“(1) An application under section 107 in respect of an insurance business transfer scheme must be accompanied by a report on the terms of the scheme (“a scheme report”). (2). A scheme report may be made only by a person- (a) appearing to the [appropriate regulator] to have the skills necessary to enable him to make a proper report; and (b) nominated or approved for the purpose by the [appropriate regulator]. (3) A scheme report must be made in a form approved by the [appropriate regulator].”
“… in a scheme for the transfer of general business where there are large numbers of policyholders whose individual policies, when seen on their own, may have a relatively low value and in circumstances where the issues raised are often… highly technical, it should come as no surprise that policy holders do not go into the detail of the information that is provided to them. In most cases, I suspect, they rely on those charged with statutory responsibilities in this respect and on the companies proposing the transfers to have full regard to the protection of their interests and, in my judgment, they are fully entitled to do so. Accordingly, the task of those involved in the scheme to scrutinise the effect of the scheme on policyholders is just as great where there are no objectors as in those case is where there are objectors.”
“The approach to the sanction of applications under Part VII 75. The judge hearing an application for the sanction of an insurance business transfer scheme under Part VII should first, we think, identify the nature of the business being transferred and the underlying circumstances giving rise to the scheme. 76. As we have already indicated, different considerations affect different types of business. For example, the court considering the transfer of a book of annuities in payment will be primarily concerned with the interests of the transferring policyholders, whereas a transfer of with-profits business may raise directly the question of fairness between the policyholders remaining with the transferor, the transferring policyholders, and the companies themselves and their shareholders. Transfers of some types of business may engage the interests of employees or other stakeholders in the transferor or transferee companies. 77. The circumstances giving rise to the scheme proposed will also affect the approach of the court. For example, many schemes will reflect commercial transactions between transferor and transferee companies for the benefit of those companies. Other schemes will be occasioned by external events (such as the departure of the UK from the European Union) or the financial or other commercial circumstances of the transferor. Some may take the form of a rescue of the business retained or transferred. 78. The discretion of the court has frequently been said to be unfettered and genuine and not to be exercised by way of a rubber stamp. See [54] above. That is true but, as in the exercise of all discretions, the court must take into account and give proper weight to matters that ought to be considered, and ignore matters that ought not properly to be taken into account. The correct identification of which matters fall on which side of the line in particular transfer situations has caused some confusion in this, and perhaps other, cases. 79. From our reading of the decided cases, we have detected a tendency on the part of those presenting these applications, in many cases accepted by the judges hearing them, to treat the judgments of Hoffmann J in London Life and Evans-Lombe J in Axa as if they were a comprehensive statement of the factors that should be applied by the court in all insurance business transfers. Indeed, counsel for the appellants urged us to accept them as applicable in their entirety to the transfer scheme in the present case, which, as we have earlier noted, is both very different from and a good deal simpler than those in London Life and Axa. We consider that this misunderstands those judgments, which were addressed to the particular circumstances of those cases and to the types of business being transferred. We would accept them as containing in many respects the factors likely to be applicable to the transfer of with-profits business, but they involve several factors that have no obvious application to a case such as the present. This was a point made in Royal Sun Alliance and by Snowden J in the present case at [39]-[40]. We very much doubt whether anything is to be gained by setting out and seeking to apply the factors listed in those cases, for example by Evans-Lombe J in Axa at [6], to transfer schemes involving every type of insurance business. 80. In a case such as the present, the paramount concern of the court will be to assess whether the transfer will have any material adverse effect on the receipt by the annuitants of their annuities, and on whether the transfer may have any such effect on payments that are or may become due to the other annuitants, policyholders and creditors of the transferor and transferee companies. The court will also be concerned to assess whether there may be any material adverse effect on the service standards provided to the transferring annuitants or policyholders. Whether any other factors require consideration will depend on the circumstances of the case. 81. The first duty of the court is carefully to scrutinise the reports of the independent expert and the Regulators, and the evidence of any person required to be heard under section 110 including those that allege that they would be adversely affected by the carrying out of the scheme. The court must understand the opinions presented and is entitled to ask questions about them as necessary. It will do so, in particular, with a view to identifying any errors, omissions, or instances of inadequate or defective reasoning. 82. In the absence of such defects, however, the court will always, in exercising its discretion, accord full weight to the opinions of the independent expert and the Regulators. That does not mean that the court can never depart from the recommendations of the expert or the non-objections of the Regulators, but it does mean that full weight must be accorded to them, so that a court would not depart from such recommendations and non-objections without significant and appropriate reasons for doing so. This is particularly so in relation to the financial and actuarial assessments required as regards the security of financial benefits. Whilst the judges hearing Part VII applications have considerable experience of the actuarial and specialist issues reported on by both the expert and the Regulators, the court is not itself an expert and should not substitute its own expertise for that of the entities required or entitled by statute to proffer those opinions. 83. This approach to the exercise of the court’s discretion applies to the crucial question of whether the proposed scheme will have any material adverse effect on policyholders, employees or other stakeholders. An adverse effect will only be material to the court’s consideration if it is: (i) a possibility that cannot sensibly be ignored having regard to the nature and gravity of the feared harm in the particular case, (ii) a consequence of the scheme, and (iii) material in the sense that there is the prospect of real or significant, as opposed to fanciful or insignificant, risk to the position of the stakeholder concerned. In some cases, it may also be relevant for the court to consider whether there would be such material adverse effects in the event that the scheme was not sanctioned. 84. Even if the court finds that the proposed scheme will have a material adverse effect on some group or groups of policyholders, it may still sanction the scheme in the exercise of its discretion. For example, this might occur if the scheme is in the nature of a rescue of the business. If there are differential effects on the interests of different classes of person affected, the court will need to consider whether the proposed scheme as a whole is fair as between those interests. 85. The court should adopt the same approach to the exercise of its discretion (described at [82] above) when making the more general comparison between the positions that would exist with or without the proposed scheme in respect of (a) the security of the policyholders’ benefits, and (b) the standards of service and corporate governance that the policyholders can expect. In many cases, this comparison will entail the court’s consideration of the contractual rights and reasonable expectations of policyholders, including the standards of service and governance that can be expected if the scheme is implemented. 86. Once the court has undertaken the evaluations we have mentioned, the court will decide whether or not to sanction the proposed scheme, if, under section 111(3) it is, in all the circumstances of the case, appropriate to do so. It cannot require the applicants to vary or alter the scheme, even though that may sometimes be the effect of the court expressing its concerns. The choices of both the scheme itself and its detailed terms are for the directors of the transferor and transferee concerned. The primary duty of those directors is, of course, to promote the success of their companies.”