Royal London Mutual Insurance Society Ltd, Re

When sanctioning an insurance business transfer scheme, the court must decide whether the scheme as a whole is fair between the affected classes. It must compare policyholders’ contractual rights and reasonable expectations before and after the transfer, giving close attention to the independent expert’s report and the regulators’ views. Individual detriment does not require refusal if the scheme overall is fair.

Where a scheme responds to Brexit-related uncertainty, the court may balance the real risk that policies could not lawfully be serviced against potential disadvantages caused by the transfer. The court need not identify the best possible scheme. It should respect the directors’ commercial choice between schemes that are each fair.

Royal London applied under Part VII of the Financial Services and Markets Act 2000 for sanction of a scheme transferring its EEA insurance business to its newly incorporated Irish subsidiary, Royal London Insurance D.A.C.

The transfer was intended to preserve lawful servicing of EEA policies after Brexit and involved reinsurance, security arrangements, fund transfers and the loss of UK Financial Services Compensation Scheme protection for some policyholders. The principal issues were whether the statutory requirements had been satisfied, whether the necessary regulatory certificates were available, and whether the scheme was fair overall despite its potential disadvantages.

1. Statutory framework. The scheme was an insurance business transfer scheme within section 105 of the Financial Services and Markets Act 2000. The certificates and authorisations required by section 111(2) and Schedule 12 had been obtained or were not required on the evidence.
2. Approach to sanction. The court’s discretion under section 111(3) was an absolute discretion, to be exercised with due recognition of the directors’ commercial judgment. The court had to identify the contractual rights and reasonable expectations of policyholders before the scheme and compare them with the likely position afterwards. The principal question was whether the scheme as a whole was fair between the affected classes. The independent expert’s report and the regulators’ views deserved close attention, but the court’s function was not a rubber stamp.
3. Brexit uncertainty. The court continued the approach adopted in Re AIG Europe Ltd [2018] EWHC 2818 (Ch). It was legitimate to balance the risk of material prejudice to EEA policyholders if the scheme was refused against possible disadvantages under the scheme. The absence of a perfect solution, or adverse effects on particular policyholders, did not require refusal.
4. Certificates under Schedule 12. Paragraph 3A concerned policies concluded in an EEA state other than the United Kingdom, not policies held by persons who later moved there. A response could amount to implicit consent. Tacit consent required no response addressing consent; a mere acknowledgment of receipt was insufficient. The communications from the relevant regulators nevertheless satisfied the requirements, or paragraph 3A was not engaged.
5. Conclusion. The transferee was authorised, the reinsurance and security arrangements protected the relevant policyholders, and the independent expert found no material adverse effect. The potential loss of FSCS protection was outweighed by the real risk of service failure after a no-deal Brexit. The statutory requirements were met and the scheme was sanctioned.