“Whilst in most case this will be confined to the IBNR submitted by the Scheme Creditor, it may include other components where the uncertainty preventing agreement of the claim by the Scheme Manager is considered by the Scheme Manager and the Scheme Actuary to merit actuarial appraisal”
“22 In Stocznia Gdanska SA v Latreefers Inc (No 2)[2001] 2 BCLC 116 , 140, the Court of Appeal confirmed that the presence of assets of the company in England was not a precondition to the exercise of jurisdiction (although the presence of assets would constitute good reason in the normal case), and that (approving the formulation of Knox J in In re Real Estate Development Co[1991] BCLC 210 , 217) before a foreign company could be wound up in England, three core requirements had to be fulfilled: (1) there must be a sufficient connection with England which may, but does not necessarily have to, consist of assets within the jurisdiction; (2) there must be a reasonable possibility, if a winding up order is made, of benefit to those applying for the winding up order; and (3) one or more persons interested in the distribution of assets of the company must be persons over whom the court can exercise jurisdiction.”
“23 It was not necessary in that case (or in the other cases which led to, or followed, the formulation of the three preconditions) to decide whether these requirements were preconditions for the existence of the statutory jurisdiction of the court, or principles to be observed in considering the discretion to exercise the jurisdiction. The latter approach was favoured (obiter) by Sir Donald Nicholls V-C in In re Paramount Airways Ltd[1993] Ch 223 , 240. 24 In most cases the distinction will not matter. The English court will not wind up a foreign company where it has no legitimate interest to do so, for that would be to exercise an exorbitant jurisdiction contrary to international comity, and for that purpose it does not matter whether the preconditions are couched in terms of the existence of jurisdiction or the exercise of jurisdiction. 25 But in the present case it may make a difference, because the question is one of the jurisdiction to approve a scheme of arrangement, and the second and third conditions may not be relevant because they were formulated in the context of winding up. If they go to the jurisdiction to order a winding up, the words "any company liable to be wound up" in section 425(6) may require those conditions to be fulfilled even in the case of schemes of arrangement. If they go to the discretion to wind up, then they do not have to be fulfilled in the case of a scheme of arrangement, although the first condition would plainly be relevant in any event. 26 The question therefore is whether (as was assumed in the present matter by the companies) the combined effect of section 425(6) of the 1985 Act and ofsection 221(1) of the Insolvency Act 1986 , and the cases on the winding up of foreign companies, is that the three conditions must be satisfied before the court can exercise its powers under section 425. In my judgment the three conditions go to the discretion of the court, and not to the existence of its jurisdiction. If that it is right, then the conditions do not have to be satisfied for the purposes of section 425, because they do not go to the question whether a company is "liable" to be wound up under theInsolvency Act 1986 . So also it is not necessary for the purposes of section 425 that the grounds for winding up in section 221(5) exist. 27 Any other result would led to very odd and artificial consequences, since schemes of arrangement are used in many circumstances having nothing to do with insolvency.”
“…the court directs how the meeting or meetings are to be summoned. It is concerned, at that stage, to ensure that those who are to be affected by the compromise or arrangement proposed have a proper opportunity of being present (in person or by proxy) at the meeting or meetings at which the proposals are to be considered and voted upon.”
“The function of the court at the first stage is “emphatically not” to consider the merits or fairness of the proposed scheme: Re Telewest Communications plc[2004] BCC 342 at p 348.”
“13. The decision whether to summon more than one meeting - and, if so, who should be summoned to which meeting - has to be made at the first stage. If the matter were free from authority, I would have regarded the basis upon which that decision has to be taken as self-evident. The relevant question is: between whom is the proposed compromise or arrangement to be made?”
“…..the relevant question at the outset is: between whom is it proposed that a compromise or arrangement is to be made? Are the rights of those who are to be affected by the scheme proposed such that the scheme can be seen as a single arrangement; or ought the scheme to be regarded, on a true analysis, as a number of linked arrangements? The question may be easy to state; but, as the cases show, it is not always easy to answer. Nor can it be said that, hitherto, the courts have posed the question in quite those terms.”
