The Scottish Lion Insurance Company Limited For An Order Under Section 896 Of The Companies Act 2006 And For Sanction Of A Scheme Of Arrangement
| Jurisdiction | Scotland |
| Judge | Lord Glennie |
| Neutral Citation | [2012] CSOH 5 |
| Year | 2012 |
| Published date | 01 March 2012 |
| Date | 13 January 2012 |
| Court | Court of Session |
| Docket Number | P1981/08 |
| OUTER HOUSE, COURT OF SESSION [2012] CSOH 5 | |
| P1981/08 | OPINION OF LORD GLENNIE in the Petition of 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, Delibegovic-Broome; Morton Fraser LLP
Respondents: Weir QC, Munro; Simpson & Marwick, WS
Noters: Lord Davidson of Glen Clova QC; Dundas & Wilson, CS
13 January 2012
Introduction
[1] This is a further chapter in the 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"). The petition is opposed by five creditors of the Company ("the respondents").
[2] The question at issue on this occasion is one of further procedure. Should the issues be resolved by allowing the parties to continue in the same manner as if it were a fully contested action, with fully developed pleadings, recovery of documents, and deployment of witnesses (both factual and expert)? Or should the court return to its remit to the reporter to enquire into and report to the court upon the facts and circumstances set forth in the petition and the regularity of the present proceedings, before hearing such legal (and possibly other) argument as might arise on the issues identified by his report? The respondents argue for the former (or at least a modified version of it); while the Company argues that, in the circumstances as they are now shown to be, the latter course is appropriate.
Procedural history to date
[3] Before turning to the competing considerations, I should set out briefly the procedural history of the matter to date. This is only intended as a summary. The details of the scheme and the issues between the parties, together with a more detailed account of the procedural history, can be gleaned from earlier Opinions in this case, namely: my Opinion of 10 September 2009 (reported at 2010 SLT 100) dealing with certain preliminary issues; the Opinion of the Inner House on one of those issues, delivered by the Lord President (Hamilton) on 29 January 2010 (2010 SC 349); my Opinion of 8 July 2010 (unreported, [2010] CSOH 87) in relation to a claim by the noters for privilege; and the Opinion of the Inner House on that question, delivered by Lord Reed on 8 March 2011 (reported at 2011 SC 534).
[4] The petition was presented on 9 December 2008.
[5] On 15 December 2008 I made an order in terms of s.896 of the Companies Act 2006 for the holding of two separate meetings of creditors for the purpose of considering the scheme, one meeting being of creditors with non-IBNR claims and the other of creditors with IBNR claims. At the date the order was made, it was perceived by the petitioners that these constituted the only two distinct classes of creditors for the purposes of considering the scheme. Such meetings of creditors are an essential pre-condition of the court's jurisdiction to sanction the scheme: in terms of s.899 of the Companies Act 2006 the court's power to sanction the scheme only arises if a majority in number representing 75% in value of the class of creditors present and voting either in person or by proxy at those meetings agree to the scheme.
[6] The meetings of creditors were held on 2 March 2009.
[7] On 23 April 2009, the chairman of the meeting reported to the court, in accordance with the interlocutor of 15 December 2008, that the requisite majorities both by number and by value had been obtained amongst each class of creditors.
[8] On 29 April 2009, on the application of the Company, I made an order for advertisement of the petition and for the lodging of answers by anyone claiming an interest.
[9] The respondents, who are scheme creditors with both IBNR and non-IBNR claims, lodged answers both objecting to the scheme and challenging the way in which the votes were valued for voting purposes.
