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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 >> The Copenhagen Reinsurance Company (UK) Ltd & Anor, Re [2016] EWHC 944 (Ch) (29 April 2016) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2016/944.html Cite as: [2016] Bus LR 741, [2016] WLR(D) 226, [2016] EWHC 944 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

		Royal Courts of Justice Rolls Building, Fetter Lane, London, EC4A 1NL
		29 April 2016

MR. JUSTICE SNOWDEN:

1. On 4 December 2015 I made an order pursuant to Part VII of the Financial Services and Markets Act 2000 ("FSMA") sanctioning an insurance business transfer scheme ("the Scheme") transferring the entire insurance business of the applicant company, The Copenhagen Reinsurance Company (U.K.) Limited ("CopRe") to Marlon Insurance Company Limited ("Marlon"). I also made a number of ancillary orders including an order for the dissolution of CopRe without winding up.
2. Due to the lateness of the hour at the end of the hearing on 4 December 2015, I indicated that I would give my reasons later in writing, which I now do. Although the Scheme has since taken effect pursuant to my order, I shall give my reasons in the present tense, as if ruling upon the matter on 4 December 2015.

Background

3. CopRe is a direct wholly-owned subsidiary of Marlon and both are members of the same group, the ultimate holding company of which is a Bermudan company, Enstar Group Limited, which is listed on NASDAQ. Enstar's business model is to acquire and manage insurance and reinsurance businesses in run-off.
4. CopRe is in run-off having ceased to write new business from December 2000. Prior to that it wrote both direct and assumed reinsurance business between 1969 and 2000. The direct business was mainly short tail property and marine hull/cargo insurance. The assumed reinsurance comprised various lines of business, with the bulk of the remaining exposures relating to a worldwide book of business written between 1979 and 1994. This business includes some London market marine business (with some asbestos, pollution and health hazard exposures), motor and general liability, and various property and catastrophe risks. The business is all non-life insurance and reinsurance.
5. As at 31 December 2014 CopRe had approximately 435 contracts in respect of which a claim is outstanding. It had gross loss reserves (including IBNR) as at that date of £3.7 million. As at 31 December 2014 it had assets of £30.1 million and total liabilities of £11.3 million. CopRe's business is entirely administered by another company in the Enstar group ("EEUL"), and CopRe has no employees.
6. CopRe is a surplus and excess lines insurer in the United States and as such maintains a "surplus lines and excess lines trust fund" with a trustee company in New York to support its obligations to certain US policyholders under policies written on a surplus or excess lines basis ("the CopRe Trust"). The CopRe Trust is governed by New York law and the assets held in it comprise about 0.1% of CopRe's assets.
7. Marlon is a much larger operation than CopRe. As at 31 December 2014 Marlon had assets of £174.4 million and total liabilities of £118 million. Marlon is also in run-off. Its business comprises various books written by a number of EEA entities, each of which were acquired by Marlon pursuant to various portfolio transfers and one cross-border merger. Marlon has gross technical provisions of £70.9 million and reinsurance cover of £21.9 million (of which £20.4 million is provided by a segregated Bermudan company within the Enstar group. Marlon's business is also administered by EEUL, and like CopRe, Marlon also maintains a surplus and excess lines trust in New York to support its obligations to certain US policyholders ("the Marlon Trust"). About 1.5% of Marlon's assets are held in that trust.
8. The commercial purpose of the transfer of CopRe's business to Marlon is to simplify the structure of the Enstar group and to achieve administrative, management and regulatory synergies. To that end it is proposed that CopRe should be dissolved following the business transfer becoming effective.

