Re Equitable Life Assurance Society

The court sanctioned a scheme of arrangement under Part 26 of the Companies Act 2006 and a linked insurance business transfer under Part VII of the Financial Services and Markets Act 2000. The court applied the statutory tests for sanction of a Part 26 scheme (including s.899 CA 2006 and the four matters identified in Re TDG plc) and the requirements for a Part VII transfer (including s.111 FSMA and the role of the independent expert). It concluded that procedural requirements had been met, that the single class meeting had been appropriately directed (Norris J), and that the statutory majorities had been obtained.

The court gave weight to the comprehensive reports of the independent experts and the absence of objection from the Prudential Regulation Authority and the Financial Conduct Authority. It rejected key objections, including reliance on Prudential/Rothesay as distinguishable, and objections to the transferee’s use of matching adjustment as a matter for regulatory policy rather than for determination on the sanction application. The court also approved the treatment of German with-profits policyholders by a ring-fenced sub-fund and accepted that sanction could be given subject to the Capitalisation Requirement being satisfied prior to implementation.

The Equitable Life Assurance Society applied for court sanction of (1) a scheme of arrangement under Part 26 of the Companies Act 2006 converting with-profits policies into unit-linked policies with uplifts to distribute capital now (the "Scheme"); and (2) a Part VII transfer under the Financial Services and Markets Act 2000 transferring most of Equitable's business to Utmost Life and Pensions Limited (the "Transfer"). The Scheme and the Transfer were inter-conditional, the Scheme to take effect immediately prior to the Transfer. Key participants included Equitable, Utmost, the Prudential Regulation Authority and the Financial Conduct Authority; a number of policyholders objected and some appeared in person.

The principal legal issues the court framed and decided were:

• whether statutory steps and court directions for convening and class composition were complied with (reference to Norris J and the TDG criteria);
• whether the Scheme was fair to the policyholders and met the requirements of s.899 CA 2006 and related authorities;
• whether the Transfer satisfied the legal requirements of s.111 FSMA, including the independent expert's report, regulatory certificates and that the scheme was appropriate in all the circumstances;
• specific objections including the relevance of Prudential/Rothesay, objections to matching adjustment and the solvency metrics of the transferee, the independence of the independent experts, the treatment of German with-profits policyholders, and the effect of conditionality (the "Capitalisation Requirement").

The court's reasoning: procedural compliance was established; the Scheme ratification numbers comfortably exceeded the statutory thresholds; the court applied the four TDG matters and concluded an intelligent and honest member might reasonably approve the Scheme. The Transfer was considered with close attention to the independent expert reports and the FCA/PRA views and, on the evidence, the Transfer would not have a material adverse effect on benefit security or expectations. The Prudential/Rothesay decision was distinguished on factual grounds. Challenges to matching adjustment were treated as objections better addressed to the regulator or legislature and inappropriate to decide on the sanction application absent expert evidence subject to testing. The proposed ring-fenced German With-Profits Fund and related reinsurance arrangements were accepted as an appropriate means of protecting German policyholders while allowing the overall commercial objectives to be met. The court accepted sanction even though implementation was conditional on a capitalisation condition, treating that condition as a permissible, self-executing condition given binding funding commitments and precedent authority permitting conditional sanction in appropriate cases.

The court therefore sanctioned the Scheme and the Transfer.

The court sanctioned (allowed) both the Scheme under Part 26 CA 2006 and the Transfer under Part VII FSMA. The judge found that statutory requirements and directions had been complied with, that the TDG fairness and voting tests were satisfied, that the independent experts and the regulators raised no objection, that objections (including on matching adjustment and the Prudential/Rothesay authority) were either distinguishable or not dispositive, and that conditional sanction was permissible given binding capital commitments to satisfy the Capitalisation Requirement.