[10] The details of their contentions on both fronts are summarised in the earlier Opinions to which I have referred and I need not repeat them here. The issue as to the values to be attributed to votes cast in each class, and the impact which the adjustments to such values (which were carried out by the chairman of the meeting and the Independent Vote Assessor ("IVA")) had on the achievement of the requisite majorities, is shown starkly in paras.[28] and [29] of my Opinion of 10 September 2009. For present purposes, however, it is of greater importance to note their objections to the scheme itself. Their contention is that occurrence-based coverage represents a valuable and irreplaceable business asset, the benefit of which they would prefer to retain, not least because "replacement occurrence-based coverage is no longer available on any insurance market at any price". The value of scheme liabilities, especially in regard to IBNR claims, is likely to be so heavily discounted under the scheme that they will receive little if any compensation for being deprived of the protection which their purchase of occurrence-based coverage has given them. They say that their "overarching objection" to the scheme is that it amounts to a
"... confiscation of their valuable rights, for which they have paid substantial premiums, for no or wholly inadequate compensation". (Answers para.8.3)
They elaborate on this in answer 6.2. The scheme amounts to "a confiscation of their rights":
"... If the Scheme is sanctioned, it will have the effect of compulsorily transferring the risks assumed by the Company (in return for the payment by Scheme Creditors of substantial premiums) back to policyholders, thereby depriving them, for little if any compensation, of the measure of finality and certainty their purchase of occurrence-based coverage had given them."
In answer 13 they say that
"... the Scheme is fundamentally unfair. It involves the confiscation of valuable, and irreplaceable, insurance cover purchased by Scheme Creditors at substantial premiums."
The pleadings were developed to focus these issues.
[11] Schemes of arrangement frequently attract no opposition. It was, however, clear from the outset that this was not such a case, albeit the full extent of the objections (and in particular those relating to the valuation of the votes cast for and against the scheme at the creditors' meetings) was not then known. Accordingly, when the matter first came before the court a four-day hearing was "pencilled in" for 7 July 2009 and the ensuing three days. At a By Order hearing on 22 June 2009 the court was told that a fully contested hearing could not take place on those days, in part because of the work required to focus the issues in relation to valuation of votes at the meetings and to gather evidence to be adduced at a proof on the point. It was decided, however, that those dates could be used effectively to resolve at debate two issues identified in parties' notes of argument lodged in advance of the By Order hearing.
[12] That debate was heard on 7-9 July 2009. My decision in favour of the respondents on both points and dismissing the petition was issued on 10 September 2009. The Inner House reversed that decision on one of the points in January 2010. My interlocutor dismissing the petition was recalled.
[13] In the meantime, the respondents had sought to recover documents relating to the valuation of creditors' claims for voting purposes, in order to be able effectively to present their case that the adjustments made to the voting figures were illegitimate. [14] On 10 July 2009, I made an order for recovery of documents, the order containing a number of provisions agreed between the petitioner and the respondents which were designed to address issues of confidentiality. Amongst other things, those provisions allowed redaction from the documents of such information as might reveal the identity of the creditor referred to in the document. That order was varied on 25 August and 7 September 2009 to adjust certain of the detailed provisions for production of the documents; and also to allow the noters (other creditors who had supported the scheme and who had entered the process for this specific purpose) to raise claims for privilege and confidentiality in respect of their documents.
[15] This process was interrupted in September 2009 by my decision on the points argued at debate (see para.[12] above), and only resumed some time after the decision of the Inner House in January 2010.
[16] Thereafter, pursuant to an order made on 28 May 2010, the noters fleshed out their claim for privilege in a Summary Note. That claim was met by a contention that any privilege had been waived. I heard argument on the question of waiver.
[17] On 8 July 2010 I held that any legal professional privilege in the documents had been waived by virtue of their having been disclosed for the purpose of valuing the votes cast at the statutory meetings. The Inner House upheld my decision on that point on 8 March 2011.
[18] That decision, which related to waiver of privilege, did not formally decide any issues relating to confidentiality. This is, of course, a separate issue from that of privilege. It might have been thought, however, that the decision on waiver of privilege, combined with the measures already put in place to protect confidentiality and the comments in the Opinion of the Inner House on that question, would have resolved the confidentiality issue too. That proved not to be the case. The noters continued to resist disclosure on grounds of confidentiality.
[19] A previous interlocutor had remitted the question of recovery of documents, and in particular any claims to commercial confidentiality, to a commissioner. In the ordinary course, a commissioner would hear the argument on confidentiality and report to the court, which would then hear argument on any disputed matters. It was agreed,...
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