February 2007 

In the matter of (1) Equitable Life Assurance Society (2) Canada Life Ltd (2007)

This case deals with the Part VII transfer of the non-profit annuity in payment business ("NPAs") of Equitable Life Assurance Society ("Equitable") to Canada Life Limited ("Canada Life") (the "Scheme").   Under the conditions of the Scheme Equitable would transfer to Canada Life around £4.6billion of assets, Canada Life would assume the obligations to holders of NPAs and Equitable would retain any liability linked to the mis-selling of any policies.   However, despite the FSA and the FSA appointed independent expert being satisfied with the Scheme, a few objectors, who were transferring and non-transferring policyholders, sought, through numerous objections, to persuade the Court to

The Objections Raised

In total the objectors raised 14 objections, of particular importance were the following ones:

1 As a result of the proposed transfer the capital base of Equitable would be reduced, thereby diminishing assets available for non-transferring policyholders to secure their rights under the policies or annuities.  

2 One of the main objections was the status of Canada Life and whether the company would be in a position to maintain the security for the performance by Canada Life of the terms of the policies of transferring NPAs.   Moreover, the objectors complained that, although Canada Life was incorporated in England, it was nevertheless controlled from abroad by its Canadian parent company.

3 The £4.6billion of asset s transferred to Canada Life would not be ring-fenced among Canada Life's assets for the benefit of transferring NPAs.

4 The operational arrangements of Canada Life, in particular the actual payment of benefits, might fail or might not reflect policyholder's entitlement.

5 Objectors argued that they had not been consulted in the form of a meeting before the promulgation of the Scheme.

6 The Scheme was premature because some findings by the Parliamentary Ombudsmen and the European Union were still pending.   Reports from these two entities might result in further assets being made available to Equitable policyholders.

7 An assurance by the independent expert that there was no "material" risk of something happening was not a sufficient definite assurance.

8 German policyholders encountered difficulties in understanding the Scheme as it had not been translated in German.

The Court's decision

Before addressing each objection in turn, the Court stipulated the three following points:

(a) Canada Life and the FSA.  

The Court agreed that Canada Life's ultimate parent company was incorporated in Canada.   However, Canada Life was also authorised by the FSA to carry on insurance business in the United Kingdom, which meant that Canada Life was subject to the FSA's prudential supervision of its business activities and in particular its investment policies.   Moreover, the FSA had been actively consulted throughout the preparation of the Scheme and had indicated that it found the Scheme satisfactory and had given all the certificates required under the relevant legislation.  

(b) The Court

The Judge referred to the early case of Re London Life Association Limited (1989) and declared that it was not a function of the Court to produce, what in the Court's view would be, the best possible scheme, but to consider in all the circumstances of the case whether it is appropriate to sanction the Scheme.   In other words, the Court ha d to decide whether the Scheme, as it stood, was fair.

(c) The Independent Expert

An independent expert approved by the FSA produced a report on the Scheme.   He also produced a clarificatory note which dealt with the position of non-transferring policyholders.   The report and the note stated that the Scheme was fair and that the positions of transferring and non-transferring policyholders would not be adversely affected by the Scheme.

As for objection 1, the Court said that the Scheme required a transfer of some £4.6billion of assets to Canada Life and also involved the assumption by Canada Life of the liability attaching to the NPAs, whose total claims under their policies had been calculated slightly to exceed the value of the assets being transferred.   Regarding objection 2, the Court relied on point (a) above and declared that Canada Life was nevertheless authorised by the FSA and therefore subject to the FSA's prudential supervision, which should give sufficient protection to policyholders. The Court relied also on point (a) above to dismiss objections 3 and 4.   As for objection 5, the Court said a transfer of the whole or part of an insurance business under Part VII of the Financial Services and Markets Act 2000 did not require that the policyholders or annuitants of the transfer or the transferee have to be consulted via a meeting.   Regarding objection 6 , the Court said that, in the event the Parliamentary Ombudsmen report or the European Union's enquiry resulted in more assets being available to Equitable, these two entities had no power to require Equitable to contribute to these funds for the purpose of compensating the policyholder.   Moreover, it had to be born in mind that NPAs would only suffer if their fixed annuities were not paid in full and on time and this would only occur if Canada Life defaulted.  

As for objection 7, the Court construed the word "material" as meaning that the expert concerned, whilst not being capable of giving an absolute assurance that a given event would not happen, was satisfied as far as possible that it would not.   Finally regarding objection 8, the Court was not convinced that the proponents of the Scheme failed to provide adequate translation in German of the relevant materials.

For these reasons, the Court sanctioned the Scheme.