Phoenix & London Assurance Ltd, Re

In sanctioning a solvent scheme of arrangement affecting with-profits policies, the court must be satisfied that the class meetings were fairly constituted and that their result did not oppress the minority. It must also be satisfied that an informed and honest person, acting in his own interest, might reasonably approve the scheme.

A scheme may fairly vary guaranteed rights where affected policyholders receive a genuine choice to retain their existing rights by opting out. In such circumstances, those who participate may reasonably bind policyholders who neither opt out nor establish a sufficient objection. The court will assess whether the scheme strikes a fair balance between surrendered rights, risks and advantages, having regard to the evidence.

Phoenix & London Assurance Ltd promoted a scheme concerning with-profits policies sold by Sun Alliance & London between 1981 and 1994. The policies included guaranteed pension rates and guarantees concerning the retirement fund available to purchase an annuity.

The scheme invited eligible policyholders to exchange the guaranteed pension rate for a larger, more flexibly invested asset share. It applied only to policies with retirement dates after 1 January 2020 and included an option to retain existing rights. The central questions were whether the statutory and convening requirements had been met, whether the class meetings were fairly constituted, and whether the scheme was one which an informed and honest person might reasonably approve.

1. Sanction granted. The statutory requirements and the directions given at the convening hearing had been complied with.
2. The class meetings were fairly constituted. Their result did not approach oppression of a minority. Approximately 96.58% by number and 96.5% by value of voting policyholders supported the scheme, and the participating voters represented a fair proportion of the affected policyholders.
3. The court applied the test whether an informed and honest person, acting in his own interest, might reasonably approve the scheme. The evidence from the independent actuary, Phoenix’s with-profits actuary, the Financial Services Authority and the with-profits committee supported the conclusion that the scheme struck a fair balance between the rights surrendered and the advantages obtained.
4. The scheme did not prejudice unaffected policyholders, reduce the expectation or security of their benefits, or expose participating policyholders to an unfair balance of risk and advantage. Its restriction to later retirement dates reduced the risk that policyholders would lack sufficient investment time to compensate for surrendering the guarantee.
5. The court did not need to determine the issue raised by Re Scottish Lion, namely whether a solvent scheme could compel a creditor to accept a variation where the company could perform the existing contract. The present scheme involved no underlying compulsion because every potentially affected policyholder could opt out and retain the guaranteed rate.
6. It was therefore reasonable for participating policyholders to bind those who neither opted out nor established a sufficient objection. The scheme was sanctioned.

First instance decision. No prior appellate history is stated in the judgment.