed, not policyholders as a whole. So the fact that there might be a low turnout (and here considerable effort had been made to engage with policyholders) did not mean there was coercion on the minority.
- Solvent company – The scheme jurisdiction is not limited to cases where there is a “problem requiring a solution” such a prospective insolvency. In any event, here there was clearly a problem requiring a solution.
- Certain members excluded on jurisdictional grounds – The scheme excluded policyholders whose policies were governed by German law as there were concerns it might not be recognised in Germany. Instead, those policies would be transferred to a sub-fund on the same terms and conditions.
The Court has an absolute discretion 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 to company directors. The question is whether the scheme as a whole is fair 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.