Scottish Lion Insurance Company Ltd, Petitioner
| Jurisdiction | Scotland |
| Judgment Date | 08 March 2011 |
| Neutral Citation | [2010] CSIH 6 |
| Date | 08 March 2011 |
| Docket Number | No 24 |
| Court | Court of Session (Inner House) |
Court of Session Inner House First Division
Lord President (Hamilton), Lord Reed, Lord Mackay of Drumadoon
Companies - Scheme of arrangement - Solvent company - Company not at risk of becoming insolvent should the arrangement not be made - Whether applications for sanction in respect of such companies should be dealt with differently to those where the company is insolvent or on the verge of insolvency - Companies Act 2006 (cap 46), secs 895, 896, 899
Section 896(1) of the Companies Act 2006 (cap 46) ("the 2006 Act") provides, "The court may, on an application under this section, order a meeting of the creditors or class of creditors or of the members of the company or class of members (as the case may be), to be summoned in such manner as the court directs." Section 899(1) provides, "If a majority in number representing 75% in value of the creditors or class of creditors or members or class of members (as the case may be), present and voting either in person or by proxy at the meeting summoned under section 896, agree a compromise or arrangement, the court may, on an application under this section, sanction the compromise or arrangement." In terms of sec 899(3), "A compromise or agreement sanctioned by the court is binding on (a) all creditors or the class of creditors or on the members or class of members (as the case may be), and (b) the company".
The petitioner presented applications to the court in terms of secs 896 and 899 of the 2006 Act in which it sought an order for meetings of creditors and thereafter sanction of a scheme of arrangement. The petitioner was an insurance company which had not written any new business since 1994. It was solvent. The respondents were insured against "long tail" losses which were liable to become evident long after the exposure to which they relate. At the relevant creditors' meeting, they voted against the scheme. They lodged answers to the petition opposing the application for sanction.
Following a debate, the Lord Ordinary issued an opinion addressing the issue of the circumstances in which the court might sanction a solvent scheme in the face of opposition from dissenting creditors. He concluded that in a solvent scheme, he would expect the petitioners in applying for sanction for a scheme to be able to place before the court averments and supporting material justifying the proposition that in the particular case, the minority should be bound by the decision of the majority. The petitioner declined to amend. The Lord Ordinary dismissed the petition without inquiry into the facts. The petitioner reclaimed.
It was argued for the petitioner that the Lord Ordinary had, in effect, created a rebuttable presumption against the sanctioning of an opposed solvent scheme. He had raised an issue of competency prior to an evidential hearing and before reaching the stage of exercising his discretion. The logical conclusion of the decision was that, unless a "problem" was identified, such a scheme could never be sanctioned in the face of opposition to it. The correct approach was to consider whether or not the honest and intelligent man could or might approve the scheme.
It was argued for the respondents that the Lord Ordinary had simply exercised the discretion available to him. He was entitled to deal with the petition without further procedure as he had sufficient material before him to reach a decision. As a matter of legal analysis, and absent an objective justification for the scheme, no Lord Ordinary could sanction its imposition upon dissentients. The petitioner had been given an opportunity to provide a justification, but had not done so. Whether there was such justification would depend on the facts and circumstances of each case. The court had a duty to satisfy itself that, in all the circumstances, it was a proper scheme to sanction, even in the face of opposition. The onus was on the petitioner to demonstrate the fairness and reasonableness of the scheme and to lay a sufficient basis in the pleadings therefor. The Lord Ordinary was addressing matters in a novel context and if his approach did involve an issue of law, the fact that it was not to be found in the statute did not undermine it.
Held that: (1) there is nothing in the legislation, nor in its antecedents, to suggest that applications for sanction of a "solvent scheme" are in principle to be dealt with differently from those where the company is insolvent or on the verge of insolvency (para 43); (2) the circumstance that the company is solvent is a factor which may be taken into account when the court comes to exercise its discretion (para 43); (3) the existence of a "problem" in the sense of an adverse situation facing both the company and its creditors or a class of them may be a factor in favour of granting sanction, but is not a pre-condition (para 44); (4) while the operation of "creditor democracy" is not conclusive, there is no basis in the authorities for the view that it operates only when "failure to agree would ruin it for all" (para 46); and reclaiming motion allowed, the Lord Ordinary's interlocutor recalled and remitted to the Lord Ordinary to proceed as accords.
Scottish Lion Insurance co ltd presented a petition in terms of secs 896 and 899 of the Companies Act 2006 seeking an order for meetings of creditors and thereafter sanction of a scheme of arrangement. By interlocutor dated 15 December 2008, the Lord Ordinary (Glennie) ordered two separate meetings of creditors. Following a debate on 7, 8 and 9 July 2009 the Lord Ordinary issued an opinion, on 10 September 2009 ([2009] CSOH 127). Having heard parties on 14 and 16 October 2009, the Lord Ordinary dismissed the petition. The petitioner reclaimed.