“33……it is necessary to ensure not only that those whose rights really are so dissimilar that they cannot consult together with a view to a common interest should be treated as parties to distinct arrangements - so that they should have their own separate meetings - but also that those whose rights are sufficiently similar to the rights of others that they can properly consult together should be required to do so; lest by ordering separate meetings the court gives a veto to a minority group. The safeguard against majority oppression is that the court is not bound by the decision of the meeting. It is important that the test should not be applied in such a way that it becomes an instrument of oppression by a minority.”
“The word “class” is vague, and to find out what is meant by it we must look at the scope of the section, which is a section enabling the Court to order a meeting of a class of creditors to be called. It seems plain that we must give such meaning to the term "class" as will prevent the section being so worked as to result in confiscation and injustice, and that it must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. If that be so, in considering the deed of arrangement made with the company which took over the business of the Sovereign, we must so construe it as not to include in one class those whose policies had already ripened into debts, and those whose policies might not ripen into debts for years to come; for the position of a person like the defendant, who had an ascertained sum of 2,000l. due to him from the company was entirely different from that of those policy-holders whose future was entirely uncertain.”
“The answer, therefore, which Lord Justice Bowen may be taken to give to the question ... "are the rights of those who are to be affected by the scheme proposed such that the scheme can be seen as a single arrangement; or ought it to be regarded, on a true analysis, as a number of linked arrangements?" is clear enough. The scheme proposed may be regarded as a single arrangement with those creditors whom it is intended to bind if, but only if, the rights of those creditors are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. If the rights of those creditors whom the scheme is intended to bind are such as to make it impossible for them to consult together with a view to their common interest, then the scheme must be regarded as a number of linked arrangements. In the latter case it will be necessary to have a separate meeting of each class of creditors; a class being identified by the test that the rights of those creditors within it are not so dissimilar that as to make it impossible for them to consult together with a view to their common interest.”
“29. ……[Sovereign Life Assurance]……has been relied upon from time to time in later cases for the proposition that creditors whose rights have vested must, necessarily, be regarded as a different class from creditors whose rights are contingent. It has long been cited, in successive editions of Buckley on the Companies Acts, as authority for the proposition that "in the case of a life assurance company holders of matured policies are a different class from holders of current policies…….In my view, the Sovereign Life case is authority for neither of those propositions. On its facts the case is authority for the proposition that, in relation to the terms of the scheme in that case, a person with an existing right to set off moneys due to him under a policy which had matured against moneys owed by him to the company was not in the same class of creditors as those who had no such right. It may well be said, also, that this Court would have found, had it been necessary for it to do so, that, the terms of the scheme in that case did lead to the conclusion that those whose policies had matured constituted a different class of creditors from those whose policies had not matured; but that is because the terms of the scheme substituted for rights under policies which had matured during the life of the policy holder the rights which those policy holders would have had on death if the policies had not matured. 30. But it will not necessarily follow, in every case, that the treatment under the scheme of vested and contingent rights, or the rights under matured and current policies, will be so dissimilar that the holders of those rights must be regarded as persons in different classes in the context of the question "with whom is the compromise or arrangement made". In each case the answer to that question will depend upon analysis (i) of the rights which are to be released or varied under the scheme and (ii) of the new rights (if any) which the scheme gives, by way of compromise or arrangement, to those whose rights are to be released or varied. It is in the light of that analysis that the test formulated by Lord Justice Bowen in order to determine which creditors fall into a separate class - that is to say, that a class "must be confined to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest" - has to be applied.”
"are the rights of those who are to be affected by the scheme proposed such that the scheme can be seen as a single arrangement; or ought it to be regarded, on a true analysis, as a number of linked arrangements?"