The Scheme

9. The Scheme itself is a relatively simple document. It provides for the transfer on the effective date of the assets and liabilities of CopRe's entire business to Marlon. The terms of the policies written by CopRe which are to be transferred to Marlon are not otherwise to be changed. The Scheme also contains conventional provisions for the continuity of legal proceedings in the name of Marlon after the transfer, for premiums on policies to be payable to Marlon and for mandates given by CopRe to take effect as if given by Marlon.
10. In the conventional way, Marlon will give an undertaking by counsel to this court to be bound by the Scheme and to do all such acts and things as may be necessary or expedient to be done for the purposes of giving effect to it. In addition, two clauses have been inserted in the Scheme at the request of the Financial Conduct Authority ("the FCA"), to the effect that Marlon shall,

i) accept the transferred liabilities under each transferred policy, whether that transferred policy is governed by English law or the law of another jurisdiction, and

ii) accept that any order award or other determination made against CopRe in any judicial, quasi-judicial, arbitral, ombudsman or other proceedings concerning the transferred business shall be enforceable against Marlon without the need for any further order and shall be dealt with by it.

11. The inclusion of these provisions is designed to address the issue that might otherwise arise as to whether the Scheme would be recognised and hence be effective in other jurisdictions in relation to the transfer of CopRe's obligations under policies not governed by English law. Such an issue arose in Sompo Japan Insurance Inc [2007] EWHC 146 (Ch), and I shall return to that case in another context below. However, it seems to me that the combined effect of the provisions in the Scheme and Marlon's undertaking is sufficient as a practical matter to ensure, should the need arise, that any policyholders affected will have the means to take steps to force compliance by Marlon with the terms of the Scheme or seek other relief from this court in the event that an issue were to arise as to its effectiveness in any other relevant jurisdiction.

The technical requirements of Part VII

12. Insurance business transfer schemes are defined in section 105 FSMA. The present Scheme falls within that definition because the business to be transferred is in an EEA member state by CopRe as a UK authorised person, the transferred business will be carried on from an establishment of Marlon in an EEA member state, and the Scheme is not an excluded scheme.
13. Section 111 FSMA provides in relevant part as follows:

"Sanction of the court for business transfer schemes.

(1) This section sets out the conditions which must be satisfied before the court may make an order under this section sanctioning an insurance business transfer scheme…

(2) The court must be satisfied that—

(a) In the case of an insurance business transfer scheme … the appropriate certificates have been obtained (as to which see Parts I and II of Schedule 12);

…

(b) The transferee has the authorisation required (if any) to enable the business, or part, which is to be transferred to be carried on in the place to which it is to be transferred (or will have it before the scheme takes effect).

(3) The court must consider that, in all the circumstances of the case, it is appropriate to sanction the scheme."

14. The background to the requirements of section 111 and the practice and procedure of the court was outlined by David Richards J. in Re Royal & Sun Alliance Insurance plc. & Ors [2008] EWHC 3436 (Ch) at paras. 3 and 4:

"The statutory regime for the transfer of long term and general insurance business and banking business is contained in Part VII of the Financial Services and Markets Act 2000 which replaced provisions dealing with the transfer of long term insurance business dating back to the 19th century. Part VII also gives effect to current EU directives. There are a substantial number of conditions, both in the Act and in regulations made under it, relating to such matters as the authorisation of the transferee company, the giving of notice to regulators and policyholders and so on, all of which have been satisfied in this case. There are further provisions, in addition to the giving of notice to affected policyholders, which are designed to provide protection to the policyholders whose policies are to be transferred, to the remaining policyholders, if any, of the transferor and to the existing policyholders, if any, of the transferee…

These statutory provisions involve: first, the appointment of a suitably qualified, independent expert to report on the scheme. His appointment, and the form of his report, must be approved by the Financial Services Authority (FSA). In this case, as in all insurance business transfers of which I am aware, the expert is an actuary with suitable experience. Secondly the FSA, as regulator, is consulted on proposed transfers and actively considers proposals as they develop. It is also entitled to appear on the application to the court for sanction principally to raise matters of concern. It has, in the last year or so, become the practice of the FSA to provide to the court a report dealing with any areas of concern and how they have been addressed. Where there are remaining concerns, or the circumstances otherwise make it appropriate, the FSA appears at the hearing and does so on a regular basis ... As many of the issues which arise on these transfer schemes are technical in nature, the assistance of the independent expert and the FSA is particularly important. Thirdly, the sanction of the court is required for the transfer. Fourthly, arising out of that requirement, the applicant, as a party making an ex parte application, owes to the court a duty of full and frank disclosure of all material facts and matters…."

