Aig Europe Ltd v The Financial Services and Markets Act 2000
| Jurisdiction | England & Wales |
| Judge | Mr Justice Snowden |
| Judgment Date | 25 October 2018 |
| Neutral Citation | [2018] EWHC 2818 (Ch) |
| Court | Chancery Division |
| Docket Number | Case Nos: CR-2017-009373 and 009374 |
| Date | 25 October 2018 |
[2018] EWHC 2818 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (Ch)
Royal Courts of Justice
Rolls Building,
Fetter Lane,
London EC4A 1NL
Mr Justice Snowden
Case Nos: CR-2017-009373 and 009374
In the Matters of:
And in the Matters of:
Martin Moore QC (instructed by Freshfields Bruckhaus Deringer LLP) for the Applicants
Hearing date: 18 October 2018
Judgment Approved
This case concerns the reorganisation of a major insurance company to prepare for Brexit by transferring its European business from London to Luxembourg.
Background
The AIG Group is one of the world's largest insurance groups. For many years it has operated in Europe through the first Applicant company, AIG Europe Limited (“AEL” or “the Company”), which is an English company based in the City of London. From London and through a network of licensed branches in 26 European countries, AEL has written a substantial amount of consumer insurance and commercial insurance and reinsurance business, the overwhelming amount involving risks located in the UK and the rest of the EEA. At any one time AEL has had about 5.9 million consumer policies and 726,000 commercial policies in force, with gross premium written as at 30 November 2016 of about £4.9 billion. AEL currently has total assets of about £16.7 billion and has made technical provisions for its insurance liabilities (including risk margin) of about £12.1 billion.
In the EEA, AEL has relied on its EU “passporting” rights to sell its policies, service its policyholders and to establish branches under the supervision of a single prudential regulator in the UK. The existence of these EU passporting rights has been central to the Company's pan-European business model. The AIG Group has concluded that in light of the notice given by the UK that it will leave the EU at the end of March 2019, and the current uncertainty that any exit deal struck between the UK and the EU will preserve passporting rights, it must now restructure AEL's operations without further delay in order to ensure that the Group can continue to service its existing business and write new business across the UK and the rest of Europe after Brexit.
In general terms, this will be achieved by AEL transferring the UK and non-EEA business written by its UK offices to a new English company, American International Group UK Limited (“AIGUK”), which will operate from London under the supervision of the Financial Conduct Authority (“FCA”) and Prudential Regulation Authority (“PRA”) (together “the Regulators”). AEL will then transfer the remainder of its business and its network of European branches to a new Luxembourg company, AIG Europe SA (“AESA”). AESA will be supervised by the Commisariat aux Assurances (“CAA”) in Luxembourg, will be entitled to EU passporting rights and to the benefit of the EU's bilateral treaty with Switzerland, and will therefore be able to operate its business across mainland Europe after Brexit. AEL itself will cease to exist when the reorganisation comes into effect, which is expected to be on 1 December 2018.
Because this scheme (“the Scheme”) includes transfers of insurance business by AEL to AESA and AIGUK, it requires the approval (sanction) of this Court pursuant to sections 104 and 111 of Part VII of the Financial Services and Markets Act 2000 (“ FSMA”).
In addition to the sanction of the Court, as is conventional, the operation of the Scheme requires an order from this Court under section 112 FSMA to give effect to the transfer of the UK and non-EEA insurance business to AIGUK. However, AEL intends that the transfer of the EEA and Swiss business to AESA will be achieved by an EU cross-border merger between the two companies (the “Cross-border Merger”).
A Part VII FSMA scheme which involves an EU cross-border merger is novel. AEL could achieve the transfer of the EEA and Swiss business and the dissolution of AEL by orders under section 112 FSMA. But its object in using a cross-border merger is to maximise the prospect of recognition of the transfer of the EEA and Swiss business in overseas jurisdictions, which (it is advised) may more readily recognize and enforce a transfer in accordance with the principles of universal succession under an EU cross-border merger than under section 112 FSMA. In addition, AEL hopes that the more complex combined process will allow for tax neutrality to be achieved.
