Colbourne Insurance Ltd & Anor, Re

On an insurance business transfer application, the court must decide whether the scheme is fair as a whole between the interests of the affected classes. It need not establish that no better scheme could have been devised, or improve individual provisions which could have been negotiated differently. The court should compare policy holders’ contractual rights and reasonable expectations before and after the scheme. Individual adverse effects do not necessarily require refusal. The independent expert’s conclusions are ordinarily a central and decisive consideration, although they do not remove the court’s discretion. A scheme may be sanctioned where it has a reasonable commercial objective, materially improves or does not materially worsen policy holders’ security and expectations, satisfies the statutory requirements, and attracts no sufficient objection.

Colbourne Insurance Limited, an insurer in run-off and unable to meet applicable solvency requirements, applied under the Financial Services and Markets Act 2000 for sanction of a scheme transferring its general insurance and reinsurance business to NRG Victory Reinsurance Limited. Ancillary orders were also sought.

The application was unopposed by the Prudential Regulation Authority and the Financial Conduct Authority. The independent expert concluded that the scheme would not materially adversely affect policy holders and would substantially improve the security of transferring policy holders. An issue was raised concerning the continuation of a guarantee given by Colbourne’s insolvent parent. The central questions were whether the statutory requirements were met, whether the scheme was fair overall, and whether amendment of the guarantee was necessary.

1. Statutory requirements and discretion. The court was satisfied that the technical requirements under section 111 of the Financial Services and Markets Act 2000 had been met, including the necessary certificates and the transferee’s authorisation. Under section 111(3), the court also had to decide whether, in all the circumstances, it was appropriate to sanction the scheme.
2. Fairness. The governing question was whether the scheme as a whole was fair between the interests of the different affected classes. The court had to compare policy holders’ contractual rights and reasonable expectations before and after implementation. It was not required to identify the best possible scheme, and it was not its function to amend a scheme merely because individual provisions might be improved. The directors were entitled to choose between schemes which were each fair.
3. Independent expert. The independent expert’s conclusions were a central and ordinarily decisive consideration, although they did not displace the court’s discretion. The expert’s detailed reports justified the conclusion that policy holders’ security and reasonable expectations would not be materially adversely affected and that the security of transferring policy holders would substantially improve.
4. Parental guarantee. The court applied the general approach stated by Henderson J in Excess Insurance Company Limited [2015] EWHC 3572 (Ch): the court need not ensure that a scheme is the best that could have been devised where the scheme is fair and policy holders’ position is not materially worsened. In the present case, the guarantee had no effective value, the transferee was substantially better capitalised, and amendment would confer no discernible benefit while causing additional cost. No amendment was therefore required.
5. Outcome. The court sanctioned the scheme, subject to one minor definitional amendment, and made the ancillary orders under section 112 of the Financial Services and Markets Act 2000.

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