Norwich Union Linked Life Assurance Ltd & Ors, Re

In sanctioning an insurance business transfer scheme, the court must decide whether sanction is appropriate in all the circumstances. Fairness is assessed by considering the scheme as a whole and balancing the interests of the different classes affected, including policyholders and shareholders. A scheme is not unfair merely because some persons are adversely affected or receive no benefit. The court may approve supplemental provisions within the scheme, provided its predominant purpose remains to effect the statutory transfer and the provisions fall within the jurisdiction conferred by Financial Services and Markets Act. Expert evidence is central to assessing whether changes to policyholders’ security cause any material disadvantage.

Ten insurance companies applied under sections 107 and 111 of the Financial Services and Markets Act for sanction of a complex insurance business transfer scheme. The scheme formed part of a corporate restructuring and involved transfers of long-term insurance business between group companies, together with supplemental provisions affecting policies and related matters.

The court considered objections concerning policyholders’ security, the independence and methodology of the independent expert, capital structure, the absence of an opt-out, and the court’s jurisdiction to approve supplemental provisions under section 112. The central issues were whether the supplemental provisions were within the statutory jurisdiction and whether the scheme was fair and appropriate.

1. Supplemental provisions. The court held that an insurance business transfer scheme need not do nothing more than effect a transfer of the kind described in section 105(1)(b) of the Financial Services and Markets Act. Its predominant purpose must remain to result in one or more such transfers, but its contents are not otherwise boundless. Section 112(5), concerning property vesting free from charges, supported the conclusion that an IBTS may include provisions going beyond the bare transfer.
2. The court adopted the broader construction of “necessary” in section 112(1)(d), treating it as lying between “indispensable” and “desirable”. Supplemental provisions may be included in the scheme itself or authorised under section 112(1)(d). Where there is doubt, both jurisdictions may be invoked. The provisions in the draft order were therefore within the court’s jurisdiction under one or both routes.
3. Fairness and discretion. Under section 111(3), the question was whether sanction was appropriate in all the circumstances. Fairness had to be assessed as between policyholders themselves and between policyholders and shareholders, by reference to the scheme as a whole. Adverse effect on a person or class, or the absence of a benefit, did not alone make a scheme unfair.
4. The independent expert’s assessment that changes in excess over the required minimum margin of solvency caused no material disadvantage, and did not materially affect security, was accepted. No informed evidence undermined that conclusion. The complaints about the expert’s independence and reliance on company data were also rejected.
5. The court held that it was not its function to improve a scheme proposed by the companies, for example by requiring an opt-out or guarantees, unless the omission went to basic fairness. The scheme was fair and appropriate, and had already been sanctioned. The supplemental provisions were left in the form contemplated by the draft order.