Phoenix Life Assurance Limited & Ors, Re

Under section 111(3) of the Financial Services and Markets Act 2000, the court has a broad discretion whether to sanction an insurance business transfer scheme. The court must identify the stakeholders and compare their position with and without the scheme.

The critical question is whether implementation creates a material adverse effect: a consequence of the scheme involving a real or significant risk that cannot sensibly be ignored. The court must scrutinise, but does not replace, the specialist assessments of the independent expert and regulators. It may sanction a scheme despite adverse effects and cannot require applicants to improve the scheme or reject it merely because a better scheme might have been proposed.

The claimant insurance companies applied under Part 7 of the Financial Services and Markets Act 2000 for sanction of a scheme transferring their insurance businesses to Phoenix Life Limited. The application also sought ancillary orders and amendments to earlier Part 7 schemes.

The scheme was opposed by several policyholders and was considered with representations from the Prudential Regulation Authority and the Financial Conduct Authority. The court considered jurisdictional preconditions, the effect on policyholders and other stakeholders, the independent expert’s reports, and whether the earlier schemes could be superseded and amended.

The applications were granted. The court sanctioned the insurance business transfer scheme under section 111(3) of the Financial Services and Markets Act 2000 and approved the amendments to the previous Part 7 schemes.

1. Jurisdiction and statutory preconditions. The scheme was an insurance business transfer scheme within section 105. The statutory requirements concerning jurisdiction, notices, regulatory approval, the scheme report, solvency certification and authorisation were satisfied.
2. Approach to discretion. Following the guidance in Re Prudential Assurance Company Limited [2020] EWCA Civ 1626, the court’s discretion was wide and unfettered. It had to identify the business transferred, the stakeholders and their respective interests. The opinions of the independent expert and regulators were not determinative, but were entitled to full weight, particularly on financial and actuarial matters.
3. Material adverse effect. An adverse effect was material only where it was a consequence of the scheme, could not sensibly be ignored having regard to the nature and gravity of the feared harm, and involved a real or significant rather than fanciful or insignificant risk. The court could sanction the scheme despite a material adverse effect on some stakeholders, after considering fairness between competing interests.
4. The court’s role was to understand and test the reasoning of the independent expert and regulators, identifying errors, omissions or defective reasoning. It was not to substitute its own specialist expertise. Concerns about the Matching Adjustment, diversification benefits, property values, unrated debt and valuation assumptions did not demonstrate such a flaw.
5. The court was concerned with the effect of the scheme itself. Earlier Part 7 transfers reset the relevant benchmark; the court was not required to assess whether policyholders were materially worse off than at any earlier point in the history of their policies.
6. The court could not require the applicants to vary the scheme and should not refuse sanction because a different or supposedly fairer scheme might have been proposed.
7. Re Windsor Life [2007] EWHC 3429 (Ch) was not departed from or distinguished. The previous schemes therefore required separate amendment applications. The independent expert’s certificates were compliant, including where the relevant schemes required an opinion that the amendments would not adversely affect policyholders.