Alba Life Ltd. & Ors, Re

When sanctioning an insurance business transfer scheme, the court has an absolute discretion under Financial Services and Markets Act 2000. It must assess whether the scheme is fair between the affected classes and whether policyholders’ contractual rights, security and reasonable expectations are adversely affected. The court should compare the position before and after the scheme, giving close attention to the independent expert’s report, but the report is not infallible and the jurisdiction is not a rubber stamp. The court need not select the best scheme or require positive benefit for policyholders. It may sanction a commercially desirable scheme if, overall, it is fair and the statutory conditions are satisfied.

The transferors sought sanction under Part 7 of the Financial Services and Markets Act 2000 for the transfer of their long-term insurance businesses to Phoenix Life Limited. The scheme involved the transfer of approximately 3.87 million policies, the creation of sub-funds within Phoenix, and related capital reductions. Several policyholders objected, principally on grounds concerning capital support, contagion risk, expert evidence, governance and scheme costs. The court considered whether the statutory conditions were met and whether, in all the circumstances, the scheme was appropriate to sanction.

1. The court was satisfied that the statutory conditions in section 111(2) of the Financial Services and Markets Act 2000 were met. The remaining question under section 111(3) was whether sanction was appropriate in all the circumstances.
2. Applying the principles stated in Re Axa [2001] 1AER (Comm.) 1010, the court had to consider whether policyholders or other interested persons would be adversely affected and whether the scheme was fair between the different classes. The court was not required to determine whether the scheme was the best possible arrangement or whether it produced positive benefit for policyholders.
3. The independent expert’s evidence showed that the Phoenix Capital Policy would provide capital backing exceeding the regulatory minimum and would materially mitigate contagion risk. The court rejected objections based on the loss of a previous legal support obligation, changes in longevity risk and exposure to equity risk.
4. The court accepted two material objections. The scheme was amended so that approximately £12 million of costs would be charged to the shareholders’ fund rather than the non-profit fund. The applicants also undertook to implement the Phoenix Capital Policy in accordance with the Conduct of Business Rules and gave an assurance concerning the proposed with-profits committee.
5. The court emphasised, following Re Pearl Assurance [2006] EWHC 2291, that the jurisdiction was not a rubber stamp. Although substantial weight would ordinarily be given to the independent expert’s report, experts were not infallible. The court expressed concern that the Financial Services Authority had not appeared to examine the scheme and invited it to reconsider that practice.
6. Subject to the stated amendments, undertakings and assurances, the scheme was fair and appropriate to sanction. The relief sought by the Part 8 claim was granted, and the consequential capital-reduction petitions were to proceed.