The Scottish Lion Insurance Company Limited For An Order Under Section 896 Of The Companies Acts 2006 Etc.
| Jurisdiction | Scotland |
| Judge | Lord Glennie |
| Neutral Citation | [2009] CSOH 127 |
| Year | 2009 |
| Published date | 14 September 2009 |
| Date | 10 September 2009 |
| Court | Court of Session |
| Docket Number | P1981/08 |
| OUTER HOUSE, COURT OF SESSION [2009] CSOH 127 | |
| P1981/08 | OPINION OF LORD GLENNIE in the Petition THE SCOTTISH LION INSURANCE COMPANY LIMITED Petitioner; For an order under Section 896 of the Companies Act 2006 and for sanction of a Scheme of Arrangement under Section 899 of the Companies Act 2006 ________________ |
Petitioners: Howie QC, Howlin; Morton Fraser LLP
Respondents: McNeill QC, Munro; Simpson & Marwick
10 September 2009
Introduction
[1] This is a petition by The Scottish Lion Insurance Company Limited ("the Company") for sanction of a scheme of arrangement ("the scheme") under s.899 of the Companies Act 2006 ("the 2006 Act"). Sanction of the scheme is opposed by five creditors of the Company, all of whom are based in the United States, of whom the first named in the answers to the petition is Goodrich Corporation. I shall refer to the opposing creditors collectively as "the respondents".
The background
[2] I take the background substantially from the averments in the petition, most of which are admitted. The Company began underwriting in 1948, initially underwriting marine business in relation to vessels belonging to the Clan Line Steamers Group and later more generally. In 1962 it began writing aviation business. As was the case with many insurance companies in the London Market, some incidental non-marine business was written as part of the marine account. In late 1982 it began writing a specific non-marine account. In 1983, it ceased writing a general aviation account. The business comprised a mixture of direct insurance and reinsurance, including excess of loss reinsurance. A significant part of the business was occurrence insurance, covering liabilities arising out of events occurring during the lifetime of the policy but in respect of which claims might be made after the policy had expired. The Company at no time underwrote life business or was authorised to do so.
[3] The Company underwrote business through brokers in London. At various times from 1962 onwards, it also wrote business through the Institute of London Underwriters ("the ILU"), which signed and issued policies on behalf of the Company alone or on behalf of the Company and other members of the ILU ("the ILU Policies"). The Company was a member of the subscription market in London and generally participated as an insurer or re-insurer on risks subscribed by a number of other insurance companies through the London Market Broking System.
[4] The Company ceased writing new business on 9 December 1994. Since then it has been in run off. Its remaining portfolios contain both short-tail and long-tail business. Whilst it is thought that its short-tail business, such as property insurance, is unlikely to give rise to any future claims, its long-tail business will include exposure to Asbestos, Pollution and Health Hazard ("APH") losses.
[5] In October 1988 the Company was required by the ILU to provide a guarantee ("the ILU Guarantee") in relation to liabilities under the ILU Policies. The ILU Guarantee was provided by the Company's then owners on 12 October 1988. They were released from the ILU Guarantee in May 2008. On 21 May 2008 Barclays Bank Plc ("Barclays") opened an irrevocable stand by letter of credit ("the LOC") in favour of the ILU by order and for account of SLI Holdings Limited. The LOC can be drawn on by the ILU in the event of a default in payment by the Company in relation to any policy written through the ILU on or after 12 October 1988.
The reasons put forward for the scheme
[6] The reasons for the scheme are explained in the petition. In the ordinary course of run off, claims are adjusted and settled as and when they are received and once their validity and quantum have been agreed. In addition, the Company terminates its liability to individual creditors once and for all by means of agreed commutation payments. Liabilities terminated by such payments include liabilities in respect of claims incurred but not yet reported ("IBNR"). Unless a mechanism for terminating the run off is implemented, the run off may continue for many years or even decades. In the absence of such a mechanism, the Company will never know with certainty whether all of its liabilities have been extinguished. In the meantime, both the Company and its creditors will incur substantial ongoing costs in connection with the processing and quantifying of claims and in connection with the termination of the Company's liabilities by means of a series of individual commutations. The proposed scheme of arrangement with all of its creditors who are creditors in relation to its underwriting business ("scheme creditors") will, if sanctioned and fully implemented, bringing the run off and its associated uncertainties to an end.
