The Standard Life Assurance Company For Sanction Of A Scheme Under Part Vii Of The Financial Services And Markets Act 2000
| Jurisdiction | Scotland |
| Judge | Lord Nimmo Smith |
| Neutral Citation | [2007] CSOH 137 |
| Court | Court of Session |
| Published date | 01 August 2007 |
| Date | 09 June 2006 |
| Year | 2007 |
| OUTER HOUSE, COURT OF SESSION [2007] CSOH 137 | |
| OPINION OF LORD NIMMO SMITH in the petition of THE STANDARD LIFE ASSURANCE COMPANY Petitioner; for Sanction of a Scheme under Part VII of the Financial Services and Markets Act 2000 ________________ |
Counsel: for petitioner, Sellar Q.C. and Mrs Munro; for SLLC Ltd, Mrs Munro; for Standard Life plc, F Thomson
Solicitors: Dundas & Wilson
9 June 2006
Introduction
[1] This is an application under section 107 of the Financial Services and Markets Act 2000 ("FSMA"). The petitioner ("the Company") is a mutual insurance company which is now incorporated under the Standard Life Assurance Company Act 1991 ("the Act"). Its constitution is contained in the Act and regulations adopted pursuant to the Act with effect from 26 April 2005. The Company's head office is at Standard Life House, 30 Lothian Road, Edinburgh.
[2] The Company is a "UK authorised person" for the purposes of FSMA, having been granted permission by the Financial Services Authority ("the FSA") under Part IV of FSMA to carry on long term insurance business in the United Kingdom falling within classes I, II, III, IV, VI and VII set out in Annex 11.1 to the Interim Prudential Sourcebook for Insurers.
[3] In this application, the Company seeks an order sanctioning an insurance business transfer scheme ("the Scheme") within the meaning of section 105 of FSMA. The Scheme provides for the transfer of the Company's long term business, as carried on in certain States within the European Economic Area ("EEA"), to SLLC Limited (which, upon the Scheme becoming effective, will be renamed Standard Life Assurance Limited ("SLAL") and which is referred to as such in the Scheme and in this Opinion). The Company's long term business as carried on in certain jurisdictions outside the EEA will be transferred by separate schemes in accordance with the relevant local laws ("the Associated Schemes").
[4] SLAL is a private limited company incorporated under the Companies Act 1985. Its registered office is also at Standard Life House, 30 Lothian Road, Edinburgh. Its directors are referred to in the application as "the SLAL Board". SLAL is also an authorised person for the purposes of FSMA. It has permission under Part IV of FSMA to carry on long term insurance business within classes I, III, IV, VI and VII set out in the said Annex 11.1 to the Interim Prudential Sourcebook for Insurers. It has not sought authorisation to carry on long term insurance business within class II (which comprises contracts of insurance to provide a sum on marriage, the formation of a civil partnership or the birth of a child).
[5] SLGC Limited is a private company limited by shares, with its registered office also at Standard Life House, 30 Lothian Road, Edinburgh. Prior to publication of the prospectus in connection with the Flotation referred to in paragraph [7] below, SLGC Limited will re-register as a public company under the name Standard Life plc ("SL plc"). It is referred to as such in the Scheme and in this Opinion.
[6] SL plc is also a party to the Scheme. In particular, SL plc will provide the compensation payable under the Scheme to certain members of the Company in respect of the loss of their membership rights ("Demutualisation Entitlements"). The Demutualisation Entitlements will take the form either of ordinary shares in SL plc ("the Demutualisation Shares") or their cash equivalent.
[7] Subsequent to the demutualisation under the Scheme ("the Demutualisation"), but on the same day, SL plc will issue further ordinary shares ("the IPO Shares") to investors as part of its flotation on the London Stock Exchange ("the Flotation"). The Flotation is conditional upon the Scheme becoming effective. The Demutualisation and the Flotation (together with the parallel transfers pursuant to the Associated Schemes) form a composite transaction (collectively referred to in this Opinion as "the Transaction").
[8] The Company and its subsidiaries are referred to in the Petition as "the Present SL Group". After the Transaction, and certain related transfers of subsidiaries, SL plc will be the parent company of a new group of companies, which will include SLAL as a wholly-owned subsidiary of SL plc.
[9] In these circumstances, and acting through its directors ("the Directors"), the Company makes this application. This Court has jurisdiction in respect of this application in terms of sections 107(3)(a) and 107(4)(b) of FSMA.
