Equitable Life Assurance Society v Canada Life Ltd.

Under section 111 of the Financial Services and Markets Act 2000, the court has an overriding discretion whether to sanction an insurance business transfer scheme. The central question is whether the scheme is fair as between the different classes of affected persons.

The court must compare the security and reasonable expectations of policyholders with and without the scheme, giving close attention to the independent expert’s report and the regulator’s views. An adverse effect on an individual or class does not require refusal if the scheme as a whole is fair. The court is not required to devise the best possible scheme or amend a scheme whose overall fairness is established.

Equitable Life applied under Part VII of the Financial Services and Markets Act 2000 for sanction of a scheme transferring almost all of its non-profit annuity business to Canada Life Ltd. The scheme transferred approximately £4.6 billion of assets and required Canada Life to assume the relevant future policy liabilities, while Equitable retained liabilities arising from earlier acts or omissions.

Policyholders and other objectors raised concerns about security, the effect on non-transferring with-profits policyholders, the absence of consultation, Canada Life’s overseas control, retained mis-selling liabilities and the qualifications of the independent expert. The central issue was whether, in all the circumstances, the scheme was appropriate to sanction.

1. Statutory discretion. The court was satisfied that the scheme was an insurance business transfer scheme within section 105(2)(a), and that the substantive and procedural requirements of Part VII had been met. Section 111 nevertheless required the court to consider whether sanction was appropriate in all the circumstances. That conferred an overriding discretion, rather than a rubber-stamping function.
2. Applicable principles. The court followed the principles derived from re London Life Association Ltd, as summarised in [2001] 2 BCLC 447. The court must assess whether the scheme is fair between the different classes of affected persons. The comparison concerns policyholders’ security and reasonable expectations with and without the scheme. The independent expert’s report and the FSA’s views are important material, although the final decision remains that of the court.
3. An individual or group may be adversely affected without requiring refusal of the scheme. The court’s task is not to select or construct the best possible scheme. Where the scheme is fair overall, the court will not amend its details merely because another arrangement might appear preferable.
4. The objections did not establish unfairness. The transfer removed relevant risks from Equitable’s remaining with-profits policyholders and the independent expert considered that their benefit expectations and security would not be materially diminished. The transferring policyholders would have recourse to the totality of Canada Life’s assets, and the evidence did not show a material reduction in their security.
5. There was no requirement for policyholders to be consulted through meetings. The statutory process instead relied on regulatory supervision, an independent expert’s report and court sanction. Past management failures were irrelevant to the present assessment, which concerned whether the scheme was fair in the current circumstances. The court therefore sanctioned the scheme and made the ancillary orders sought under section 112.