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The Court's sanction of the proposed Financial Services and Markets
Act 2000 ("FSMA") Part VII Transfer of Insurance Business
was subject to the proviso that the power in the Scheme document, which
varied contractual rights beyond what was necessary with regard to a
substitution of a Transferee for the Transferor, should not be exercised,
to the extent that it was contrary of the Terms and Conditions of the
Policies or affected policyholders, without a further application to
the Court supported by evidence from the independent expert and having
been sufficiently brought to the attention of the policyholders and
the FSA.
In order to achieve costs savings in the longer term, 3 subsidiaries
of the Pearl Group sought the Court's sanction for a transfer of their
entire long term insurance business to another Group subsidiary. Before
determining whether to exercise this discretion the Court had to deal
with two procedural issues which had been raised.
The first issue arose as a result of an administrative oversight and
was dealt with by the Judge by way of waiver.
The second issue concerned whether an important aspect of the Scheme
had been sufficiently brought to the attention of either the FSA or
policyholders. Under the proposed Scheme the Transferee was to have
the ability, as and when appropriate, to amalgamate one or more of its
linked funds. During the course of the hearing, it became apparent that
some but not all of the policies affected by the proposed Scheme incorporated
provisions which, as a matter of contract, enabled the relevant issuing
company to make such changes to its linked funds structure as were contemplated
by the Scheme. Accordingly, the conferral upon the Transferee of the
power in relation to all policies would involve a unilateral variation
of the contractual rights of those policyholders whose policies did
not already permit such steps to be taken.
Briggs J said that the Judges of the Chancery Division had reached a
reasonable degree of unanimity that Part VII of FSMA does permit the
Court to bring about a variation of policyholders' contractual rights
which closed beyond the mere substitution of the Transferee for the
Transferor under the relevant policy. However, Briggs J took the view
that the effect of the standard form documentation sent to policyholders
would have been in all probability to create a reasonable assumption
in the mind of any reasonably careful reader that the powers of amalgamation
referred to would not be exercised in such a way as to depart from the
scope of what was permitted by relevant existing policy terms and conditions.
This was even though the relevant section of the Scheme document itself
would appear to have created a wider power, unfettered by the terms
of the existing policies, and within the discretion of the Chancery
Judges to sanction.
Accordingly, Briggs J sanctioned this Scheme as proposed, but with the
proviso that the power of amalgamation of linked funds set out in the
Scheme document should not be exercised to the extent that it would
be contrary to the terms and conditions of the policies of affected
policyholders, without a further application to the Court supported
by further evidence from an independent expert, evidence that this had
been communicated to and approved by the FSA and evidence that the intention
to confer the power upon the Transferor to act inconsistently with affected
policyholders' terms and conditions and has been sufficiently drawn
to the attention to the policyholders themselves.
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