AEL accordingly seeks the certificate of this Court under Regulation 6 of The Companies (Cross-Border Mergers) Regulations 2007 (the “CBM Regulations”) that it has completed the necessary pre-merger steps for the Cross-border Merger. Under Chapter II of Title II of the codified Directive (EU) 2017/1132 relating to certain aspects of company law (“the Directive”), the final approval of the Cross-border Merger will be given by the authorities in Luxembourg.
The Scheme
The Scheme document is divided into a number of sections. Section 1 contains definitions which do the job of identifying the assets, liabilities and business to be transferred and to whom they are to be transferred. The essential definitions identify the “Transferring UK Business” to be transferred by AEL to AIGUK as comprising the “Transferring UK Insurance Policies”, the “Transferring UK Assets”, the “Transferring UK Liabilities” and the “Transferring UK Employees”.
The key concept is the definition of “Transferring UK Insurance Policies” which excludes any insurance or reinsurance policies that were issued by AEL through or on behalf of any of its branches in the EEA (other than the UK) and Switzerland, but otherwise includes (a) that part of insurance policies relating to UK risk issued by or on behalf of AEL, (b) that part of insurance policies relating to non-EEA risk issued by or on behalf of AEL, and (c) that part of any reinsurance policies issued by or on behalf of AEL (other than relating to risk in Argentina and Venezuela). In broad terms the “Transferring UK Assets” and “Transferring UK Liabilities” are those assets and liabilities which are attributable to the Transferring UK Business. The assets to be transferred include the relevant part of any outwards reinsurance contracts covering the Transferring UK Insurance Policies. The “Transferring UK Employees” are those who are wholly or mainly assigned to work on the Transferring UK Business.
There are a similar set of definitions making up the “Transferring European Business” to be transferred to AESA. In essence this comprises all of the business of AEL other than the Transferring UK Business.
Section 2 of the Scheme sets out an overview and the sequence of completion of the transactions which are timed to follow each other on the “Completion Date” which is anticipated to occur on 1 December 2018. It provides that the Transferring UK Business shall be transferred to AIGUK by orders made under section 112(1) FSMA, and thereafter the Transferring European Business shall be transferred to AESA in accordance with Article 131 of the Directive on completion of the Cross-border Merger between AEL and AESA.
Section 3 of the Scheme is divided into two parts dealing respectively with the transfer of the Transferring UK Business and the transfer of the Transferring European Business. It contains provisions for the continuity of references and rights, proceedings, complaints, collection of premiums and mandates, data etc. It also contains a provision under which AESA will give an undertaking to the court to abide by the applicable dispute resolution procedures in the FCA Handbook in relation to the Transferring European Business. This includes, in particular, an undertaking by AESA to abide by the decisions of the Financial Ombudsman Service (“the FOS”) in cases where the FOS has jurisdiction to entertain a complaint in relation to any policy transferred to AESA after the completion of the Scheme.
Section 4 of the Scheme contains provisions to deal with the way in which policies of insurance which were not written by an EEA or Swiss branch of AEL, and which relate to risks located in both the UK and EEA will be “split”. Although each of AIGUK and AESA will have separate responsibility for the relevant risks transferred to them, policy limits and deductibles will be aggregated between the two new policies, and policyholders of such “split” policies will have rights against both companies following the completion of the transfers so as not to be any better or worse off in respect of such contractual terms after the Scheme takes effect. This provision does not apply to inwards reinsurance policies where AEL is the reinsurer, but there are similar provisions dealing with outwards reinsurance policies which cover the insurance policies which are to be “split” between AIGUK and AESA.
Section 4 also includes various miscellaneous provisions for the reversal of the accidental transfer of a policy, asset or liability to the wrong transferee, and relating to the completion, costs and governing law of the transaction.
The terms of the Cross-Border Merger
The draft terms of the Cross-border Merger were entered into between AEL and AESA on 21 February 2018. They essentially track the terms of the Scheme so far as relevant and also include additional matters required by the CBM Regulations.
The Legal Framework
Part VII Transfers
Section 104 FSMA provides that no insurance business transfer scheme is to have effect unless an order sanctioning it has been made under section 111(1).
Sections 105(1) and 105(2)(a) FSMA provide in relevant part,
“(1) A scheme is an insurance business transfer...
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