Re Anglo American Insurance Company Ltd,
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE NEUBERGER |
| Judgment Date | 12 April 2000 |
| Judgment citation (vLex) | [2000] EWHC J0412-20 |
| Date | 12 April 2000 |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Case No. 363/2000 |
[2000] EWHC J0412-20
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice,
COMPANIES COURT
The Strand, London.
Mr. Justice Neuberger
Case No. 363/2000
MR. R. SNOWDEN (instructed by Messrs Clifford Chance, London) appeared on behalf of the Applicants
MR. D. MABB (instructed by Messrs Cadwallader, Wickersham & Taft, London) appeared on behalf of the Respondents
(As approved)
Introduction: This is an application for sanction of a scheme of arrangement between Anglo American Insurance Ltd., ("the company") and the scheme creditors, pursuant to section 425 of The Companies Act 1985. The application is made by the company's joint provisional liquidators.
The background: The facts and the proposed scheme, which I take substantially from the skeleton argument of Mr. Richard Snowden, who appears on behalf of the Petitioners, is as follows. The company is a subsidiary of Anglo American Insurance Holdings Ltd., which itself is a subsidiary of Anglo American Insurance Group UK plc, which is owned in turn by Zurich Centre Group Holdings Ltd., whose ultimate parent company is Zurich Financial Services AG, which is the ultimate holding company in the Zurich Insurance group of companies.
The company began writing business in the London insurance market on 13th April 1987. Over the next eight years, it got into difficulties. In about 1995, the Directors of the company decided to commute certain of the company's reinsurance protections. Accordingly, in 1996, the company entered into agreements with the reinsurers, including a company called Central Solutions Ltd., ("Centre") and "Anglo American Insurance Company (Bermuda) Limited", to commute certain reinsurance contracts provided by those companies with effect from December 1995. Part of the consideration received by the company was cash and securities amounting to sixty seven million dollars. The transaction involved the company entering into a new reinsurance contract with Centre, with the aim of providing support for the company if after collection of all other reinsurance recoveries its gross assets fell to zero. I am told that the provisional liquidators do not fully understand all the aspects of that transaction at the moment.
According to the Directors of the company, the 1995 accounts had been finalized by October 1996, and by then it was clear that the financial position of the company for the year ending 31st December 1996 was going to be adversely affected by a number of factors. The cumulative effect of these factors was that the company's liabilities, including contingent and prospective liabilities, exceeded its assets.
In the absence of additional finance being available, the Board decided on 10th March 1997 to cease paying claims and to present a winding-up petition and to seek the appointment of provisional liquidators. Such a petition was presented the following day, and Mr. Anthony McMahon and Mr. Philip Wallace of KPMG, who are the applicants, were appointed as joint provisional liquidators of the company by Mr. Justice Carnwath, with a view to promoting a scheme arrangement and investigating antecedent transactions. The order appointing the provisional liquidators also provided for the appointment of an informal creditors committee. It also contained a fairly wide order under section 127 of the Insolvency Act 1986. The petition has been adjourned from time to time to enable the scheme to be formulated and the next hearing of the petition is due to be 26th July 2000.
The reasons put forward for the scheme are as follows.
The company is plainly insolvent. Its audited accounts for the period ending 31st December 1998 show an estimated deficiency of some seventy-eight million dollars. Although insolvent, the company is expected to have sufficient assets to pay a proportion of the claims against it. There are three alternative ways in which the liabilities of the company could be ascertained and its assets collectively distributed.
First, through a conventional liquidation; secondly, under a scheme of arrangement within the liquidation; or thirdly by a scheme of arrangement outside a liquidation. The company's business is such that the run-off of liabilities is unlikely to be completed for some years and the provisional liquidators are of the opinion that a scheme of arrangement outside a liquidation is the preferable alternative. The main advantages of a scheme are said to be as follows. First, the investing and handling of the company's assets will not be subject to the fees which would otherwise be payable if they are required to be paid into the comparatively low interest bearing insolvency services account in a compulsory liquidation. Secondly, payments to creditors will predominantly be made in the currency of their respective claims, rather than in sterling as in a compulsory liquidation, thus minimising exchange rate fluctuations and meeting a creditor's expectations. Thirdly, a more flexible investment policy could be utilised so as to suit the company's requirements. Fourthly, the procedure for resolving disputes ought to provide substantial savings of costs, a consideration of particular weight to this court, following the CPR. Fifthly, the scheme should maximise the return to creditors and allow for accelerated payments.
The proposed scheme: I should explain the scheme in outline. The provisional liquidators would become the initial scheme administrators and would manage the run-off of the company's liabilities and realise and distribute its assets in accordance with the provisions of the scheme, and they would be supervised by a creditors' committee. The scheme would apply to all liabilities of the company, except to those of secured creditors, at least to the extent of the security, to those with preferential claims and to pre-scheme costs. Any claims which would rank as preferential claims under a liquidation pursuant to the Insolvency Act 1986, would be paid in full after the scheme becomes effective, as would most categories of costs, charges and expenses. It is also right to say that the scheme would not affect the rights of secured creditors or holders under letters of credit or trusts. I should also mention that scheme creditors would be able to rely on any set-offs upon which they could have relied if the company had been wound up pursuant to the current petition and the order had been made on the date on which the scheme becomes effective.
Apart from scheme creditors, the scheme would also bind the Policyholder's Protection Board ("PPB"), which has agreed to make payments in accordance with the terms of the scheme to any scheme creditor who would be entitled to protection under the Policyholder's Protection Act 1975 on a liquidation.
Significantly, such payments would ensure, subject to provisions designed to protect the PPB from any excessive currency fluctuations, that such creditor received an equivalent percentage of his claim to that which the PPB would be under a duty to secure that such a creditor was paid if the company had gone into liquidation on the relevant date. The PPB have given undertakings to be bound by the scheme.
So far as the duration of the scheme is concerned, it is anticipated that it may last for eight years or more, but there are provisions for its earlier termination in appropriate circumstances. There are also provisions for what are called mini schemes, so that if it is in the interests of scheme creditors as a whole to propose further schemes, they can be put into effect, albeit subject to court sanction.
Importantly, the scheme is designed to coexist alongside a liquidation, so it would not terminate if the company is wound up. So too, the PPB's obligations would survive the winding-up. This is relevant, because there is a particular possibility in this case that a winding-up may be desirable, as it would be in the interests of the creditors to enable the liquidators to utilise remedies under the Insolvency Act 1986 in relation to the conduct of the company's affairs and transactions, which took place prior to the making of the order of Mr. Justice Carnwath.
To avoid the assets of the company being paid into the insolvency services account, the scheme also contains provisions which would ensure that the scheme assets are held on trust by the scheme administrators to be applied in accordance with the terms of the scheme.
Under the scheme, creditors would be required to notify the company of their claims in the normal manner, as if the company was solvent. Significantly, disputes would be dealt with under the scheme's dispute resolution procedure, which would provide for a limited stay of proceedings against the company to reduce the cost to the company of participating in litigation, and to allow time for agreement of a scheme claim.
The precise nature of the stay would differ, depending upon whether the scheme creditor's claim is in respect of a common liability, that is, where the company is liable for a proportion of a share of a claim with coinsurers (and I will refer to these scheme creditors as "common liability creditors") or is in respect of other claims, that is, where the company is the sole insurer or where the claim is not an insurance claim (and I will refer to such creditors as "other creditors"). Common liability creditors would be prevented from bringing proceedings against the company to establish the existence or amount of the claim until six months after obtaining judgment against or reaching a settlement with the company's coinsurers and giving notice of that to the company.
Other creditors would be prevented from bringing claims...
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