Judge decides whether an insurance company proposing a scheme of arrangement should convene a single class meeting of creditors
The applicant in this case is an insurance company with long-tail exposure (mostly in the US) which is currently unable to meet the minimum capital requirements imposed by Solvency II. It applied to the court for an order allowing it to convene a single meeting of all its creditors for the purpose of approving its proposed cut-off scheme of arrangement pursuant to Part 26 of the Companies Act 2006. The key issue in this case was whether it would be appropriate to have a single meeting where some of the creditors have incurred but not reported ("IBNR") claims (ie an event has occurred to which the policy should respond but no claim has been reported to the policyholder yet).
Having reviewed prior caselaw, Hildyard J noted that "What is now ordinarily adopted as the starting point is to identify the appropriate comparator: that is, what would be the alternative if the scheme does not proceed". Although the company had assumed that the appropriate comparator is liquidation, the judge concluded that it was, instead, continued solvency.
On that basis, taking into account the particular facts involved, the judge went on to conclude that "the irreducible inherent uncertainties in the estimation of IBNR claims, where solvent run-off is still the most likely alternative and comparator, and the indications from objectors as to their concerns of being deprived of coverage in return for an estimation of value which may prove deficient, remain such that the proper course is to require separate class meeting for policyholders with IBNR claims".
He rejected the argument, though, that there should be a further separate class for scheme creditors with rights requiring the company to provide third party security to protect them in the event of insolvency.
Furthermore, the company had reinsurance claims against reinsurers and a small proportion of those reinsurers also had claims against the company (as reinsureds) and an issue arose as whether those reinsurers should be entitled to vote at the class meeting only on the value of their claims after set-off. The judge considered that the company's preference for adopting a "net value" approach was "proper".
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