15. Picking up the technical matters mentioned by David Richards J., in the instant case I am satisfied on the evidence that all of the requisite certificates and authorisations referred to in section 111(2) FSMA have been obtained. I am also satisfied that the various requirements set out in sections 104 to 108 FSMA and regulations made thereunder have been complied with. In particular, the issues of notification of regulators, policyholders and reinsurers, and as to advertisement were the subject of an order made on 9 October 2015 by Chief Registrar Baister and I am satisfied that such order has been fully complied with.

Part VII: discretion

16. The approach of the court to the exercise of discretion in relation to insurance business transfer schemes was first explained in detail by Hoffmann J. in London Life Association Limited (unreported, 21^st February 1989):

"In the end the question is whether the scheme as a whole is fair as between the interests of the different classes of persons affected. But the court does not have to be satisfied that no better scheme could have been devised … I am therefore not concerned with whether, by further negotiation, the scheme might be improved, but with whether, taken as a whole, the scheme before the court is unfair to any person or class of persons affected.

In providing the court with material upon which to decide this question, the Act assigns important roles to the independent actuary and the Secretary of State. A report from the former is expressly required and the latter is given a right to be heard on the petition. The question of whether the policyholders would be adversely affected by the scheme is largely actuarial and involves a comparison of their security and reasonable expectations without the scheme with what it would be if the scheme were implemented. I do not say that these are the only considerations, but they are obviously very important. The Secretary of State, by virtue of his regulatory powers, can also be expected to have the necessary material to express an informed opinion on whether policyholders are likely to be adversely affected."

Today, the role of the Secretary of State is performed by the combination of the FCA and the Prudential Regulation Authority (the "PRA"), but their roles and the role of the independent expert enjoy the same prominence as when that decision was given.

17. In the subsequent case of AXA Equity & Law Life Assurance Society plc. [2001] 1 All ER (Comm) 1010, Evans-Lombe J. referred to Hoffmann J.'s judgment and summarised the following principles which he derived from that decision:

"It seems to me that the following principles emerge from the judgment of Hoffmann J. which should govern the approach of the Court to applications of this type. I gratefully adopt those principles.

They are: -

(1) The 1982 Act confers an absolute discretion on the Court whether or not to sanction a scheme but this is a discretion which must be exercised by giving due recognition to the commercial judgment entrusted by the Company's constitution to its directors.

(2) The Court is concerned whether a policyholder, employee or other interested person or any group of them will be adversely affected by the scheme.

(3) This is primarily a matter of actuarial judgment involving a comparison of the security and reasonable expectations of policyholders without the scheme with what would be the result if the scheme were implemented. For the purpose of this comparison the 1982 Act assigns an important role to the Independent Actuary to whose report the Court will give close attention.

(4) The FSA by reason of its regulatory powers can also be expected to have the necessary material and expertise to express an informed opinion on whether policyholders are likely to be adversely affected. Again the Court will pay close attention to any views expressed by the FSA.

(5) That individual policyholders or groups of policyholders may be adversely affected does not mean that the scheme has to be rejected by the Court. The fundamental question is whether the scheme as a whole is fair as between the interests of the different classes of persons affected.

(6) It is not the function of the Court to produce what, in its view, is the best possible scheme. As between different schemes, all of which the Court may deem fair, it is the Company's directors' choice which to pursue.

(7) Under the same principle the details of the scheme are not a matter for the Court provided that the scheme as a whole is found to be fair. Thus the Court will not amend the scheme because it thinks that individual provisions could be improved upon.

(8) It seems to me to follow from the above and in particular paragraphs (2) (3) and (5) that the Court, in arriving at its conclusion, should first determine what the contractual rights and reasonable expectations of policyholders were before the scheme was promulgated and then compare those with the likely result on the rights and expectations of policyholders if the scheme is put into effect."

Although relating to earlier legislation, such principles have been regularly applied to cases under FSMA: see e.g. Royal Sun Alliance Insurance plc [2008] EWHC 3436 (Ch).

