In the Matter of the Royal London Mutual Insurance Society Limited

The court considered two related applications: (i) an application to sanction a scheme of arrangement under Part 26 of the Companies Act 2006 (sections 895–899) affecting a closed with-profits sub-fund and its policyholders, and (ii) an application by Royal London Insurance DAC for the court's consent to amendments to a Part VII transfer scheme under the Financial Services and Markets Act 2000. The judge applied the familiar multi-factor test for sanction of a Part 26 scheme (statutory compliance; fair representation of the class; whether an intelligent and honest member might reasonably approve; and whether there is any "blot"), as described in Re TDG Plc, and concluded that the statutory requirements had been complied with, the class was fairly represented, the scheme was one an intelligent and honest member could reasonably approve and there was no blot. The court placed significant weight on the independent actuary's reports addressing fairness, the absence of regulatory objection from the PRA and FCA, the regulators' involvement, and the interdependence of the Irish scheme. The court also granted consent under clause 44 of the Part VII scheme to the proposed amendments, in reliance on the independent expert certificate that the amendments would not materially adversely affect the security or reasonable expectations of affected policyholders.

Background and parties:

The applicant Royal London Mutual Insurance Society Limited ("Royal London") proposed a scheme under Part 26 Companies Act 2006 to simplify administration of legacy business by bringing an existing closed Liver sub-fund to an end and applying an uplift to eligible policyholders in return for a scheme contribution to the open fund. The Irish subsidiary, Royal London Insurance DAC ("RLI DAC"), sought the court's consent to amendments to a Part VII FSMA transfer scheme that had earlier transferred certain Irish business, the amendments being consequential on the Part 26 scheme.

Nature of the applications / relief sought:

• Sanction of the Part 26 scheme affecting eligible RLMIS Liver policyholders pursuant to sections 895–899 of the Companies Act 2006;
• Court consent under clause 44 of the earlier Part VII transfer scheme (FSMA) to specified amendments to that transfer instrument.

Issues framed:

1. Whether the proposal constituted a compromise or arrangement within section 895;
2. Whether the class was properly constituted and fairly represented at the meeting;
3. Whether statutory notification and explanatory statement requirements (section 897 and related directions) were met;
4. Whether the scheme was one that an intelligent and honest member of the class might reasonably approve (including assessment of the uplift and scheme contribution, and actuarial fairness);
5. Whether there was any "blot" or legal defect in the scheme;
6. Whether the court had jurisdiction under clause 44 of the Part VII scheme to consent to the proposed amendments and whether those amendments would materially adversely affect policyholders.

Reasoning and conclusions:

The court found that the Part 26 statutory requirements had been complied with, including the required majorities at the convened meeting. The turnout and voting pattern, and the conduct of the meeting, supported the conclusion that the class was fairly represented; there was no evidence of coercion or improper conduct. The court gave substantial weight to the independent actuary's reports (including a supplementary report) which applied tests relevant to policyholder security, adverse scenario analysis, communications and fair conduct and concluded the scheme was fair and would not materially adversely affect guarantees. The court found no blot: professionals and regulators had reviewed the detailed documentation and identified no technical or legal defect. On the Part VII amendment application, the court was satisfied that clause 44 provided jurisdiction and that the independent expert certificate supported the view that the amendments would not materially adversely affect the security or reasonable expectations of relevant policyholders. The PRA and FCA did not object and the Central Bank of Ireland had been sufficiently informed.

Procedural posture: This was a first-instance sanction hearing following a convening hearing (the convening judgment is reported at [2022] EWHC 1673 (Ch)). The court sanctioned the Part 26 scheme and granted the requested consent to amend the Part VII transfer scheme.

The court sanctioned the proposed Part 26 scheme and granted consent to the proposed amendments to the Part VII transfer scheme. The judge’s rationale was that the statutory requirements (sections 895–899 Companies Act 2006 and related directions) had been satisfied, the class was fairly represented, the scheme was one an intelligent and honest member could reasonably approve, there was no blot, and the independent actuary and regulators supported the arrangements; the clause 44 procedure and the independent expert certificate justified consent to the Part VII amendments.