The Royal London Mutual Insurance Society Ltd, Re Companies Act 2006

For a scheme of arrangement, class constitution depends on the rights being released or varied and the rights conferred by the scheme, rather than on differing commercial interests. A broad approach is appropriate where creditors can consult together in their common interest. Differences in underlying rights, collateral arrangements and exclusions will not necessarily require separate classes where the scheme responds sensibly to those differences and exclusions have commercial justification.

A Part 26 scheme derives its binding force from the statutory process, not individual contractual consent. Accordingly, a scheme varying existing insurance rights did not constitute a new contract or amendment for the purposes of the gender-equality provisions. The application to convene meetings was granted, although the equality issue could be revisited at sanction.

Royal London applied to convene a meeting of holders of Scottish Life policies containing guaranteed annuity rates to consider a scheme under Part 26 of the Companies Act 2006. Plan holders could retain their guaranteed rate by opting out or accept an immediate uplift in retirement savings.

The application raised issues concerning jurisdiction, the constitution of a single creditor class, the enfranchisement of beneficial policyholders, voting arrangements, the adequacy of scheme documents and whether the scheme was affected by gender-equality legislation. The court also considered whether objections to an opt-out structure should be addressed at the convening stage or at sanction.

1. Jurisdiction. The High Court was the appropriate court to exercise Part 26 jurisdiction. Royal London was an English-registered company liable to be wound up under section 895(2)(b) of the Companies Act 2006. The 2006 Act was a consolidating statute and had not fundamentally altered the position under section 425 of the Companies Act 1985. The company’s English registration and the jurisdictional provisions of the Insolvency Act 1986 supported that conclusion.
2. Class constitution. The court adopted the rights-based test. The relevant comparison was between the rights released or varied and any new rights conferred by the scheme. A broad approach was required. Differing guaranteed annuity rates did not split the class because the scheme methodology reflected the principal objective drivers of value and enabled plan holders to consult together in their common interest. The ability to opt out further reduced any risk of coercion.
3. The use of bands rather than an exact valuation did not create a separate class issue. The exclusion of certain plan holders was justified on sensible commercial and practical grounds. Advice subsidies operated outside the scheme and did not alter rights being compromised. They therefore did not require separate classes.
4. Voting and directions. Royal London could split its vote as trustee to reflect the value interests of beneficial holders. To address numerosity, the proposed deed polls made underlying plan holders contingent creditors capable of enforcing their rights directly if Royal London failed to pay the trustee. The trustee was directed to abstain, avoiding double-counting. The scheme documents were clear and adequately explained the scheme, its advantages and disadvantages, advice, subsidies and the opt-out right.
5. Gender equality. The court considered sections 29(1) and (2) and paragraph 23 of Schedule 3 to the Equality Act 2010 in light of Article 5.1 of the Directive. A Part 26 scheme obtains binding force from the required majority, court sanction and delivery of the order to the Registrar, rather than from individual consent. It therefore did not create a new contract or amendment to an existing contract. Non-participation in the opt-out mechanism was consent to participation in that statutory process, not consent to the variation itself.
6. The equality issue did not constitute a sufficient blot to prevent the meeting. It could nevertheless be raised at sanction, particularly because the court had heard argument only for Royal London and the issue involved an unsettled question of European law. Objections that the scheme should be opt-in concerned overall fairness and were likewise matters for sanction.

The order convening the meeting was made.

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