The Independent Expert's Reports and the attitude of the Regulators

18. In this case, the independent expert report has been provided by Mr. Steve Mathews, who is a director of Towers Watson Ltd. He is a fellow of the Institute and Faculty of Actuaries with extensive experience spanning 20 years in the non-life reinsurance industry. His appointment as Independent Expert has been approved by the PRA, as has the form of his reports.
19. In a detailed report, Mr. Mathews has considered the likely effect of the Scheme on two distinct groups of affected policyholders, namely the transferring policyholders of CopRe and the current policyholders of Marlon. Within each group he has also considered the likely effect of the Scheme on both the direct and reinsurance policyholders within the group. In each case he has considered the security of the policyholders both on the current basis (which corresponds with the position should the Scheme not proceed) and on the basis that the Scheme proceeds. Mr Mathews has also considered the effect of the Scheme on matters such as the claims handling service levels and expense levels insofar as these will affect the security of policyholders' contractual rights or the levels of service provided to them.
20. Mr. Mathews' clear conclusion is that neither the transferring policyholders of CopRe nor the current policyholders of Marlon will be materially adversely affected by the Scheme. In particular, his opinion is that after the Scheme takes effect, the transferring policyholders will have policies with a company whose level of shareholder funds implies a security level in excess of the PRA's solvency criterion of 97.5% value-at-risk to an ultimate time horizon for companies with run-off liabilities with durations in excess of five years. The same is also the case for Marlon's current policyholders.
21. Although Mr. Mathews observes that the capital coverage ratio for transferring policyholders will be reduced, he concludes that the capital coverage ratio of Marlon is still in excess of that for an adequately capitalised company. It is clear on the authorities including, in particular, Re Norwich Union Linked Life Assurance Limited [2004] EWHC 2802 (Ch) that a reduction in capital coverage ratio does not of itself afford a good reason for refusing sanction to a scheme. In the instant case, I accept Mr. Mathews' view that such reduction does not present a material risk to transferring policyholders.
22. In addition, Mr. Mathews concludes that the Scheme will have no significant effect on service levels, expense levels or the level of investment risk experienced by the transferring policyholders. In reality, claims handling will be undertaken by the same team at EEUL before and after the proposed Scheme takes effect.
23. Mr. Mathews has also produced a supplemental report which considers (i) unaudited financial statements for each of CopRe and Marlon to 30 September 2015, (ii) actual paid claims and movement in reserves to that date, (iii) a proposed dividend from Marlon of £17.1 million should the Scheme be sanctioned, and (iv) Marlon's preparedness for Solvency II. Mr. Mathews confirms that his conclusions are unchanged.
24. The Regulators have also both submitted reports and have indicated that they have no objection to the Scheme. The FCA has stated that the Scheme is within the range of reasonable and fair schemes available to the transferor and transferee; and the PRA has stated that it is not aware of any issues that would cause it to object to the Scheme.
25. The court does not in any way act as a rubber stamp of the Independent Expert's report or the views of the FCA and PRA: see Pearl Assurance (Unit Linked Pensions) Limited [2006] EWHC 2291 (Ch) at para 6, and Re HSBC Life (UK) Limited [2015] EWHC 2664 (Ch) at paras 31-36. That said, the views of the Independent Expert and the Regulators obviously carry great weight, and in the instant case I see no reason to differ from the conclusions expressed by them on the issues with which they are concerned.

Additional issues

26. There are three additional matters which I need to consider. These are (i) the position of two guarantors of some of CopRe's policies, who have objected to my making an order that references to CopRe in the guarantees that they have given should henceforth be deemed to be references to Marlon, (ii) the proposals for dealing with the assets in the CopRe Trust, and (iii) whether to order the dissolution of CopRe without winding-up after the Scheme has become effective.
27. These issues engage section 112 FSMA. That section contains a variety of supplemental provisions concerning the effect of an order sanctioning a Part VII transfer scheme. In particular, section 112 provides,

"(1) If the court makes an order under section 111(1), it may by that or any subsequent order make such provision (if any) as it thinks fit -

(a) for the transfer to the transferee of the whole or any part of the undertaking concerned and of any property or liabilities of the transferor concerned;

(b) for the allotment or appropriation by the transferee of any shares, debentures, policies or other similar interests in the transferee which under the scheme are to be allotted or appropriated to or for any other person;

(c) for the continuation by (or against) the transferee of any pending legal proceedings by (or against) the transferor concerned;

(d) with respect to such incidental, consequential and supplementary matters as are, in its opinion, necessary to secure that the scheme is fully and effectively carried out.