“It is, to my mind, essential to have regard to the fact that the scheme is proposed as an alternative to a winding-up. There is no doubt that the company is insolvent. It has presented a petition for winding up and the court has appointed provisional liquidators. The right approach in those circumstances, as it seems to me, is to consider the position on the basis that the relevant rights are those which creditors would have in a winding up.”
“It follows that (but for any special rules applicable to the valuation of claims under insurance policies) the rights of non-insurance creditors, insurance creditors with unsettled paid claims, insurance creditors with outstanding losses and insurance creditors with IBNR losses are the same in this respect: that in the context of a winding up of the company they will all be entitled to submit claims in the winding up and to have those claims admitted or rejected. The difference between the position of non-insurance creditors and insurance creditors with unsettled paid claims (on the one hand) and insurance creditors with outstanding losses or IBNR losses (on the other hand) is that, in the case of the latter, their claims are in respect of debts which by reason their "being subject to any contingency or for any other reason" do not bear a certain value and so must be the subject of an estimate. But that does not lead to the conclusion that the rights of, say, non-insurance creditors and insurance creditors with IBNR losses are different. They have the same rights in a winding up. It is simply that, in order to give effect to the rights of the creditors with IBNR losses, it is necessary to estimate their value.”
“[60]. This is not a case in which, in the event, there are creditors whose potential claims upon the fund are heavily weighted for example, towards IBNR and in whose interest it may be to seek a deferment of any proposed scheme. The overwhelming majority in value of creditors, Mr Moss tells the Court, have claims in all three categories spelt out in Clause 19.3.1 [ie Unsettled Paid Claims, Outstanding Losses and IBNR]. Mr Moss submits that the Court would have jurisdiction even if that were not the case. Mr Philip Jones, as amicus, submits that different considerations might apply if that factor had been absent. Mr Jones' caution is in my view justified. In a case where some creditors have only unsettled paid claims and others only potential claims which are incurred but not reported, different considerations might apply, especially if the state of scientific knowledge were to be such that the IBNR claims are likely to be numerous, valuable and long deferred. [61]. I hope it is not unfair to Mr Moss to say that he did not encourage detailed analysis by the Court of the facts of the particular case, submitting as he does, virtually as a matter of principle, that the rights of the creditors are sufficiently similar to constitute them a class within the meaning of section 425(1). In my view, scrutiny of the facts is essential to the decision on jurisdiction.”
“(2) Persons whose rights are so dissimilar that they cannot sensibly consult together with a view to their common interest must be given separate meetings. Persons whose rights are sufficiently similar that they can consult together with a view to their common interest should be summoned to a single meeting. (3) The test is based on similarity or dissimilarity of legal rights against the company, not on similarity or dissimilarity of interests not derived from such legal rights. The fact that individuals may hold divergent views based on their private interests not derived from their legal rights against the company is not a ground for calling separate meetings. (4) The question is whether the rights which are to be released or varied under the Scheme or the new rights which the Scheme gives in their place are so different that the Scheme must be treated as a compromise or arrangement with more than one class.”
“Under the scheme he will be entitled to have his contingent claim valued. He will then be entitled to be paid the full amount of the valuation (less a discount for the time cost of money). Although a valuation of a future (and contingent claim) can be made, and may even be described as a fair valuation, it is only a valuation. It is not an indemnity. Indeed, whatever else one may be able to say about a valuation of a future contingent claim the one thing that one can say with near certainty is that, barring a miracle, the valuation will not be the same amount as the indemnity. If, on the other hand, the scheme is not approved, the Company will remain in run-off. It will pay claims as and when they arise; and the measure of the payment will be the full indemnity to which the policyholder is entitled. It may be that anticipated claims by some policyholders will never arise; in which case the Company will not have to pay. But that is what insurance is about. The policyholder bargains for the insurer to bear the risk of a contingency materialising. The insurer is in the risk business; and the policyholder is not. Unlike the policyholder with an accrued claim, who knows the extent of his exposure to that claim, the policyholder with an IBNR claim does not. The essence of the scheme is that it retransfers the risk from the insurer (who had contracted to bear it) to the policyholder (who did not). Thus the rights of a policyholder with an IBNR claim are fundamentally different under the scheme from the rights that he would have in the absence of the scheme [my emphasis].”