[7] I should emphasise that the Company avers in the petition that it is solvent and there is no reason to doubt that this is so. There is no suggestion of any threatened or imminent insolvency or of any circumstances likely to bring about insolvency if the court does not sanction the scheme.
[8] This is not the first time that the Company has presented a petition for sanction of a scheme of arrangement. It did so in 2005. The 2005 scheme was intended to take effect between the company and certain of its creditors. Sometime after the notices convening a meeting of scheme creditors had been despatched, the 2005 scheme was withdrawn. This is not relevant to the present petition but, for those who are interested, the history of that petition is narrated at paras. [2]-[5] of the Opinion of Lord Drummond Young in Re. Scottish Lion Insurance Co. 2006 SLT 606.
The proposed scheme
[9] The details of the scheme are complex but are summarised, sufficiently for present purposes, in the petition in a series of numbered sub-paragraphs:
"(1) The Scheme will extend to all of the Company's 'Scheme Liabilities', which include all liabilities of the Company under or in relation to an insurance contract. That definition includes IBNR Claims but excludes unpaid agreed claims and all liabilities and obligations which are barred by statute or otherwise unenforceable.
(2) Scheme Liabilities will be valued at the 'Valuation Date', which is defined as 31 December 2007, although the Company may take account of events occurring after that date in appropriate circumstances.
(3) There will be two classes of Scheme Creditors, namely (i) Scheme Creditors in respect of non-IBNR Claims and (ii) Scheme Creditors in respect of IBNR Claims. ...
(4) Scheme Creditors will be invited to submit claims in respect of Scheme Liabilities. The claims will require to be substantiated by supporting documentation. There will be a long-stop date ('the Bar Date') by which the claims and supporting documentation must be submitted.
(5) The submission of claims by Scheme Creditors will lead to the claims being determined either by agreement between the Scheme Creditors and the Company or, in the absence of such agreement, by a Scheme Adjudicator by the application of a specified 'Dispute Resolution Procedure'.
(6) The Scheme Adjudicator will be a qualified actuary with considerable experience in the insurance industry and particular experience in the adjudication of claims in schemes of arrangement proposed by solvent insurance companies. ...
(7) Whether they are determined by agreement or by the Scheme Adjudicator, all claims in the Scheme will require to be determined by reference to a set of 'Estimation Guidelines' which are set out in an appendix to the Scheme itself. The Estimation Guidelines are flexible. They contain particularly extensive provisions in respect of IBNR claims.
(8) Once a Scheme Creditor's claims have been determined, there will be set off against them any sums owed by the Scheme Creditor to the Company and the balance (if it is a positive amount) will be paid by the Company to the Scheme Creditor in full and final settlement of all of the Company's liabilities to that Scheme Creditor in respect of the Company's insurance business.
(9) If and when the Scheme comes into effect, Scheme Creditors will be prohibited from enforcing their claims against the Company by way of proceedings ... unless the Company consents to their doing so. Scheme Creditors who hold security for their claims will be entitled to have recourse to their security but will be obliged to give credit to the Company for sums realised on enforcement.
(10) The Scheme contains a provision which will entitle the Company to terminate the Scheme and revert to run off in certain circumstances. In general, however, the Company will be precluded from reverting to run-off once it has made the first payment under the Scheme."
If and when the Scheme is fully implemented, so that the Company has no further liabilities under it, the proprietors of the Company intend to put the Company into members' voluntary liquidation.
[11] The Scheme Adjudicator appointed by the company is Mr George Maher of Towers Perrin LLP. He is described in the petition as an actuary with extensive experience of the insurance and reinsurance market who has, in the past, acted as an independent scheme adjudicator or an independent vote assessor in relation to numerous insurance company schemes of arrangement and, further, has acted as chairman of creditors' meetings in relation to such schemes.
[12] In statement 6 of the petition, the Company summarises what it perceives to be the advantages or disadvantages of the scheme to scheme creditors. Advantages of the scheme include: (i) early payment, i.e. the fact that scheme creditors will have their scheme liabilities determined and paid sooner than if there were no scheme; (ii) that there will be no discount for early payment, so that in most cases scheme creditors will receive, in effect, a premium over the present value of their claims; (iii) that the scheme offers a practical, straightforward and cost effective means of determining the value of present...
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