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You are here: BAILII >> Databases >> High Court of Ireland Decisions >> Colonia Re Insurance (Ireland) Ltd., Re [2005] IEHC 115 (15 March 2005)
URL: http://www.bailii.org/ie/cases/IEHC/2005/H115.html
Cite as: [2005] 1 IR 497, [2005] IEHC 115
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Neutral Citation No: [2005] IEHC 115
RECORD No. 2005/11 COS
EX TEMPORE JUDGMENT of Mr. Justice Kelly delivered on the 15th day of March, 2005.
This is the petition of Colonia Re Insurance Ireland Limited (the company). The company is solvent. It seeks the courts approval for a solvent scheme of arrangement pursuant to s. 201 of the Companies Act, 1963, as amended.
The court is familiar with such schemes of arrangement in the case of insolvent companies but not in the case of solvent companies.
The company is proposing to enter into the scheme of arrangement for the following reasons.
It was incorporated in 1990 as part of the AXA Group. It was involved in the reinsurance of non life insurance business. The company ceased to write any new business as of 31st December, 2002. It continues to have liabilities in relation to the policies underwritten by it prior to 31st December, 2002. These are known as "run off" liabilities. These liabilities are likely to last far into the future. The scheme proposes to establish a mechanism to shorten the time involved in quantifying and paying these "run off" liabilities.
This is the first time that an Irish court has been faced with a proposed solvent scheme of arrangement in respect of an insurance company. In such circumstances it is appropriate to seek guidance and assistance from other jurisdictions. I find the judgment of Neuberger J. in Re Osiris Insurance Limited [1999] 1 B.C.L.C. 182 particularly helpful.
The functions of the court in considering whether to sanction a scheme are succinctly set out in a passage (which is derived from a number of decisions) in Buckley on the Companies Acts (1981 edition). At pgs. 473 – 474 it is stated as follows:-
"In exercising its power of sanction the court will see, first, that the provisions of the statute have been complied with, second, that the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent, and, thirdly, that the arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interests, might reasonably approve.
The court does not sit merely to see that the majority are acting bona fide and thereupon to register the decision of the meeting, but, at the same time, the court will be slow to differ from the meeting, unless either the class has not been properly consulted, or the meeting has not considered the matter with a view to the interests of the class which it is empowered to bind, or some blot is found in the scheme."
The words of Lindley L.J. in In Re English, Scottish and Australian Chartered Bank [1893] 3 Ch 385 at pg. 409 are also relevant:-
"Now, it is quite obvious from the language of the Act and from the mode in which it has been interpreted, that the court does not simply register the resolution come to by the creditors or the shareholders, as the case may be. If the creditors are acting on sufficient information and with time to consider what they are about, and are acting honestly, they are, I apprehend, much better judges of what is to be their commercial advantage than the court can be. I do not say it is conclusive, because there might be some blot in a scheme which had passed that had been unobserved and which was pointed out later.
While, therefore, I protest that we are not to register their decisions, but to see that they have been properly convened and have been properly consulted and have considered the matter from a proper point of view, that is, with a view to the interests of the class to which they belong and are empowered to bind, the court ought to be slow to differ from them. It should do so without hesitation if there is anything wrong; but it ought not to do so, in my judgment, unless something is brought to the attention of the court to show that there has been some material oversight or miscarriage."
As Neuberger J. stated in Re Osiris, it is not the function of the court to act as a rubber stamp although the court would be slow to differ with experienced insurance industry creditors who are familiar with the subject matter of the scheme.
I now turn to the advantages of the proposed scheme. They are –
(1) Cost effectiveness in relation to both the company and persons making claims under the scheme,
(2) A greater level of finality,
(3) A fair mechanism which provides the scheme creditors with a reasonable opportunity to assert their claim and have the value thereof adjudicated,
(4) The very considerable advantage of early payment
and(5) A monetary benefit.
There are five matters in respect of which I have to be satisfied. I will deal with them in order as follows:-
(1) The court must be satisfied that sufficient steps have been taken to identify and notify all interested parties. I am satisfied on the basis of the evidence before me that the company has taken all such necessary steps.
(2) The court must be satisfied that the statutory requirements and all directions of the court have been complied with. I am satisfied, based on the affidavit evidence before me, that the statutory requirements and directions of the court given pursuant to its order of 14th January, 2005, have been complied with.
(3) The court must be satisfied that the classes of creditors are properly constituted. The two classes in the present case have been constituted using a common sense approach and with legal logic. Because a large proportion of the estimated claims of scheme creditors is due to scheme creditors who have a group association with the petitioner, it was correct to constitute them as a separate class of creditors.
(4) The issue of coercion is one which the court must consider but it does not arise in the present case.
(5) I am satisfied that the scheme of arrangement is such that an intelligent and honest man, a member of the class concerned, acting in respect of his interest might reasonably approve.
I have already identified the advantages of the scheme. The following disadvantages have been brought to the attention of the court at para. 21 of the petition as follows:-
"In considering the scheme the company has considered the following potential disadvantages to the scheme creditors and has laid these out in a clear manner in the explanatory statement to the scheme:-
(i) Failure to return a claim form. If any scheme creditor fails to lodge their claim form by the bar date or to exercise the option of asking the company to treat the information contained in and, if applicable, accompanying the voting form submitted for the purpose of the relevant creditors meeting as if it had been submitted as a claim form, that scheme creditors claim will be valued at nil; and
(ii) Estimated claims. It is likely that a number of claims will have to be estimated and in the circumstances scheme creditors may receive less, perhaps more, in respect of their claims than they would have received had the claims developed to maturity in the course of the company's run off in the traditional way.
In the Osiris case Neuberger J. had to consider similar disadvantages and stated as follows (at pg. 190):-
"There is, indeed, a risk that any scheme creditor will receive less under the scheme than he would receive in the normal way. However, the concern that one has about that aspect appears to me to be outweighed by the following factors. First, as already indicated, this risk is greatest for the London market policy holders, who will either be the sort of people who will have been able to take an informed view on the scheme and/or will have had access to brokers who would have been able to give them appropriate advice; they either voted in favour of the scheme or abstained, none voted against. Secondly, scheme creditors are just as likely, pursuant to the scheme, to receive a larger sum, as opposed to a smaller sum, than they would have received if they had pursued their claims in the run off in the normal way. Thirdly, their claims are to be determined by independent and properly qualified persons. Fourthly, their claims will be settled more quickly, and they are likely to be paid significantly more promptly, pursuant to the scheme, than in the normal way. Fifthly, a scheme creditor will almost certainly save on the costs of pursuing a claim under the scheme than in the normal way."
The considerations listed by Neuberger J. in the Osiris case also apply in the instant case. I am satisfied that the present proposed scheme of arrangement is such as an intelligent and honest man, a member of the class concerned and acting in respect of his interests, might reasonably approve. They have so approved without dissent.
I propose to exercise the power given to the court under s. 201 of the Companies Act, 1963 and I will make an order under ss. 3 of that section sanctioning the scheme.
I propose to adopt the course of action required by Neuberger J. in Osiris and direct that the creditors be written to and notified of the making of this order.
I order that a copy of my order be filed with the Registrar of Companies within 21 days of the date of its perfection.
The creditors are to be notified of the making of this order in the same manner as they were notified of the hearing of the petition. The notices should refer to the bar date and indicate that creditors must submit their claims within 90 days from the effective date of the scheme. I also direct notice of the making of this order be advertised in the same manner as the hearing of the petition. This is to be done forthwith but in any event within 21 days of the date of this order. There will be liberty to the company to apply should the need arise.
Approved: Kelly J.