“In my judgment in the particular circumstances of a solvent scheme, where a solvent liquidation is not a realistic alternative, those with accrued claims and those with IBNR claims have interests which are sufficiently different as not to make it possible for them sensibly to consult together "in their common interest". In truth, they do not have a common interest at all.”
“….BAIC is not, of course, a decision that where there are both “accrued” and “IBNR” claims they invariably have to vote in separate classes. Whether separate classes for them are truly necessary will depend on a long list of variables such that what is right for one company and one scheme will not necessarily be right for another.”
“Lewison J, I would think, would be surprised and even perturbed were he to find that BAIC was being treated as if it had laid down that invariably and without more a meeting mixing accrueds and IBNRs would fail the Sovereign Life test.”
“The estimation and valuation of IBNR asbestos, silica and other toxic tort claims in the U.S. is fraught with difficulty. The experience of the “Big 3”
“…… In a case where some creditors have only unsettled paid claims and others only potential claims which are incurred but not reported, different considerations might apply, especially if the state of scientific knowledge were to be such that the IBNR claims are likely to be numerous, valuable and long deferred.”
“the estimation of claims incurred but not reported (“IBNR”) is generally subject to a greater degree of uncertainty than the estimation of settling claims already notified to the company, where more information about the claim event is generally available. Claims IBNR may not be apparent to the insured until many years after the event giving rise to the claims has happened. Classes of business where the IBNR proportion of the total reserves is high will typically display greater variations between initial estimates and final outcomes because of the greater degree of difficulty in estimating these reserves.”
“reserving for asbestos related and environmental pollution claims is subject to significant uncertainties that are not generally present for other types of claims. These claims differ from almost all others in that it is often not clear that an insurable loss has occurred, which policy years apply and which insurers may be liable…For these reasons Sphere Drake Insurance estimates that the possible ultimate liabilities for these exposures could be substantially different from the amounts currently provided in the financial statements.”
“Mr. Shepley admits that there may legitimately be very different views among claim estimators on the valuation of IBNR claims, yet under the proposed Scheme, in the long run, only the views of the Scheme-appointed actuary matter. The policyholder’s principal leverage for negotiating a fair value settlement does not exist under a Scheme like the proposed Scheme, but instead is replaced by a forced commutation of extremely valuable insurance rights with no recourse to meaningful judicial review. In this regard, Mr. Shepley’s disagreement with my prior statement that IBNR claims may not be quantifiable, and insistence that there could never be a situation of an “unquantifiable”
“…the chance of a currently universally unknown claim emerging in future which would affect the relevant WFUM Pools is remote. This is because the very first notification of such a latent claim would need to occur at least 12 years after the period of exposure…This would require a minimum latency period much longer than that for asbestos-related diseases, which are well known as having a long latency period. Therefore I regard the likelihood of any such unknown latent claims arising in the future and affecting WFUM Pools’ Scheme policies and remote and the likelihood of the emergence of any material such latent claims affecting the WFUM Pools’ Scheme policies as very remote.”
“In any case, should such an unknown latent claim emerge in future then I believe that it would be equally likely to affect all creditors regardless of whether they currently have paid, outstanding or IBNR claims, or any combination of them”
“My interpretation of the Scheme …is that the Scheme Actuary is likely to consider creditors’ methodologies reasonable if they satisfy 7.3 a) to e). Specifically this section implies that creditors may be able to support claims where they have minimal or no historical claims data. As long as there is a demonstrable link between the claim type(s) being claimed and the activities of the creditor, it will still be able to make and validly support a claim, normally through an exposure based approach. With the addition of the requirement that claims should be from recognised sources, this appears reasonable and would be a minimum that I would require to be able to decide a particular methodology was appropriate.”
