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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> Phoenix & London Assurance Ltd, Re [2009] EWHC 3502 (Ch) (11 December 2009) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2009/3502.html Cite as: [2009] EWHC 3502 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice
		11th December 2009

MR. JUSTICE NORRIS:

1. This is a Scheme of Arrangement promoted by Phoenix & London Assurance Limited in relation to certain categories of with-profits policy sold by Sun Alliance & London between 1981 and 1994.
2. Policies written in this period contained both a guaranteed pension rate and also a guarantee relating to the size of the retirement fund that would be available to purchase a pension annuity. The present Scheme is directed to inviting policyholders to vary the policy so far as it relates to the guaranteed pension rate. Essentially the Scheme, as I understand it, is about varying the present provision that has to be made in relation to the future annuity.
3. The consequence of providing in the policy for guaranteed annuity rates is that a very conservative investment policy must now be adopted. This conservative investment policy in relation to that aspect of the insurance cover has the effect, in practice, of depressing the asset share attributable to such with-profits policies. The proposal behind the present Scheme is to invite policyholders to exchange the guaranteed pension rate for a larger asset share and an asset share that can be more adventurously invested so as to produce a larger retirement fund with which a market rate annuity can be purchased.
4. These proposals were set out clearly in the circulated documents. Such proposals have the potential to have an impact not only on the affected policies themselves but also on the broader with-profits fund. In the instant case notification was sent out to some 197,000 with-profits policyholders of whom only 27 objected to the Scheme. The Scheme accordingly proceeded. A fundamental part of the Scheme is to ensure that no policyholder participating in the Scheme suffers any undue risk in relation to the exchange of the guaranteed rate for the prospect of a higher earning and larger asset share. For that reason the Scheme was confined only to those policyholders with a guaranteed pension rate who had a retirement date after 1^st January 2020, since those having an earlier date would have too short an investment period to compensate for the loss of the guarantee.
5. Within that category of included policies what is, to my mind, an essential feature of the Scheme, was to provide an "opt out" for policyholders who might otherwise be included, giving them the option to retain their existing right to a guaranteed pension rate. Thus the scheme does not compel any policyholder to surrender the right to a guaranteed rate and to accept in return the chance of a larger retirement fund to purchase a market rate annuity
6. I am satisfied that in relation to the Scheme all of the statutory requirements have been met and so also have the directions of Mr. Justice Mann, in relation to the convening hearing, been complied with.
7. In the result on this occasion it is for me to be satisfied first that the class meetings duly held were fairly constituted and did not, in their outcome, amount to anything approaching the oppression of a minority. The meetings themselves were wholly in favour of the proposed Scheme. Some 96.58% by number and some 96.5% by value of the voting policyholders supported Phoenix's proposals. The participating voters themselves constituted what I regard as a fair proportion of the overall policyholders affected by the Scheme. This requirement is met.
8. The second matter on which I have to be satisfied is that an informed and honest man acting in his own interest might reasonably approve the Scheme. In this regard the overwhelming weight of expert evidence, from the Independent Actuary, from Phoenix's with-profits actuary, from the Financial Services Authority and from the non-executive members of the with-profits committee of Phoenix, is to the effect that the Scheme itself strikes a fair balance between the rights surrendered and the advantages gained; does not prejudice the existing policyholders not affected by the Scheme; does not reduce the expectation of their benefits or the security of those benefits, and that for participants in the Scheme there is a fair balance between risk and advantage.
9. My attention has been drawn to the Scottish decision in Re Scottish Lion BAILII: [2009] CSOH 127, which raises the question whether it can ever be reasonable in a solvent scheme for a creditor to be compelled to accept a variation of his rights when the company is well able to satisfy those rights according to the existing contract. That is not a question which I need address in the instant case, because there is in the present Scheme no question of underlying compulsion. As I have indicated, potentially affected policyholders have been afforded the clear option to opt out of the Scheme, to retain their existing rights and to forego the advantages which are held out to them of participation.
10. In these circumstances, I regard it as entirely reasonable for those who do wish to participate to be able to compel those who do not wish to opt out (but yet do wish to object) to be bound by the Scheme. The objectors presumably take the view that the Scheme itself, in some sense by its mere existence, prejudices rights which they already have, rights which would not be protected by their opting out. But the evidence filed clearly indicates that this belief is misplaced. In these circumstances I consider that creditor democracy should prevail.
11. I shall accordingly sanction the Scheme, noting in so doing that the Financial Services Authority has itself expressed the view that the Scheme is one to which it cannot object because it lies within the range of reasonable and fair schemes available to Phoenix. I shall accordingly sanction the Scheme.
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