(2) An order under subsection (1)(a) may -

(a) transfer property or liabilities whether or not the transferor concerned otherwise has the capacity to effect the transfer in question;

(b) make provision in relation to property which was held by the transferor concerned as trustee;…

….

(8) If the court makes an order under section 111(1) in relation to an insurance business transfer scheme, it may by that or any subsequent order make such provision (if any) as it thinks fit –

…

(b) for the dissolution, without winding up, of the authorised person concerned…"

The ILU Guarantees

28. During the period prior to its ownership by Enstar, CopRe was a member of the Danish ALM. Brand group of companies. It was also a member of the Institute of London Underwriters (the "ILU"). As a requirement of membership of the ILU, two ALM. Brand companies (ALM. Brand af 1792 Fmba and ALM. Brand A/S) entered into two guarantees dated 3 April 1989 and 20 April 1995 (respectively) in favour of the ILU for the benefit of policyholders whose policies were signed and issued through the ILU ("the ILU Guarantees").
29. The ILU Guarantees provide that in the event that CopRe is unable to make full payment to the policyholders covered by the guarantees, the relevant ALM. Brand guarantor will pay the outstanding balance. Each of the ILU Guarantees contains a provision to the effect that it shall be governed by and construed in accordance with English law and each contains a jurisdiction clause in favour of arbitration in London (the 1989 guarantee) or in favour of the courts of England (the 1995 guarantee) to settle any disputes under or arising out of the guarantee.
30. The 1989 guarantee by ALM. Brand af 1792 Fmba was limited to policies issued before 1995, and although the 1995 guarantee was stated to apply to all policies issued since 3 April 1989, ALM. Brand A/S's liabilities under it were subsequently capped by a guarantee termination agreement dated 16 July 1997 which provided that it should only apply to risks accepted on or before 30 June 1997.
31. When CopRe was sold in May 2009 by the ALM. Brand group to the Enstar group, the sale and purchase agreement did not provide that either of the ALM. Brand companies was to be released from the ILU Guarantees, and no approach was made to the ILU to seek such release. Instead the two ALM. Brand guarantors were given an indemnity by the Enstar buyer with an aggregate limit of £5 million against claims that they might suffer or incur under or in respect of the ILU Guarantees.
32. The ILU Guarantees are not specifically dealt with under the terms of the Scheme. Instead, CopRe's proposal is that the two ILU Guarantees should be varied by way of a specific provision in the order sanctioning the Scheme to the effect that any references therein to CopRe (or "the Company" as defined therein) shall be deemed to be references to Marlon. The intention is that after the Scheme becomes effective, each of the policies written by CopRe which has the benefit of either ILU Guarantee should continue to have the same guarantee as before, but covering the transferred obligations of Marlon in place of CopRe. It is said that this will fulfil the expectations of CopRe's ILU policyholders.
33. The ALM. Brand group was approached by CopRe and Marlon in April 2015, notified of the intention to propose the Scheme and asked to execute deeds of variation agreeing that the ILU Guarantees should continue to apply in the same way after the proposed Scheme became effective. The ALM. Brand group rejected that proposal and instead suggested that since the Scheme was being proposed for the benefit of the Enstar group, Enstar should replace the ILU Guarantees as a condition of the Scheme being approved.
34. That suggestion was not acceptable to CopRe and Enstar. The ALM. Brand group was notified of the intention to seek an order in relation to the ILU Guarantees, and shortly before the hearing, by a letter dated 2 December 2015, the ALM. Brand group objected to such an order being made. The letter disputed that such an order could be made under section 112 FSMA and drew attention to the fact that the Independent Expert had concluded that his opinion on the effect of the Scheme on transferring policyholders would not change if ALM. Brand would not agree to the variation of the ILU Guarantees. Accordingly, ALM. Brand submitted, modification of the ILU Guarantees could not be "necessary to secure that the scheme is fully and effectively carried out" within the meaning of section 112(1)(d) FSMA.
35. By an email response on the same day, the ILU supported the approach of CopRe. The ILU indicated that it regards itself as under an obligation to potential beneficiaries of guarantees given to the ILU to preserve the benefit of the guarantees on occasions such as Part VII transfers. The email expressed the view that although it would have welcomed a consensual deed of variation, the proposed court order would achieve the desired result.
36. The ILU's email went on to make the points (i) that the exposure of the ALM. Brand companies under the ILU Guarantees was reducing with the passage of time, and (ii) that the ALM. Brand guarantors had not sought to be released from the guarantees when CopRe was sold to Enstar in 2009. The email concluded that,

