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Life Assurance Limited (FPLLA) both carried on long term insurance business.
Due to tax rules, unit linked policies issued by FLPO were reinsured by FPLLA,
with the relevant funds being held by FPLLA. In 1990, the tax rules which gave
rise to this arrangement changed, so that it would be beneficial for
administrative purposes for the arrangements to be dissolved. Although this
could have been achieved by FPLLA surrendering the reinsurance and a transfer
of the assets to FLPO, this would have given rise to considerable tax costs.
Therefore, an application was made for the court to sanction a transfer of the
business under Schedule 2C of the Insurance Companies Act 1982. The Court of
Appeal held that the transfer of reinsurance of long term business did fall within
the definition of long term business for the purposes of Schedule 2C. The Court
went on to hold, overruling the trial judge, that a reinsurer could transfer its
rights and liabilities to its insured in the way proposed in the scheme. The
reinsurance contract was not simply cancelled, it was discharged by operation
of law as after the scheme there was a merger of rights and liabilities in the
same person. Accordingly the Court of Appeal sanctioned the scheme.
Re Great Britain Mutual Life Assurance Society (1880) LR 16 Ch D 246. This case
concerned the winding up of an unregistered mutual assurance society which
had become insolvent. A winding up order was granted, but subsequently a
committee of policy holders applied to the court requesting that it exercise its
powers under s22 of the Life Assurance Companies Act 1870 to reduce the
amounts of the contracts of the society instead of winding it up. It was held by
the Court of Appeal, that in circumstances such as these, where the winding up
of the society would cause substantial losses to the policyholders, which could
be significantly reduced if the contracts were reduced and the company
continued to function, the court ought to discharge the winding up order and
call a meeting of the policyholders to ascertain their opinions regarding the
reduction of the contracts as an alternative to winding up.
Hawk Insurance Co Ltd, Re [2001] EWCA Civ 241. The provisional liquidators
appealed against the court's refusal to sanction a scheme of arrangement under
s.425 Companies Act 1985. The court found that the scheme weighted claims for
distribution purposes and that the creditors could not be treated as a single
class and therefore, without a meeting for each class, the court could not
sanction the scheme. Held: The appeal was allowed such that; (1) before
ordering a creditors' meeting the Companies Court should first consider
whether there should be more than one meeting; (2) to decide this they should
question whether the scheme was a single arrangement made up of different
parts, or whether it was a number of different arrangements with different
classes or groups of creditors with distinct and dissimilar rights; and (3) from the
facts of the case and after consideration of all of the evidence it seemed that
the creditors all had similar interests and therefore one meeting was adequate,
Sovereign Life Assurance Co (In Liquidation) v Dodd [1892] 2 Q.B. 573 CA
considered.
Home Insurance Co, Re [2005] EWHC 2485. A company (C) submitted that a
scheme should not be sanctioned under Companies Act 1984 s.425 due to
uncertainty regarding its lawfulness under the law of New Hampshire and that
there would be financial implications if the scheme was sanctioned in the UK
but was rejected by the New Hampshire courts. Held: The application was
granted; (1) the procedural requirements for a scheme of arrangement had
been fulfilled and the court refused to agree that the activities a court
conducted in its own jurisdiction could be said to trespass upon or conflict with
the activities of the other. Moreover the court of first instance was not
concerned with the law of New Hampshire and instead considered the scheme
from the point of view of English law which permitted the sanctioning of the
scheme; (2) C's claim for wasted money was unmerited, even if the scheme was
not sanctioned, no money would be saved as a result. Instead the scheme