In the Matter of The Royal London Mutual Insurance Society Limited

At the convening stage of a scheme of arrangement, the court considers jurisdiction, class composition, procedural fairness and any issue that might prevent later sanction. It does not determine the scheme’s merits or fairness.

Class composition depends on the similarity of rights being varied and the rights provided by the scheme. Differences in commercial interests, demographics or likely economic outcomes do not ordinarily create separate classes. A broad approach is appropriate, including consideration of collateral arrangements.

A proposed reallocation of inherited estate does not constitute reattribution where it implements existing rights rather than redefining them. Adequate notification, explanatory material and meeting arrangements are required before permission to convene is granted.

Royal London applied under Part 26 of the Companies Act 2006 for permission to convene a meeting of eligible policyholders to consider a scheme consolidating the Liver Sub-Fund into its Open Fund.

The scheme would exchange policyholders’ rights to future distributions from the Liver Sub-Fund estate for a fixed uplift in policy values. The application raised issues concerning class composition, possible reattribution of inherited estate, prior transfer instruments, notification, voting arrangements and the adequacy of the explanatory statement.

The central questions were whether the policyholders could consult together in a single class and whether any jurisdictional or procedural obstacle justified refusing permission to convene the meeting.

1. The application was granted. Royal London was permitted to convene a single meeting of the eligible RLMIS Liver policyholders to consider the proposed scheme.

2. At a convening hearing under Part 26 of the Companies Act 2006, the court addresses jurisdiction, class constitution and procedural matters, but not the scheme’s merits or fairness. Fairness remains principally for the sanction hearing.

3. Class composition is determined by comparing the rights to be released or varied with the rights provided by the scheme. The relevant question is whether the rights are so dissimilar that the affected persons cannot consult together in their common interest. Differences in commercial interests, personal circumstances, demographics or economic outcomes do not, without more, create separate classes.

4. The with-profits and CB policyholders had materially similar rights concerning distributions from the Liver Sub-Fund estate. The scheme applied the uplift consistently. Differences between life and pension policies, whole-life and endowment policies, conventional and unitised with-profits policies, guaranteed annuity policies and policies with other features affected outcomes but not the underlying rights being varied.

5. The court adopted a broad approach which included collateral arrangements. The exclusion of heavily-in-the-money, Friends Provident and other non-with-profits policies was commercially justified and satisfied the test identified in Sea Assets v Garuda [2001] EWCA Civ 1696.

6. The Scheme Contribution did not constitute reattribution for the purposes of Chapter 20 of COBS. The proposed reallocation was considered to implement existing rights rather than redefine policyholders’ rights and interests in the inherited estate. The prior transfer instruments and related Irish and Part VII processes did not present an apparent roadblock to later sanction.

7. The notification process, explanatory booklet, voting arrangements, treatment of assignees and representatives, meeting venue, hybrid format and proposed valuation of votes were appropriate. It was proportionate not to send scheme documentation to persons recorded as holding policies covering lives aged 105 or over, given the statistical improbability that the records represented living policyholders.