"The ILU is concerned that, at the eleventh hour in a process in which ALM. Brand companies have no other commercial interest, they should seek to prevent the benefit of the guarantees which they gave from continuing to be available to eligible ILU policyholders."

37. The PRA and FCA both confirmed that the continuation of the ILU Guarantees was not material to their view of the ability of Marlon to meet regulatory capital requirements, and in light of the views of the Independent Expert they indicated that this was not a matter that required them to object to the Scheme.
38. Mr. Moore QC, for CopRe, submitted that the proposal in relation to the ILU Guarantees was in substance no different to the treatment of an outwards reinsurance protection which is routinely transferred under a Part VII scheme. In that regard he relied upon Re WASA International (UK) Insurance Co [2003] 1 BCLC 668, in which Park J approved an insurance business transfer scheme and made an order under section 112(1)(a) FSMA transferring the rights of the transferor company under its reinsurance contracts. A similar provision is contained in the order that I am invited to make in this case in relation to CopRe's outwards reinsurance contracts.
39. I do not, however, think that WASA International or section 112(1)(a) FSMA is of any real assistance in relation to the issue of the ILU Guarantees, because there is an obvious legal difference between the transfer of the benefit of the transferor company's rights under a reinsurance contract with a third party (which is an asset of the transferor company) and the variation of the terms of a guarantee between two third parties (which is not an asset of the transferor company). The former is covered by section 112(1)(a): the latter is not.
40. Instead, it seems to me that the only possible jurisdictional basis for the order sought by CopRe in relation to the ILU Guarantees is section 112(1)(d) FSMA. As indicated, however, ALM. Brand contended in its letter that modification of the ILU Guarantees did not fall within this provision, relying upon the view of the Independent Expert that if the ALM. Brand companies did not consent to the variation of the ILU Guarantees, that would not materially prejudice the transferring policyholders.
41. I do not accept ALM. Brand's contention. Section 112 FSMA is a broad section that provides the court with extensive powers to facilitate the carrying out of the scheme which it has sanctioned, and in section 112(1)(d) to make orders that are supplementary to the scheme to that end. In this case, the Scheme is for the transfer to Marlon of the whole of CopRe's insurance business. The writing of policies with the benefit of the ILU Guarantees was an integral part of that business, and doubtless enhanced the ability of such policies to be sold on behalf of CopRe (and thus indirectly benefitted the ALM. Brand group). The continued existence of the ILU Guarantees was also an integral part of the commercial benefits conferred upon the relevant policyholders of CopRe, and I accept that it was part of their legitimate expectations that such ILU Guarantees should continue to be available.
42. In such circumstances, it seems to me an entirely natural use of language, and in accordance with the overall purpose of Part VII FSMA, which clearly requires the court to have regard to the interests of policyholders, to conclude that the Scheme would not be fully and effectively carried out if the benefit to policyholders of the ILU Guarantees associated with their policies was lost as a result of the transfer.
43. In particular, I reject ALM. Brand's contention that section 112(1)(d) should be read narrowly by reference to the comment by the Independent Expert that his view that the Scheme does not materially adversely affect the transferring policyholders would not change if the ILU Guarantees were not modified. Section 112(1)(d) empowers the court to do what is necessary to secure that an insurance business transfer scheme is "fully" carried out. The power to secure that a scheme is "fully" carried out indicates that the court has the jurisdiction to go beyond the bare minimum without which the independent expert would withdraw his support for the scheme. Whether it should do so is, of course, a matter of discretion.
