Powers of the Board to protect policyholders of companies in financial difficulties
16 Companies in financial difficulties: transfers of business, etc.
1
An authorised insurance company, not being a company in liquidation, is a company in financial difficulties for the purposes of this section if—
a
it is a company in provisional liquidation within the meaning of section 15 above;
b
c
an application has been made to the court under F4section 425 of the Companies Act 1985 or F5Article 418 of the Companies (Northern Ireland) Order 1986for the sanctioning of a compromise or arrangement proposed between the company and its creditors or any class of them (whether or not any of its members are also parties thereto) and the terms of the compromise or arrangement provide for reducing F6, or deferring payment of, the liabilities or the benefits provided for under any of the company’s policies;
provided that, in a case falling within paragraph (b) above, the petition was presented after 29th October 1974, and in a case falling within paragraph (c) above, the application was made after that date.
2
Subject to section 17 below and to the following provisions of this section, the Board may exercise any power conferred on them by subsection (3) or (4) below for the purpose of safeguarding F7those who are qualifying persons in relation to a company in financial difficulties, or any class or description of F8such persons, to any extent appearing to the Board to be appropriate in any case or in any class or description of case, against loss arising from the financial difficulties of the company.
3
Subject to section 17 below and to the following provisions of this section, the Board may take any measures appearing to them to be appropriate for securing or facilitating the transfer of all or any part of the insurance business carried on by a company in financial difficulties to another authorised insurance company,onterms(including terms reducing the liabilities or the benefits provided for under anypolicies) F9, or deferring payment of,F10any of the things to which any of those who are qualifying persons in relation to the company in financial difficulties are entitled in their capacity as such) appearing to the Board to be appropriate in any case or in any class or description of case.
4
Subject to section 17 below and to the following provisions of this section, in any case where it appears to the Board that it would be practicable to secure the purpose mentioned in subsection (2) above by giving assistance to the company in financial difficulties to enable it to continue to carry on insurance business, the Board may take such measures as appear to them to be appropriate for giving such assistance.
5
Without prejudice to the generality of subsection (4) above, the Board may make the giving of any assistance to a company in financial difficulties under subsection (4) above conditional on the reduction of F11, or the deferment of the payment of,F12of the things to which any of those who are qualifying persons in relation to the company are entitled in their capacity as such to any extent appearing to them to be appropriate in any case or in any class or description of case.
6
The Board shall not exercise any power conferred on them by subsection (3) or (4) above for the purpose of safeguarding any policyholders of a company in financial difficulties in any case where it appears to the Board that—
a
persons who were members of the company at the relevant time; or
b
persons who had any responsibility for or who may have profited from the circumstances giving rise to the company’s financial difficulties;
would benefit to any material extent as a result of any measures the Board may take under either of those subsections.
In this subsection and in the following provisions of this section “the relevant time” means—
a
in a case falling within subsection (1)(a) above, the time when the provisional liquidator was appointed;
b
in a case falling within subsection (1)(b) above, the time when the winding up petition was presented; and
c
in a case falling within subsection (1)(c) above, the time when the application was made under section 425 of the Companies Act 1985 or (as the case may be) under F13Article 418 of the Companies (Northern Ireland) Order 1986.
7
The Board shall disregard for the purposes of subsection (6) above any benefit which may accrue to any such persons as are there mentioned who are policyholders of the company in financial difficulties in their capacity as such.
8
The Board shall not take any measures in pursuance of subsection (3) or (4) above for the purpose of safeguarding F14any of those who are qualifying persons in relation to a company in financial difficulties in any case where it appears to the Board that to take whatever measures may be required for the assistance of F15the persons in question under sections 6 to 11 above in the event of the company’s going into liquidation would cost them less than to take the measures in question under subsection (3) or (4) above.
F168A
In making any calculation for the purposes of subsection (8) above, the Board shall—
a
discount future costs to a present value using such rates of interest as appear to them to be appropriate, and
b
in evaluating contingent costs, make such assumptions, and use such statistical and other methods, as appear to them to be reasonable.
8B
If in pursuance of subsection (3) or (4) above the Board have entered into an obligation to do anything, subsection (8) above shall not apply in relation to anything done in pursuance of the obligation.
F178C
For the purposes of this section, a person is a qualifying person in relation to a company in financial difficulties if—
a
he is a policyholder of the company who is eligible for protection under this section,
b
he is a security holder in respect of a security given by the company who is eligible for protection under this section, or
c
he is a person to whom the company is liable to pay any sum in respect of his entitlement to the benefit of a judgment under the provisions mentioned in paragraphs (a) and (b) of section 7 above.
9
A policyholder of a company in financial difficulties is eligible for protection under this section if he is a policyholder in respect of a general policy or a long term policy of the company which was a United Kingdom policy at the relevant time.
F189A
A security holder in respect of a security given by a company in financial difficulties is eligible for protection under this section if—
a
it is a security to which section 6 above applies, and
b
it would have been a United Kingdom po;icy at the relevant time if it had been an insurance policy and the contract governing the security had been a contract of insurance.
17 Special provision with respect to long term business of a company in financial difficulties.
1
Without prejudice to subsection (8) of section 16 above, the Board shall not take any measures in pursuance of subsection (3) or (4) of that section for the purpose of safeguarding any policyholders of a company in financial difficulties in respect of long term policies of the company, other than measures allowed by subsection (2) below, in any case where it appears to the Board that to take those other measures would cost them more than to take measures allowed by subsection (2) below.
