Sovereign Marine & General Insurance Company Ltd & Ors, Re

The English court has jurisdiction to sanction a scheme of arrangement for a foreign or EEA insurance company where the company is capable of being wound up under the relevant legislation and there is a sufficient connection with England. At the convening stage, creditor classes must be identified by analysing the rights released or varied and the rights conferred by the scheme. The question is whether rights are so dissimilar that creditors cannot consult together in their common interest. The existence of accrued, outstanding and incurred-but-not-reported insurance claims does not automatically require separate classes. The assessment is fact-sensitive. In the circumstances, the different rights and materially different uncertainties attaching to outstanding and IBNR claims required separate classes, while unpaid agreed claims and certain other claims could vote with outstanding claims.

Sixteen insurance companies sought orders under Companies Act 1985, section 425, convening creditor meetings to consider proposed cut-off schemes for liabilities arising principally from the WFUM Pools insurance business. Sovereign was insolvent and already subject to a scheme. The other companies were solvent, although several were incorporated and regulated outside the United Kingdom.

The opposing creditors challenged the English court’s jurisdiction in relation to Allianz Marine & Aviation (France) and Hibernian General Insurance Company, and argued that the solvent companies’ creditors should be divided into separate classes, particularly creditors with outstanding claims and those with incurred-but-not-reported claims. Further issues concerned reinsurers, foreign creditors and voting arrangements for Lloyd’s syndicates.

1. Jurisdiction. A company is “liable to be wound up” for section 425 purposes if it is the sort of company capable of being wound up under the relevant legislation. It is unnecessary to show that a statutory ground for winding up presently exists. The court therefore had jurisdiction over the foreign companies and the EEA insurers. Regulation 5(1) of the Insurers Regulations disapplied the prohibition in regulation 4(1)(a) without importing the jurisdictional rules of the Jurisdiction Regulation. A sufficient connection with England remained necessary and was established here.
2. Class test. At the convening stage the court must identify the rights released or varied and any new rights conferred by the scheme. The question is whether those rights are so dissimilar that creditors cannot consult together with a view to their common interest. The test is fact-sensitive and must not be converted into an automatic rule based on the existence of contingent claims.
3. The reasoning in Re The British Aviation Insurance Company Limited [2006] BCC 14 did not establish that accrued and IBNR claims must invariably constitute separate classes in every solvent scheme. Its approach had to be applied by reference to the evidence in the particular case.
4. Policyholders’ rights under a solvent run-off were not identical merely because each could be described as a right to an indemnity. A creditor with an unknown future claim, a creditor with a notified claim and a creditor with an agreed unpaid claim possessed materially different bundles of rights. Under the proposed schemes, outstanding and IBNR claims would also receive substantially different treatment.
5. The evidence showed that outstanding claims were generally less uncertain to estimate than IBNR claims, although exceptions existed. The uncertainty concerning IBNR claims could concern whether a liability would arise at all, whereas many outstanding claims involved a known loss requiring quantification. Creditors with outstanding claims and creditors with IBNR claims therefore had sufficiently different rights that they could not properly consult together. Separate classes were required for those categories.
6. Unpaid agreed claims, claims not requiring estimation and additional unpaid claims could vote with outstanding claims. A separate class for reinsurers was unnecessary because contingent reinsurance liabilities did not alter their rights as insured creditors. Foreign creditors could remain in the relevant classes because recognition and enforcement orders were expected to bind them, and no sufficient factual distinction was established.
7. The applications would proceed with directions for two classes for the solvent companies. The proposed treatment of Lloyd’s syndicate votes was approved, and further directions concerning notice and conduct of the meetings were to be given.