“In addition, the Estimation Methodology explicitly recognises that some creditors might have limited claims history, and outlines the approach that will be adopted to value such claims. Such an approach would not merely rely on the projection of the prior claims history…”
“In a solvent run-off situation, Creditors with IBNR claims would be entitled to full payment of those claims as they arise. Under the Proposed Scheme, if they lack sufficient data to value future claims, their claims will be valued at zero.”
“The inherent uncertainty of outstanding claims can be higher than that of IBNR claims estimates in situations the proposed scheme is likely to experience.”
“It is those Creditors who lack substantial ground up information (that is, their exposures are substantially or wholly IBNR to them) that are going to be unable to produce the kind of data required by the proposed evaluation process.”
“Much of the discussion in the statements of Messrs. Shepley and Hindley and Ms. Allen is devoted to postulating that there may be some situations in which a creditor's IBNR claims may be more easily valued and its Outstanding claims may be less easily valued. None of these witnesses allege that such a situation has actually occurred during the past 18 years……Mr. Hindley creates new hypothetical situations….These hypothetical situations do not obscure the basic fact that in the normal course, IBNR claims that are Scheme claims are very much more difficult to assess and value than Outstanding claims that are Scheme claims, a fact which both Mr. Hindley and Mr. Shepley have already acknowledged”
“…policyholders who believe they will receive a large volume of IBNR claims usually cannot reasonably and reliably estimate their claims if their Outstanding claim history is limited, while those with a large volume of Outstanding claims can do so.”
“Common factors and uncertainties typically affect the valuation of both Outstanding and IBNR claims (before taking account of insurance coverage). …the value of both Outstanding and IBNR claims are usually estimated simultaneously – by the same analyst, using the same kinds of data, methodologies and statistical techniques”. “Although it might initially seem to be straightforward and substantially easier to value Outstanding claims compared with IBNR claims, in the context of asbestos, and other mass torts…, there is not much distinction in practice between valuing Outstanding and IBNR claims. Many of the processes that are necessary to value IBNR claims are needed to value Outstanding claims, and the valuations are affected by many of the same sources of uncertainty”. “…the value of Outstanding claims is not a figure that can simply be tallied, it needs to be estimated. Although Outstanding claims have been filed, or in some way notified to the policyholder, few specifics may be known. When we analyze a database of claims, we typically see that the Outstanding claims… have a significant amount of missing information and that what information is available can be conflicting in different sources, conflicting within the same source and can change frequently”. “Importantly, most Outstanding claims will not have dollar amounts associated with them. … Just as with IBNR claims, then, the values of these claims must therefore be estimated”
“Estimates for outstanding claims contain inherent uncertainty just like IBNR claims estimates. The inherent uncertainty of outstanding claims can be higher than that of IBNR claims estimates in situations the proposed scheme is likely to experience”. “Usually the degree of uncertainty relating to the estimation of outstanding claims is less than that in relation to future notifications. However, in my experience this is not always the case…”. “...I agree (with Mr Hindley) that there are many real world circumstances where the inherent uncertainty associated with IBNR claims estimation can be far less than that associated with estimates of outstanding claims.”
