The Irish and the English High Courts have each recently considered the various factors that must be taken into account by a court when asked to sanction the proposed transfer of an insurance portfolio. This article sets out some of the key points of guidance from the judgments.
Quinn Insurance Limited to Liberty Mutual Direct Insurance Company Limited
The recent portfolio transfer from Quinn Insurance Limited ("QIL") to Liberty Mutual Direct Insurance Company Limited ("Liberty") was highly contentious. In approving the transfer, Mr Justice Kearns in the High Court provided a useful clarification of the Court's role in the portfolio transfer process. In particular, the High Court made the following key points, each of which is addressed below:
- the transferor's board has a discretion as to which arrangement it approves and the court will not enquire into every commercial motivation behind the board's decision;
- third parties have no right of access to the business transfer agreement; and
- once the European Communities (Protection of Employees on Transfer of Undertakings) Regulations 2003 ("TUPE") have been complied with the Court will be reluctant to allow employee concerns affect the exercise of its discretion.
The circumstances surrounding the portfolio transfer are well known, whereby the joint administrators of QIL entered into an asset purchase agreement for the sale of its general insurance business to Liberty, a joint venture between the Liberty Mutual Group and the Anglo Irish Bank Group ("Anglo"). A petition was brought before the High Court seeking its sanction for the proposed transfer and the High Court received multiple objections, none of which were upheld.
The High Court refused to entertain an objection made on the basis that a more favourable deal could be negotiated with another purchaser. In this regard the Court held that it was not for the Court to consider whether this was the best commercial deal which could have been secured for the disposal of the business of QIL. Further, the Court set out that its discretion to sanction a scheme is completely unfettered but must be exercised according to principles which give due recognition to the commercial judgment entrusted by the company's constitution to its board. The Court will look at whether the scheme as a whole is fair as between the interests of the different classes of persons affected and it does not need to be satisfied that no better scheme could be devised.
Right of access to the business transfer agreement
The High Court also rejected the argument that QIL had a statutory obligation to make public a copy of the asset purchase agreement. The disclosure of the agreement to the objectors had been refused by the joint administrators on the basis that it was confidential and contained highly sensitive commercial information. The Court was satisfied that, in making the scheme and actuarial report available, QIL had complied with the requirements of disclosure and the objectors were given all the information they needed to make a case under the 1909 Act. In so rejecting, the Court put it beyond doubt that third parties have no right of access to the business transfer agreement for a portfolio transfer.
Risks to employees
A further objection was made on the basis that, as a result of the involvement of Anglo in the transfer, QIL's insurance business would significantly reduce due to policyholders not wishing to renew and that this endangers the position of the employees. The Court heard evidence from an employee of QIL who stated that the vast majority of employees wanted the transaction to go ahead and that no employees had voiced concern through official channels. The Court dismissed the objection on the basis that no objector had been able to identify any employee who was concerned about his or her position and there was no evidence that the transaction presented any danger to the employees' positions.
Importantly, the Court felt that its position on this matter was fortified by the specific application of TUPE to the proposed transfer, in respect of which no breach had been identified. Indeed, earlier in its judgment, the court had referred to the case of Irish Life plc v Royal Liver Insurance Limited  2 IR 9, which held that the extent to which employee concerns can affect the exercise of the court's discretion in an application for approval of a scheme of transfer is necessarily limited but that a substantial or egregious breach of the TUPE obligations therein would inevitably influence the court in the exercise of its discretion.
Welfare of policyholders
Finally, the Court did not see its role as a watchdog on behalf of the taxpayers. It stated that it must be mindful of its confined remit under the 1909 Act, which is primarily focussed on the welfare of policyholders.
Re Aviva International Insurance Limited  EWJC 1901
In this judgment, the English High Court considered the factors that a court could take into account when considering whether to waive certain provisions of English law which require advertising and publication of various notices of the transfer. The Court emphasised that the factors which it has identified are for guidance purposes only and that the list is non-exhaustive. It also emphasised that the factors are not to be treated as formal requirements and the weight to be given to each will depend entirely on the facts and circumstances of each case.
The factors listed by the Court were as follows:
- the impossibility of contacting policyholders;
- the practicality of contacting policyholders;
- the utility of contacting policyholders;
- the availability of other information channels through which notice of the application can be made available;
- the proportionality of strict compliance and the impact of collateral commercial concerns; and
- the object of the transfer itself and its likely impact on policyholders.
While the above factors are not binding on an Irish court, it is likely that this judgment would have persuasive authority before an Irish court were a question as to waiver of the Irish advertising and publication requirements to arise.
Direct Line Insurance PLC & Churchill Insurance Company Limited  EWHC 1667 (Ch)
In this judgment the English High Court considered the transferor's application to waive the English law requirement to notify the existing policyholders of the transferee company. The attitude of the English court in its judgment is interesting in that it agreed to grant the waiver applied for despite the fact that the UK Financial Services Authority ("FSA") opposed the waiver. The FSA had argued that resulting transfer would result in a change in the nature of the transferee company as the transferee would triple in size upon completion of the transfer.
The Court, in granting the waiver, found that the following factors were relevant:
- the applicants would, instead of individual notifications, publish targeted advertisements;
- the business was short-term so could easily move elsewhere;
- individual notification would incur significant costs; and
- the identity of the underwriter was unlikely to have played a large part in the policyholder's decision to take out the policy.
This case is important for two reasons. Firstly, it indicates that the English High Court is willing to take a different view to that of the FSA in relation to portfolio transfers where it believes that it is in the parties' best interests to do so. Secondly, it indicates that there may be a shift away from the formal requirements to issue individual notifications to policyholders in transfers of life business where to do so would be unreasonably disproportionate to the type of insurance being transferred and the policyholders involved. Again, while the Irish courts are not bound by this judgment, this decision could be of persuasive authority should the matter come to be considered by the Irish courts.
As such, insurers considering a possible portfolio transfer should be mindful of the points raised in each of the cases outlined above.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.