2
The measures allowed by this subsection are any measures open to the Board under subsection (3) or (4) of section 16 above for the purpose of safeguarding policyholders of a company in financial difficulties which involve the imposition by the Board, as a prerequisite of their incurring any expenditure or liabilities for that purpose, of conditions requiring—
a
the reduction of all liabilities of the company under relevant long term policies and of all benefits provided for under any such policies which have not fallen due to be paid by the company before the time when the reduction is to take effect, to ninety per cent. of the amount which would otherwise have been payable in accordance with the terms of the policies; and
b
the reduction of all premiums under any such policies which have not fallen due before that time to ninety per cent. of the amount which would otherwise have been so payable.
A long term policy is a relevant long term policy for the purposes of this subsection if it is included in any transfer secured or facilitated by the Board under subsection (3) of section 16 or in any business continued by virtue of any assistance given by the Board under subsection (4) of that section.
3
Without prejudice to the power of the Board to impose conditions in relation to taking any measures under subsection (3) or (4) of section 16 above with respect to matters other than those covered by the conditions mentioned in subsection (2) above, the benefits mentioned in paragraph (a) of subsection (2) shall not include any bonus provided for under a policy unless it was declared before the time when any such reduction of liabilities and benefits under that policy as is mentioned in that paragraph is to take effect.
4
If it appears to the Board, in the case of any long term policy of a company in financial difficulties which was a United Kingdom policy at the relevant time as defined by section 16(6) above, that the benefits provided for thereunder are or may be excessive in any respect, having regard to the premiums paid or payable and to any other terms of the policy, the Board shall refer the policy to an independent actuary.
5
Where an actuary to whom a policy of a company in financial difficulties is referred under subsection (4) above makes to the Board a report in writing—
a
stating, with respect to any of the benefits provided for under the policy, that in his view the benefit or benefits in question are excessive; and
b
recommending, accordingly, that for the purposes of any measures to be taken by the Board in pursuance of subsection (3) or (4) of section 16 above for safeguarding the policyholder in question against loss arising from the financial difficulties of the company any such benefit should be treated as reduced or (as the case may be) disregarded;
the Board may determine in the light of any recommendation contained in the actuary’s report that any benefit to which that recommendation relates shall be treated as reduced or disregarded for those purposes.
6
Where in a case falling within subsection (5) above the Board determine that the benefit in question shall be disregarded for the purposes there mentioned, the conditions mentioned in subsection (2) above shall include conditions requiring the cancellation of that benefit or (as the case may be) of any liability representing that benefit.
7
Where in a case falling within subsection (5) above the Board determine that the benefit in question shall be treated as reduced for the purposes there mentioned, subsection (2)(a) above shall apply in relation to the policy as if the amount of that benefit or (as the case may be) of any liability representing that benefit, as reduced in accordance with the Board’s determination, were the amount which would otherwise have been payable in accordance with the terms of the policy.
8
In this section “company in financial difficulties” has the same meaning as in section 16 above.
F1917A Schemes of arrangement, etc.: power of Secretary of State to intervene.
1
This section applies where a company is a company in financial difficulties for the purposes of section 16 above by virtue of subsection (1)(c) of that section.
2
The Secretary of State may, after consultation with the Board, exercise any power conferred on him by subsection (3) or (4) below for the purpose of safeguarding those who are qualifying persons in relation to the company, or any class or description of such persons, to any extent appearing to the Secretary of State to be appropriate, against relevant loss arising from the financial difficulties of the company.
3
The Secretary of State may by notice in writing direct the Board to take any measures appearing to him to be necessary for securing or facilitating the transfer of all or any part of the insurance business carried on by the company to another insurance company to which this Act applies or an authorised friendly society, on terms (including terms reducing, or deferring payment of, any of the things to which any of those who are qualifying persons in relation to the company in financial difficulties are entitled in their capacity as such) appearing to him to be appropriate.
4
In any case where it appears to the Secretary of State that it would be practicable to secure the purpose mentioned in subsection (2) above by the Board giving assistance to the company to enable it to continue to carry on insurance business, the Secretary of State may by notice in writing direct the Board to take such measures as appear to the Secretary of State to be necessary for giving such assistance.
5
Without prejudice to the generality of subsection (4) above, a direction under that subsection may require the Board to make the giving of any assistance to the company conditional on the reduction of, or the deferment of the payment of, any of the things to which any of those who are qualifying persons in relation to the company are entitled in their capacity as such to any extent appearing to the Secretary of State to be appropriate.
6
The Secretary of State shall send a copy of any notice under subsection (3) or (4) above to the company.
7
A direction under subsection (3) or (4) above shall not have effect to require the Board to take any measures which, by virtue of section 16(6) or (8) or 17(1) above, they would be prevented from taking under section 16(3) or (4) above.
8
Where it appears to the Board that a direction under subsection (3) or (4) above is affected by subsection (7) above, they shall—
a
notify the Secretary of State in writing of that fact and of the reasons for their opinion, and
b
send a copy of the notice to the company.
9
In subsection (2) above, “relevant loss” means loss in connection with a matter by virtue of which a person is a qualifying person in relation to the company.
10
Subsection (8C) of section 16 above shall apply for the purposes of this section as it applies for the purposes of that.