Scottish Windows Limited, Re

Sanction of an insurance business transfer scheme under Part VII of the Financial Services and Markets Act 2000 requires the court to exercise a genuine and unfettered discretion. The court must identify the nature and circumstances of the transfer, scrutinise the independent expert’s and regulators’ reports, and assess any possible material adverse effect on policyholders and other relevant stakeholders.

An adverse effect is material only where it is a consequence of the scheme, cannot sensibly be ignored having regard to the nature and gravity of the feared harm, and presents a real or significant rather than fanciful or insignificant risk. The court may sanction a scheme despite a material adverse effect where the overall circumstances justify doing so. Non-contractual group support and subjective expectations that policies would remain with the transferor are irrelevant considerations.

Scottish Widows Limited and Rothesay Life plc jointly applied under Part 8 for sanction of a scheme transferring Scottish Widows’ bulk purchase annuity business to Rothesay under Part VII of the Financial Services and Markets Act 2000. The transferred business included buy-in and buy-out annuity policies, residual risk policies, longevity arrangements, reinsurance contracts and supporting assets.

The independent expert concluded that the scheme would have no material adverse effect on policyholders, reasonable benefit expectations, service standards, management or governance. The PRA and FCA did not object. A policyholder, Mr Kell, was heard but was not permitted to continue because he identified no adverse effect caused by the proposed scheme. The central issue was whether, in all the circumstances, it was appropriate to sanction the scheme.

The court sanctioned the scheme and made provision for ancillary orders.

1. The statutory conditions were satisfied. The scheme involved the transfer of part of an insurance business carried on in the United Kingdom by an authorised person to an authorised transferee carrying on the business in the United Kingdom. The relevant certificates and regulatory requirements had been met.
2. The court’s discretion under section 111(3) of the Financial Services and Markets Act 2000 was genuine and unfettered. Applying Re Prudential Insurance Company Limited [2020] EWCA Civ 1626, the court identified the nature of the business and the circumstances giving rise to the scheme, and considered the effect on transferring policyholders, remaining policyholders, creditors and service standards.
3. The court carefully scrutinised the independent expert’s reports, the regulatory reports, the evidence and the objections. In the absence of error, omission or defective reasoning, the independent expert’s conclusions and the regulators’ positions were entitled to full weight. The court did not substitute its own actuarial or financial expertise for that of the independent expert.
4. A material adverse effect requires a possibility that cannot sensibly be ignored in light of the nature and gravity of the feared harm, that is a consequence of the scheme, and that involves a real or significant risk to the stakeholder’s position. The objections did not satisfy that test. In particular, concerns relating to a policyholder’s earlier dispute with Rothesay, shareholder identity, non-contractual support and general customer-service experience did not demonstrate an adverse effect caused by this scheme.
5. The court was satisfied that the scheme pursued a reasonable commercial objective, that the independent expert’s conclusions were sound, that the regulators did not object, and that the communications requirements had been met. The scheme was therefore appropriate to sanction under section 111(3).

First-instance sanction application. No appellate history was stated in the judgment.