Equitable Life Assurance Society, Re Companies Act 2006

The court may sanction a solvent-company scheme of arrangement where the statutory requirements are met and the scheme addresses a genuine problem requiring resolution. The jurisdiction is not confined to prospective insolvency. The court must assess whether an intelligent and honest member of the relevant class might reasonably approve the scheme, while recognising the commercial judgment of the majority and the company’s directors.

For an insurance business transfer, the court must determine whether the scheme is fair overall between affected classes and whether it creates a real, rather than fanciful, risk to policyholders. The court applies the regulatory regime as enacted and gives close attention to independent expert and regulatory evidence, while retaining an independent discretion. A scheme may be sanctioned before a condition precedent is satisfied where its terms are clear, self-executing and contractually supported.

Equitable sought sanction under Part 26 of the Companies Act 2006 for a scheme compromising the rights of its with-profits policyholders. Equitable and Utmost Life and Pensions Limited also sought sanction under Part VII of the Financial Services and Markets Act 2000 for the transfer of most of Equitable’s business to Utmost.

The arrangements were inter-conditional. The Scheme converted most with-profits policies into unit-linked policies, removed investment guarantees and provided value uplifts. The Transfer moved the relevant business and assets to Utmost, while making separate provision for German policyholders. Policyholders objected on grounds including unfairness, solvency, matching adjustment, class composition, voting turnout, expert independence and the conditionality of implementation.

The issues were whether the statutory requirements were met, whether the Scheme was fair and one which the relevant policyholders might reasonably approve, and whether it was appropriate in all the circumstances to sanction the Transfer.

1. Scheme sanctioned. The court applied the four requirements identified in Re TDG plc: statutory compliance; fair representation and absence of coercion; whether an intelligent and honest member of the class might reasonably approve; and absence of a blot. The statutory majority was comfortably exceeded, the turnout was fairly representative, and the low turnout did not justify refusal. The Scheme was fair overall and addressed the genuine problem of a tontine effect and increasing cost inefficiencies in solvent run-off.
2. The court did not treat solvency as a bar to sanction. The scheme jurisdiction was not limited to cases involving prospective insolvency. Contractual rights could be overridden through the statutory scheme process once the requisite majorities and other requirements were satisfied.
3. Transfer sanctioned. Under section 111 of FSMA, the certificates and authorisation requirements were satisfied. The substantive question was whether the Transfer was appropriate in all the circumstances. The court adopted the approach in London Life Association Limited and Axa Equity & Law Life Assurance Society plc: fairness was assessed overall between affected classes by comparing contractual rights, reasonable expectations and security before and after the scheme. The court was concerned with real, rather than fanciful, risks, as explained in Re Royal & Sun Alliance Insurance plc.
4. The Transfer did not create a sufficient real risk to policyholders. The court applied the regulatory regime as it existed, including matching adjustment under Solvency II, and would not go behind legislative requirements on the basis of untested economic criticism. The detailed reports of the independent experts and the FCA and PRA justified the conclusion that benefit security was not materially adversely affected.
5. The provisions concerning German policyholders and the ring-fenced fund were properly included as part of the Transfer. The court marginally preferred that jurisdictional basis to treating them solely as ancillary directions under section 112(1)(d) of FSMA.
6. The court could sanction the Scheme and Transfer before the Capitalisation Requirement was satisfied. Following Re Lombard Medical Technologies Plc, the condition was clear, self-executing, highly likely to be satisfied and supported by binding contractual obligations. It did not confer an uncontrolled discretion on a third party or permit material variation of the approved terms.
7. Accordingly, the court sanctioned both the Scheme and the Transfer.

This was a first-instance sanction hearing. The judgment records an earlier convening hearing before Norris J, reported as [2019] EWHC 2345 (Ch), at which directions and class composition were considered. The present court declined to reopen class composition because no new relevant argument or objection was raised.