Allied Dunbar Assurance Plc & Ors, Re

When sanctioning an insurance business transfer scheme, the court has an overriding discretion under Financial Services and Markets Act 2000, section 111. It must assess whether the scheme is fair as a whole to the affected interests, principally by comparing policyholders’ security and reasonable benefit expectations before and after the transfer.

The court should give close attention to the independent expert’s actuarial assessment and to the regulator’s views. Individual groups may be affected differently without requiring refusal of sanction, provided no material adverse effect results and the scheme is fair overall. The court does not substitute its preferred scheme for the scheme chosen by the directors or amend details merely because improvements might be possible.

The applicants sought sanction under Part VII of the Financial Services and Markets Act 2000 for the transfer of the insurance businesses of Allied Dunbar Assurance plc, Zurich Assurance plc, City of London Insurance Company Ltd and Pilot Assurance Company Ltd to Eagle Star Life Assurance Company Ltd.

Policyholders objected on grounds including the independence and adequacy of the independent expert’s report, reductions in solvency-margin cover, exposure to mis-selling liabilities, use of assets to support other funds, the absence of an opt-out, and the proposed corporate restructuring. The court had sanctioned the scheme at the hearing and subsequently gave its reasons.

1. Sanction granted. The statutory conditions under section 111 had been satisfied, including the applicable certificates, authorisations and procedural requirements. The court therefore considered whether, in all the circumstances, it was appropriate to sanction the scheme.
2. The court possessed an overriding discretion. Applying the principles derived from Re London Life Association Ltd, as summarised in Re AXA Equity and Life Assurance Plc [2001] 2 BCLC 447, the court had to recognise the commercial judgment entrusted to the companies’ directors while considering whether policyholders or other affected groups would be adversely affected.
3. The principal issue was actuarial. The court compared policyholders’ security and reasonable benefit expectations with and without the scheme. It gave close attention to the independent expert’s reports and to the Financial Services Authority’s regulatory expertise and certificates.
4. A reduction in excess solvency cover did not itself establish unfairness or a material adverse effect. The independent expert had considered the relevant solvency, diversification, capital-support and mis-selling risks and concluded that no group of policyholders would suffer a material reduction in security or reasonable benefit expectations.
5. The court adopted the approach in Norwich Union Linked Life Assurance Ltd & ors, an unreported judgment delivered on 1 December 2004, concerning complaints about expert independence, reliance on company figures, solvency-margin reductions, shareholder benefits and the absence of an opt-out. No specific evidence undermined the expert’s conclusions, and the statutory scheme did not require an opt-out.
6. The court was not required to devise the best possible scheme or amend its provisions. Management retained commercial discretion, subject to the statutory controls. Complaints about investment performance and earlier dealings unrelated to the transfer did not bear on sanction.

The scheme was accordingly sanctioned.

First-instance decision. The judgment records no appeal or earlier decision in the present proceedings.