Cases referred to:
Alabama, New Orleans, Texas and Pacific Junction Rly (Re)ELR [1891] 1 Ch 213
British Aviation Insurance Co Ltd (Re)UNKUNK [2005] EWHC 1621; [2006] BCC 14; [2006] 1 BCLC 665
BTR plc (Re)UNK [2000] 1 BCLC 740
Cape plc (Re) [2006] EWHC 1446; 150 SJLB 858
Colonia Insurance (Ireland) Ltd (Re)UNK [2005] IEHC 115
DAP Holding NV (Re)UNK [2005] EWHC 2092; [2006] BCC 48
Edinburgh American Land Mortgage Co Ltd v Lang's Trs sub nom Edinburgh American Land Mortgage Co Ltd v ClelandENR 1909 SC 488; 1909 1 SLT 130
English, Scottish and Australian Chartered Bank (Re)ELR [1893] 3 Ch 385
Equitable Life Assurance Society (Re)UNKUNK [2002] EWHC 140; [2002] 2 BCLC 510; [2002] BCC 319
Guardian Assurance Co (Re)ELR [1917] 1 Ch 431; 86 LJ (Ch) 214; [1917] HBR 113; 116 LT 193; [1917] WN 20; 33 TLR 169; 61 SJ 232
Hawk Insurance Co Ltd (Re)UNKUNKUNK [2001] EWCA Civ 241; [2002] BCC 300; [2001] 2 BCLC 480
Hudson Conway Ltd (Re) [2000] VSC 21
La Lainiere de Roubaix v Glen Glove and Hosiery Co LtdENR 1926 SC 91; 1926 SLT 5
Mercantile & General Reinsurance Co Ltd Court of Session, 1 September 2007, unreported
Mercantile Mutual Insurance (Australia) Ltd (Re) [2002] FCA 1632
National Bank Ltd (Re)WLRUNK [1966] 1 WLR 819; [1966] 1 All ER 1006; 110 SJ 226
National Farmers Union Development Trust Ltd (Re)WLRUNK [1972] 1 WLR 1548; [1973] 1 All ER 135; (1972) 116 SJ 679
NRG London Reinsurance Co Ltd and NRG Victory Australia Ltd [2006] FCA 1126
Osiris Insurance Ltd (Re)UNK [1999] 1 BCLC 182
PCCW Ltd (Re) [2009] HKCA 177
Reliance National Asia Re Pte Ltd (Re) [2008] 1 SLR 569
Savoy Hotel Ltd (Re)ELRWLRUNK [1981] 1 Ch 351; [1981] 3 WLR 441; [1981] 3 All ER 646
Scottish Eagle Insurance Co Ltd (Re) [2005] EWHC 2683
Singer Manufacturing Co v RobinowSC 1971 SC 11
Sovereign Life Assurance Co v DoddELR [1892] 2 QB 573
Sovereign Marine & General Insurance Co Ltd (Re)UNKUNK [2007] EWHC 1331; [2006] BCC 774; [2007] 1 BCLC 228
Telewest Communications plc (Re) (No 2)UNKUNK [2004] EWHC 1466; [2005] BCC 36; [2005] 1 BCLC 722
UDL Holdings Ltd (Re) [2002] 1 HKC 172
Textbooks etc. referred to:
Boyle, A, and Marshall, P, Practice and Procedure of the Companies Court (LLP Professional Publishing, London, 1997), para 3.6.6
Buckley, HB, Companies Acts (14th Parker and Buckley ed, Butterworths, London, 1988), pp 473, 474
Moss, G, "Scots Cut Off Exit for Lion: A major hurdle for solvent schemes" (2010) 23(1) Insolv Int 5
The case called before the First Division, comprising the Lord President (Hamilton), Lord Reed and Lord Mackay of Drumadoon, for a hearing on the summar roll, on 1, 2, 3 and 4 December 2009.
At advising, on 29 January 2010, the opinion of the Court was delivered by the Lord President (Hamilton)-
Opinion of the Court-
[1] The petitioner has presented to the court applications under secs 896 and 899 of the Companies Act 2006 (cap 46) in which it seeks respectively an order for meetings of creditors and thereafter sanction of a scheme of arrangement annexed to the petition. The petitioner is an insurance company which has issued various policies of insurance, a significant number of which are 'occurrence' insurance, that is, where claims may be made after, and in some cases significantly after, the relative policy has expired. The petitioner is solvent. It has not written any new business since 1994. It is in 'run off'.
[2] By interlocutor dated 15 December 2008 the Lord Ordinary ordered two separate meetings of creditors. At the first of these meetings the creditors entitled to attend and vote were those who had claims other than IBNR claims and at the second the creditors so entitled were those who had IBNR claims. An 'IBNR' claim is, broadly speaking, a claim with respect to which, as at the date relevant for scheme purposes, a loss has been incurred but has not been reported. These meetings were held on 2 March 2009. In a report dated 23 April 2009 the chairman of the meetings reported that, in the case of each meeting, a majority in number representing 75 per cent in value of the creditors present and voting either in person or by proxy had voted in favour of the...
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