The Prudential Assurance Company Ltd
| Jurisdiction | England & Wales |
| Judge | Mr Justice Trower |
| Judgment Date | 24 November 2021 |
| Neutral Citation | [2021] EWHC 3152 (Ch) |
| Docket Number | Case No: CR-2018-003686 |
| Court | Chancery Division |
[2021] EWHC 3152 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
COMPANIES COURT (ChD)
Royal Courts of Justice, Rolls Building
Fetter Lane, London, EC4A 1NL
Mr Justice Trower
Case No: CR-2018-003686
and
and
Martin Moore QC instructed by Allen & Overy LLP for The Prudential Assurance Company Limited and by Latham & Watkins LLP for Rothesay Life PLC
Tom Weitzman QC for the Prudential Regulation Authority
Theodor Van Sante for the Financial Conduct Authority
Mr Thomas Copsey, Mrs Kornelia Robertson, Mrs Penelope Howell, Dr Jay Ginn, Mr David Mitchell and Mr Anthony Kell, policyholders of The Prudential Assurance Company Limited appeared in person
Hearing dates: 8, 9 and 10 November 2021
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
THE HONOURABLE Mr Justice Trower
Introduction
In these proceedings, The Prudential Assurance Company Ltd (“PAC”) as transferor and Rothesay Life plc (“Rothesay”) as transferee seek an order sanctioning an insurance business transfer scheme (the “Scheme”) pursuant to Part VII of the Financial Services and Markets Act 2000 (“ FSMA”). References to section numbers in this judgment are references to sections of FSMA. If the Scheme is sanctioned, some 348,000 non-profit annuity policies in payment, together with six deferred annuities, will be transferred by PAC to Rothesay.
The proceedings have a long history. The substantive application for sanction was first heard by Snowden J in June 2019. For the reasons he gave in a reserved judgment handed down on 16 August 2019 ( In Re The Prudential Assurance Company Limited and another [2019] EWHC 2245 (Ch)), the application for sanction was refused. PAC and Rothesay appealed, and, on 2 December 2020, the Court of Appeal (Sir Geoffrey Vos C, David Richards LJ and Sir Nicholas Patten) allowed the appeal ( In Re The Prudential Assurance Company Limited and another [2020] EWCA Civ 1626) and remitted the matter to the Chancery Division, so that the application for sanction could be reheard.
Not surprisingly, the evidence at the remitted hearing is not identical to the evidence adduced at the outset, not least because more than two years has passed since the hearing before Snowden J. In particular, the number of annuities proposed to be transferred has reduced and the evidence dealing with the respective financial positions of PAC and Rothesay is different. As Mr Moore QC for the applicants and Mr Weitzman QC for the Prudential Regulation Authority (“PRA”) explained, the need for the court to be supplied with the most up to date information available was one of the reasons why the Court of Appeal remitted the matter for a further hearing rather than determining it on the evidence then available.
The corporate structures of the groups of which PAC and Rothesay form part have also changed. PAC is now a key subsidiary in a demerged UK and European business of which the ultimate parent is M&G Plc. It carries on business as the main insurer in the M&G group. There has also been a change in the ownership of Rothesay. At the time of the hearing before the Court of Appeal, its shares were held by the Blackstone Group, the Government of Singapore Investments Corporation (“GIC”) and MassMutual Financial Group (“MM”). On 1 December 2020 Blackstone sold its stake, such that the shares are held as to 49% each by GIC and MM, with the balance of 2% held by an employee benefit trust.
However, the essential form of the Scheme is unchanged. It provides for a straightforward transfer of the annuities from PAC to Rothesay with no alterations to any of the policy terms apart from the identity of the person against whom each annuitant is entitled to exercise their rights. Under the terms of the Scheme what is called the Transferred Business is transferred to and vested in Rothesay with effect from the date on which the Scheme takes effect. In broad terms, the Transferred Business comprises what is described as the Transferred Policies together with the rights benefits and property of PAC arising in connection with the Transferred Policies and any liabilities of PAC under or in respect of the Transferred Policies.