“In reality, the WFUM Pools are exposed to a range of different claim types, spread across a range of different Scheme Creditors, and it is inevitable that some of these claim types or Scheme Creditors will have components of IBNR that are relatively less uncertain to estimate than the Outstanding Claims components for other claim types or Scheme Creditors. Thus, there will be some elements within the totality of IBNR Claims across all Scheme Creditors, which are less uncertain than some elements within the totality of Outstanding Claims”
“Whilst I accept that uncertainty exists whenever estimation is conducted, I do not agree with Ms Miller in relation to creditor claims likely to be made under this Scheme that some claims will be unquantifiable”, “In my opinion, all types of claims, including those which are asbestos related, can be estimated under the operation of the proposed Scheme… There will be inherent uncertainty in the estimates derived for almost all types of claims” and “the uncertainty inherent in the estimation of Outstanding Claims relating to asbestos is often quite similar to that of IBNR claims”. j. Mr Hindley again: “…[Dr Rabinovitz] notes in 28 that Scheme Creditors with reason to anticipate the maturation of large volumes of IBNR Claims may be told the value of their claims may be zero. This is true – they may be told this if no supporting information or basis is provided. However, if such Scheme Creditors are able to conclude that they anticipate large volumes of IBNR Claims, then, presumably they have some sort of rational basis for that conclusion. If they describe that rational basis to the Scheme Manager and/or Scheme Actuary under the proposed Scheme Process, and can produce reasonable evidence to support it, then this will be taken into account when reaching agreement on the Scheme Creditor’s claim.”
“In many circumstances, the exposure-based methods widely used to estimate future claims liabilities of the type likely in the WFUM Scheme do not separately project outstanding claims and IBNR claims. Consequently, the degree of uncertainty associated with the split of future claims into outstandings and IBNR is often of a similar order”; and says that the difference in the uncertainty inherent in the valuation of Outstanding Claims and IBNR claims is one of “degree rather than being fundamental”
“…substantial development of outstanding claims amounts takes place as information becomes known about the circumstances of any claim and that the period for such information to manifest itself can take many years”. m. According to Mr Shepley, it is not the case that, in the normal course, considerable information is known at the outset to enable an Outstanding Claim to be valued without uncertainty. The available information might well be incomplete, unreliable and subject to what Ms Allen calls ‘reporting bias’ as a result of it having been provided by the claimant. As a result, that information might not be relied upon (either exclusively or at all) and estimated values of Outstanding Claims relating to asbestos exposure are based upon “periods of exposure estimated from published employment and turnover statistics and/or historical experience, estimates of dismissal rates and other factors”. n. Mr Hunt (of PRO) gives some examples in his fourth witness statement which I am told are real and not unrealistic hypotheticals open to the criticism which Mr Sheldon has levelled at Mr Hindley’s examples. Mr Moss submits that these examples demonstrate that there are “real instances within the WFUM Pools’ business where the estimation of IBNR claims is subject to only a relatively small degree of uncertainty, whereas the estimation of Outstanding Claims can be complex and more uncertain”
“Mr Moss submitted that, legally, both direct insureds and reinsureds constituted a single class of unsecured creditors, each of whom had the same right of indemnity against the Company in respect of insured risks. It is true that set off will be applied to those reinsured who are also reinsurers; but it is only those reinsureds who, after the application of set-off, were adjudged to be net creditors of the Company at the time of the scheme meeting who were admitted to vote. As net creditors of the Company, it did not matter how the net position arose. They also had the same economic balance to make as the direct insureds. In each case it was a question of choice between certain cash now and uncertain cash later. If the reinsureds choose cash now (as overwhelmingly they did), they will recognise that they are losing their reinsurance cover.”
“The Schemes, were they to be approved, would only be binding in this jurisdiction. Any creditors that are subject to the jurisdiction of this Court can be prevented from enforcing their policies other than in accordance with the terms of the Schemes. Foreign creditors, to the extent that they have contracts governed by the law of a foreign jurisdiction would not have had their rights varied or discharged by the Schemes and may take proceedings against the assets of the Scheme Companies that are not in this jurisdiction as the policies would be enforceable outside this jurisdiction. The fact that creditors have contracts governed by different laws is relevant when determining whether these creditors should be treated separately from those whose who are bound by the Schemes.In the present case it would appear (a) that many of the policies written by the Solvent Companies are governed by the laws of foreign jurisdictions; and, (b) many of those companies have assets abroad. In circumstances where certain creditors have the right to recover payment in full abroad, even if the proposed schemes were to become effective, it is submitted that such creditors should form a separate class from those who would be bound by those schemes.”