The Inner House of the Court of Session (Scotland's civil
appeal court) has unanimously upheld an appeal against the previous
dismissal of the Scottish Lion Scheme of Arrangement and has
remitted the petition back to the first instance Judge, Lord
Glennie. This reverses Lord Glennie's Opinion (delivered in
September 2009) that appeared to have the effect that Schemes of
Arrangement, whereby solvent but run-off UK insurers can
crystallise their liabilities and wind up a company, should not be
sanctioned unless creditors unanimously vote in favour of the
proposal. For more detail on Lord Glennie's decision
click here (www.law-now.com/law-now/Article18Sept09.htm).
- This Opinion suggested that where there are unwilling participants and a solvent company, a scheme of arrangement could not be forced upon them.
- In remitting the case back to the first instance Judge, the Inner House have determined that solvent schemes can in principle be a legitimate way to run-off business, which will have a significant effect on the future success of a number of other schemes currently in the pipeline.
- The Judges confirmed that in principle, when applying for sanction, solvent schemes of arrangement should not be treated any differently from insolvent schemes. Solvency is only a factor to be taken into consideration. Further, the loss of dissidents' contractual rights under a scheme was similarly only a factor, not a reason to dismiss the sanctioning of a scheme. It comes down to the court's discretion to sanction a scheme, having regard to all the evidence before it, by looking at the balance of advantages over disadvantages.
- However, as an indication of what may be expected for the future sanctioning of schemes, the Judges stipulated that petitioners in favour must be able to demonstrate "the positive benefits of the scheme, as well as the soundness and robustness of the procedures it has put in place for valuing claims".
- Ultimately, although the original ruling has been overturned which must come as a relief for future administrators of solvent schemes, the onus has been left on them to demonstrate that they have treated all policyholders equally, before the scheme will be sanctioned.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 19/02/2010.