[10] Section 111 of FSMA provides.
"(1) This section sets out the conditions which must be satisfied before the court may make an order under this section sanctioning an insurance business transfer scheme or a banking business transfer scheme.
(2) The court must be satisfied that -
(a) the appropriate certificates have been obtained (as to which see Parts I and II of Schedule 12);
(b) the transferee has the authorisation required (if any) to enable the business, or part, which is to be transferred to be carried on in the place to which it is to be transferred (or will have it before the scheme takes effect).
(3) The court must consider that, in all the circumstances of the case, it is appropriate to sanction the scheme."
[11] On the date which this Opinion bears, I have decided, after considering inter alia the reports referred to below and the written and oral submissions of counsel, to grant the application. I have been addressed, and been satisfied, about numerous issues. In particular, I have been satisfied about the matters set out in section 111(2)(a) and (b) of FSMA, and I consider, as provided by section 111(3), that, in all the circumstances of the case, it is appropriate to sanction the Scheme. Counsel has asked me to consider writing this Opinion on one issue alone, because of its novelty and possible interest to practitioners in this field. Although I am under no obligation to do so, to I have decided to write it, but for some time pressure of other judicial business has delayed the task. I make no apology for extensive use of material derived from some of the documents before me, all of which appears to me to be of a high standard and at least as well expressed as anything I could write myself.
The Mortgage Endowment Promise
[12] The material in this passage is derived from the Petition. On or about 28 September 2000, the Company issued the Mortgage Endowment Promise ("the Promise") to certain holders of mortgage endowment policies resident in the United Kingdom and Ireland. The holders of policies to which the Promise applied are hereinafter referred to as "MEP Policyholders" and the policies as "MEP Policies". The Promise was introduced to allay the concerns of MEP Policyholders about the extent to which the maturity payments on their MEP Policies might fall short of their target values.
[13] The terms and conditions of the Promise are to be found in various documents, notably in letters sent to the MEP Policyholders. In the course of the ten-day period commencing 4 October 2000, a letter was sent by the Company to all MEP Policyholders which stated, so far as material:
"We promise that your endowment plan will meet its targeted value at maturity, provided the future earnings on the assets in which your policy is invested are on average at least 6% each year (after tax).
The Promise is subject to the future growth in Standard Life's capital being enough to allow us to set aside regular provisions to meet any possible shortfalls. Standard Life is financially very strong and the Company is confident that future investment earnings will be sufficient to provide any necessary support ...
Between October 2000 and March 2001, even if we have already sent you a review, we will send you a personalised update showing exactly how the Promise will affect your plan. The full details of conditions attaching to the Promise will also be outlined to you with your plan update."
The condition contained in the first sentence of the second paragraph of this letter - namely, that the Promise was subject to future growth in the Company's capital being sufficient to allow the Company to set aside regular provisions to meet any payments due under it - is hereinafter referred to as "the Capital Growth Condition".
[14] As part of the first plan review for each MEP Policyholder after the issue of the letter referred to above, a further letter was sent to those MEP Policyholders ("the Non Top Up MEP Policyholders") resident in the United Kingdom whose policies were then projected to achieve their target amounts, even if their plans earned on average less than 6% per annum (after tax) from the date of that letter to maturity. That letter stated, so far as material:
"We also wrote to you in October about the introduction of the Standard Life Mortgage Endowment Promise. The Promise is designed to help keep our customers' plans on track to pay the target amounts when they mature. Your plan update shows that your plan is currently on track to pay the target amount. As your plan requires earnings of less than 6% each year you do not need the Promise."
Also at that time, a further letter was sent to those MEP Policyholders ("the Top Up MEP Policyholders") resident in the United Kingdom whose policies were then projected to achieve their target amounts only if their plans earned on average a return in excess of 6% per annum (after tax) in each remaining year to maturity. That letter stated, so far as material:
"[The Promise] means that your plan will meet its targeted value at maturity, provided the future earnings on the assets in which your plan is invested are on average at least 6% each year (after tax).
Even if the future earnings on the assets in which your plan is invested fall below 6% on average, we will top up your plan at maturity to reduce the impact of any shortfall. The maximum amount of your potential top up will be [£X]."
This maximum amount (the "Maximum Top Up") was calculated by deducting from the target...
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