Re The Royal London Mutual Insurance Society Limited

This is an application under Part 26 of the Companies Act 2006 for directions to convene meetings of creditors to consider a scheme of arrangement proposed by Royal London in respect of Guaranteed Annuity Rate (GAR) rights in the Scottish Life Fund. The court held that it had jurisdiction to order the convening of meetings in England, relying on the company’s English registration and the Insolvency Act cross-reference, and that there was no obstacle to the English court exercising Part 26 jurisdiction in this case.

The court accepted that all affected plan holders could form a single class for voting. In reaching that conclusion the court applied authorities on class composition (including Sovereign Life Assurance Co v Dodd, Re Hawk Insurance Co Ltd and Re Baltic Exchange Ltd) and reasoned that differences in GAR entitlements and the scheme’s banded uplift methodology did not prevent creditors from consulting together in their common interest. Exclusions of some plan holders and differential funding of advice were held to be justifiable and not to require separate classes.

The court approved procedural directions to enfranchise beneficial owners held through trustees, including a split vote for some trustees and the use of deeds poll to make underlying plan holders contingent creditors, with trustees directed to abstain to avoid double-counting. Voting was to be by reference to the value of the proposed uplift.

Finally, the court considered the risk that the scheme might contravene the Equality Act 2010 (and related EU Gender Equality Directive 2004/113/EC). The court concluded, on the material before it, that a Part 26 scheme and the opt-out mechanism did not amount to a "new contract" or an amendment within the meaning of the Directive and Schedule 3 paragraph 23 of the Equality Act such as would presently prevent the convening of meetings; but the court noted that the point could be raised again at the sanction hearing.

The applicant, Royal London Mutual Insurance Society Limited, applied for orders under Part 26 of the Companies Act 2006 to convene meetings of creditors to consider a scheme of arrangement affecting holders of policies in the Scottish Life Fund, in particular those with Guaranteed Annuity Rate (GAR) rights. The proposed Offer would allow eligible plan holders either to opt out and retain their GAR or to give up GAR in exchange for an immediate uplift to their retirement savings; Royal London’s commercial aim was to enable access to post-2015 pension flexibilities and to reduce Scottish Life’s capital requirements and investment risk.

The court was required to determine preliminary "gateway" issues: (i) whether the English High Court had jurisdiction to order convening of meetings for a scheme affecting some policies governed by Scottish law; (ii) the appropriate constitution of classes of creditors for voting purposes; (iii) directions for enfranchisement and the conduct of meetings (including treatment of plan holders whose legal creditor is a trustee, and the voting measure to be adopted); and (iv) whether there were any legal "show stoppers", in particular under the Equality Act 2010 and the Gender Equality Directive 2004/113/EC, that would prevent the scheme being put to a meeting.

On jurisdiction the court accepted that, as an English registered company and given longstanding statutory cross-references to the Insolvency Act 1986, the English court was the appropriate forum and that the scheme would be recognisable in Scotland. On class composition the court applied established authorities (including Sovereign Life Assurance Co v Dodd, Re Hawk Insurance Co Ltd and Re Baltic Exchange Ltd) and concluded that the putative class could be a single class. Differences in governing law, variations in GAR terms between plan holders, and the scheme’s banded uplift methodology did not render the class incapable of consulting together; opt-outs and the ability to decline participation mitigated class objections. Exclusions of some plan holders were permissible for sensible commercial reasons (Sea Assets Ltd v PT Garuda Indonesia) and differential subsidy for advice did not alter the rights to be varied under the scheme.

To address enfranchisement where trustees (including Royal London acting as trustee) held legal title, the court approved splitting trustee votes for value purposes in some cases and a deed poll mechanism making underlying plan holders contingent creditors for numerosity purposes, with trustees directed to abstain to prevent double-counting (Re Equitable Life Assurance Society). Voting was to be by reference to the value of the uplift offered. The court was satisfied with the proposed circular and decision pack and noted the Financial Conduct Authority raised no objection to the process.

On the Equality Act issue, the court analysed Schedule 3 paragraph 23 of the Equality Act 2010 and Article 5.1 of Directive 2004/113/EC and had regard to the European Commission Guidelines. The critical question was whether a scheme of arrangement (with an opt-out mechanism) would amount to a "new contract" or an amendment to an existing contract such that the unisex rule applied. The court concluded that a Part 26 scheme does not, by its nature, amount to a new contract or amendment within the autonomous meaning of the Directive because its binding effect derives from statute once the scheme steps are completed, not from individual consensual amendment. The opt-out mechanism did not change that conclusion for the purposes of convening meetings, though the court allowed that the point could be re-argued at the sanction hearing and recognised the issue was novel and would benefit from adversarial argument.

The court therefore made the proposed order to convene meetings with the described directions.

The application to convene meetings under Part 26 of the Companies Act 2006 is allowed and the draft order was made. The court accepted English jurisdiction, held that a single class of affected plan holders was appropriate, approved procedural directions to enfranchise beneficial owners (including split voting and deeds poll to make underlying plan holders contingent creditors with trustees to abstain), and concluded, on the material before it, that the scheme and opt-out mechanism did not amount to a "new contract" or amendment for the purposes of the Equality Act 2010 and the Gender Equality Directive, though that question could be revisited at sanction.