Solvent Schemes in the UK The Process

Transcription

1 Solvent Schemes in the UK The Process Juliette Winter Jay Borowsky Jon Yorke January

2 The Process Juliette Winter Ruxley Ventures Limited

3 Overview of process for making the scheme effective Planning & policyholder consultation FSA Practice Statement Letter Leave to Convene Hearing Meetings of Creditors Vote review and valuation Sanction and filing of Court Order Effective Date 18 months

4 Overview of scheme process -valuing and paying claims Claim forms and provision of information Bar date Determination of claims agreement determination notices disputes and independent expert Set-off and security Payment timing early payment proportional payment Termination completion reversion to run-off

5 Pre-Scheme Planning and Creditor Consultation Jay Borowsky

6 Pre-Scheme Planning Early Stages Composition/Structure of Scheme Organizational Support Estimation Guidelines

7 Early Stages Determining scope of scheme Reinsurance Risks by a scheme Collection concerns Records Determine Number of Classes Identifying qualified support

8 Composition of Scheme Reinsurance vs. direct insurance Long tail claims OLR and IBNR All or Portion of Book/Company Novation Part VII Transfer

9 Organizational Support Scheme Manager/Advisor- Owner Managed vs. 3 rd Party Direct and/or Reinsurance Claims Personnel Independent Vote Reviewer Scheme Adjudicator(s) Scheme actuary

10 Organizational Support (Cont.) Counsel Scheme Counsel Barrister Bankruptcy

11 Timeline Leave to convene Sanction hearing Notice periods Bar date Don t lock into target dates Adaptability

12 Estimation Guidelines Submission Rules Reinsurance and Direct Evidence Claim Proofs

13 Claims consultation What is it? Who do you meet with? Major claimants/creditors Purpose? Feedback Scheme Viability Intelligence

14 The Leave to Convene Hearing and Class Issues Jon Yorke Barlow Lyde & Gilbert LLP

15 The Leave to Convene Hearing (1) The Court needs to direct how the meeting or meetings of creditors are to be held. In Re Hawk Insurance Co the Court refused to sanction a scheme on the grounds that the creditors meetings had not been correctly constituted. The creditors interests must not be so dissimilar that are unable to consult together with a view to their common interests.

16 The Leave to Convene Hearing (2) The Court was concerned at the waste of fees that resulted from the meeting being held before the class issue was determined. The Court therefore issued a practice direction The applicant must determine whether more than one class of creditors is required. Following the decision in British Aviation IBNR is normally put into a separate class. In order to determine the class issue any creditor who may object needs to be aware of the proposed classes and the reasons for the formation of those classes.

17 The Leave to Convene Hearing (3) The Company proposing the scheme therefore writes to the creditors setting out:- The fact that the scheme is being proposed. The purposes the scheme is designed to achieve. The meetings of creditors that are required and their proposed composition. Creditors can then attend the directions hearing in order to make representations regarding the proposed classes.

18 The Leave to Convene Hearing (4) The Court will also give detailed directions relating to other matters. These may include:- the notice that is to be given to creditors. Including details of the documents to be delivered with the notice. What advertising needs to be carried out to ensure that so far as possible all potential creditors are aware of the meeting. Who is to be appointed chairman of the meeting and what the powers of the chairman are in relation to the meeting. Increasingly the Court is appointing Independent Vote Assessors to review and give an independent assessment of the value of votes cast.

19 Class Issues In order to be members of the same class the creditors must be able to consult with other creditors whose interests are not so dissimilar as to make it impossible for them to consult together with a view to their common interest. In solvent schemes for insurance companies the common division is between IBNR and non-ibnr claims. In British Aviation the Court held that creditors whose claims had been agreed and would be paid in full cannot be expected to consult with IBNR creditors whose claims are to be estimated under the scheme before being paid.

20 Meetings of Creditors and Voting Issues Juliette Winter Ruxley Ventures Limited

21 Meetings of Creditors Adherence to Court Order convening the meetings Attending to vote Chairman of the Meetings Postponements or adjournments Timing to sanction

22 Voting issues Requisite majorities Submitting claims for voting supporting information set-off correct classification of outstanding claims and IBNR Reviewing claim values submitted for voting review by the company review by the independent vote reviewer reporting to the Court

23 Vote Valuation Jay Borowsky

24 Vote valuation Company Response Mistakes Lines and limits Unavailable limits Wrong insurer Miscategorize type of claim (substantive) Unsupported claims values (substantive)

25 The Sanction Hearing Jon Yorke Barlow Lyde & Gilbert LLP

26 The Sanction Hearing (1) If the Scheme meetings vote in favour of the scheme by the requisite majorities the matter returns to Court in order to receive Court sanction. The Chairman of the meeting prepares a report on the meetings and the voting at the meeting. The Court has to consider whether it is fair and reasonable to sanction the scheme taking into account all available information.

27 The Sanction Hearing (2) In British Aviation dissenting creditors objected on a number of grounds. These included:- IBNR and Non-IBNR claims were in the same class Insufficient notice was given to creditors There was inadequate advertising of the scheme Reversion to run-off was in the absolute discretion of the Company The meeting of creditors was conducted improperly The Court held that it had no jurisdiction to sanction the scheme as the classes were incorrectly constituted. The other procedural issues meant that even if the Court felt it could sanction the scheme it would not have done so.

28 The Sanction Hearing (3) The concerns of the judge in the BAIC decision have now been substantially addressed by those promoting schemes. Scottish Lion In September last year the Scottish Court of Session refused to sanction a scheme. Lord Glennie felt that in order to sanction a scheme in the face of creditor opposition there must be a problem to be solved Where the company is solvent there is no problem to be solved. In such a case creditor democracy should not carry the day. Accordingly unanimity is required from creditors. The appeal has been heard and the outcome is awaited.

29 The Regulator s Perspective Juliette Winter Ruxley Ventures Limited

30 The Regulator s Perspective (1) FSA process guide to decision making on schemes FSA review process initial notice of proposals review of scheme documentation and requests for information Letter of non-objection (if appropriate)

31 The Regulator s Perspective (2) Factors taken into account by FSA type of policyholder degree of solvency type of business age of liability exposures pools