Solvent Schemes for Insurers - a Touch of Class and Jurisdiction
21 Pages Posted: 22 Nov 2005
Date Written: November 18, 2005
Insurance companies, domestic and foreign, have increasingly resorted to solvent schemes of arrangement under section 425 of the UK Companies Act 1985 as a quicker exit strategy to finalise their run-off while they are still solvent. Regardless of the real motives beneath a solvent scheme, which may range from the cynical to the benevolent, the scheme explanatory statement almost always contains the ritual incantation of the following advantages seemingly enuring to the benefit of the policyholders: early payment of claims, finality, cheap and cheerful out-of-court adjudication procedure, and saving of run-off costs. However, the court in the recent landmark case of Re British Aviation Insurance Company ('BAIC') unhesitatingly punctured the hype of these advantages and used them as a factor against sanctioning the solvent scheme. In addition, more importantly, BAIC shows that contingent creditors may have to be put in a different class for voting purposes, failing which the court has no jurisdiction to sanction a solvent scheme.
While case-law seems to have confirmed the English court's jurisdiction to sanction schemes promoted by EEA insurers, the court's reasoning in this respect is frighteningly dubious.
Accordingly, this article seeks to evaluate the well-reasoned judgment in BAIC, its ripple effect on subsequent case-law, and the jurisdictional issues in relation to EEA insurers' schemes.
Keywords: English scheme of arrangement, solvent scheme, insurer's scheme, insurance insolvency, insurance run-off, EEA insurer, EEA insurance company, jurisdiction to wind up foreign insurance company, Council Directive 2001/17 on the reorganisation and winding-up of insurance undertakings
JEL Classification: K12, K23, K33, K39, K41
Suggested Citation: Suggested Citation