The economic effect of the transfer of liabilities has already been largely achieved, anyway so far as the applicants (and particularly Rothesay) are concerned, by two agreements entered into between PAC and Rothesay on 14 March 2018. The first was a business transfer agreement (the “Business Transfer Agreement”) and the second was a collateralised reinsurance agreement (the “Reinsurance Agreement”). The transferring policies represent around 90% of the business reinsured by Rothesay under the Reinsurance Agreement, as the agreements also covered additional retail and bulk annuity policies.
The effect of the Reinsurance Agreement was to transfer the main part of the economic risk and reward of the transferred business from PAC to Rothesay. When the agreements were signed, the assets backing the annuity policies were transferred by PAC to Rothesay as part of the premium for the reinsurance. However, the contractual obligations under the policies remained with PAC. The Business Transfer Agreement expressly contemplated that the parties would co-operate to achieve the actual transfer of that business through the Scheme.
The Applicable Legislation
Part VII of FSMA contains provisions for the control of a number of different types of business transfer scheme. The control restriction relevant for present purposes is contained in section 104, which provides that no insurance business transfer scheme is to have effect unless an order has been made under section 111(1). The question of whether a scheme is an insurance business transfer scheme is dealt with by section 105, which (for present purposes) requires the scheme to result in all or part of the business being carried on by a UK authorised person to be transferred to another person to be carried on in an EEA state or in the United Kingdom.
It follows that the Scheme can only have effect so as to transfer the relevant annuities to Rothesay if an order under section 111(1) is made. The question for the court is whether the conditions for making such an order are satisfied (section 111(2)) and, if so, whether the court considers that in all the circumstances of the case it is appropriate to do so (section 111(3)).
Part VII also makes provision for the identity of those who can make an application for an order sanctioning an insurance business transfer scheme (section 107), for the Treasury to impose prescribed requirements by regulations (section 108) and for any application to be accompanied by a report on the terms of the scheme (section 109). This report may be made only by a person appearing to the appropriate regulator (in this case the PRA) to have the skills necessary to enable them to make a proper report and he or she must be nominated or approved for the purpose by the PRA. The maker of the report is conventionally called the independent expert. Section 109(3) provides that the report must be made in a form approved by the PRA. There are also provisions for consultation between the PRA and the Financial Conduct Authority (“FCA”) (together the “Regulators”) before the PRA nominates or approves the independent expert and before it approves the form of their report.
Provision is made by section 110 for the right to participate in proceedings for the sanction of an insurance business transfer scheme. Those entitled to be heard include the FCA and, in a case such as the present in which both PAC and Rothesay are PRA-authorised persons, the PRA. They also include by section 110 (1) “ any person (including an employee of the transferor concerned or of the transferee) who alleges that he would be adversely affected by the carrying out of the scheme”. In the present case, it is plain that this definition includes any policyholder or annuitant who alleges that he would be adversely affected by the carrying out of the Scheme, but there is some uncertainty as to how much further it goes. I will revert to this question a little later because, during the course of the hearing, I was required to decide whether the court should hear submissions from a person whose entitlement to be heard was in issue.
Technical aspects of the application
In this, as in many other cases, the most substantial issue for the court to consider is whether in all the circumstances of the case it is appropriate to sanction the Scheme (section 111(3)). I shall turn to that question shortly. However, the court must also be satisfied as to a number of more technical questions, without which the court will not have jurisdiction to grant the relief sought. I shall deal with these questions at this stage.
The first question is whether the Scheme is an insurance business transfer scheme in the first place. As the Court of Appeal recorded ( [2020] EWCA Civ 1626 at para 32), there is no issue in the present case that the Scheme is a business transfer scheme within the meaning of Part VII. I am satisfied that this requirement continues to be met, although the answer to the question has been affected by the United Kingdom's exit from the EU, which occurred after the hearing before Snowden J. As a consequence of Brexit, amendments were...
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