44. In that regard, in the instant case I agree with the points made by CopRe and the ILU that the refusal of the ALM. Brand companies to continue to provide a guarantee for the ILU policies transferred from CopRe to Marlon seems to be an opportunistic attempt to terminate contractual obligations that the ALM. Brand companies undertook and did not seek to terminate when CopRe was sold to the Enstar group. The policies have not changed, and ALM. Brand has not suggested that the commercial risk that it has undertaken has changed simply because of a transfer of CopRe's run-off business within the Enstar group.
45. As a further element to the exercise of discretion, I should consider whether the order sought by CopRe is likely to be effective against the ALM. Brand companies or whether I would be acting in vain in making it. This type of question usually arises in relation to the broader question of whether a transfer scheme will be recognised in other jurisdictions where policyholders are domiciled and/or in jurisdictions by whose laws the relevant policies are governed. The general answer that has been given by the English courts is that if it is satisfied that a sufficiently large proportion of the policies to be transferred are governed by English law, and that their transfer by a Part VII scheme will be recognised in the relevant foreign jurisdictions, the fact that there is a risk of non-recognition of the transfer in other jurisdictions will not deter the court from sanctioning the scheme.
46. That was the approach taken by David Richards J. in Sompo Japan Insurance Inc [2007] EWHC 146 (Ch) when asked to sanction a Part VII transfer scheme for a book of insurance business from a large Japanese insurer to an English company formed to receive and run-off the business. Only 27% of the policies to be transferred (by number and value of loss reserves) were governed by English law. David Richards J. had evidence of Japanese and US law on whether the transfer of policies governed by Japanese or US law would be recognised in those jurisdictions, but was "less than convinced" by such evidence. He was, however, prepared to assume that the transfer of the 27% of policies governed by English law would be recognised in any relevant jurisdictions as regards those policies. On that basis, David Richards J. was prepared to sanction the scheme because he concluded that it would serve a substantial purpose, so the court would not be acting in vain. This approach was also adopted by Sales J in Mitsui Sumitomo Insurance Co. Limited [2010] EWHC 1271 (Ch) at paras 7-8 and by Briggs J in Sompo Japan Insurance Inc [2011] EWHC 260 (Ch) at paras 38-39.
47. In the instant case, although the variation of the terms of the ILU Guarantees might be said to be one stage removed from the transfer of the insurance policies under the Scheme, for the reasons that I have given, I take the view that I do have power under section 112(1)(d) FSMA to modify those guarantees. They are, moreover, contracts governed by English law and at least the 1995 guarantee has a jurisdiction clause in favour of the English courts. Although CopRe has not adduced any evidence on the point, I think that there must at very least be a reasonable prospect of recognition of my order in other relevant jurisdictions.
48. Further, and as Mr. Moore QC submitted, even if it was assumed for the purposes of argument that the order under section 112(1)(d) in relation to the ILU Guarantees would not be recognised in the ALM. Brand group's home state of Denmark, the Scheme would obviously still serve a useful purpose in relation to the transfer of the underlying ILU policies themselves and the remainder of CopRe's business.
49. There is, therefore, no reason to decline to make the order in relation to the ILU Guarantees in the form sought by CopRe and the ILU under section 112(1)(d) FSMA.

The CopRe Trust

50. As indicated at the start of this judgment, the CopRe Trust supports CopRe's obligations to certain US policyholders under policies written on a surplus or excess lines basis. The Marlon Trust performs the same function in relation to Marlon's own business. The CopRe Trust is not specifically dealt with under the terms of the Scheme itself, and of course the assets held in the trust are not the assets of CopRe, which is only entitled to an interest in them in remainder.
51. CopRe's proposal is that the trust instrument governing the CopRe Trust will be amended on the date upon which the Scheme becomes effective, so that it will apply in respect of Marlon's obligations under the relevant transferred policies. Shortly thereafter, it is proposed that the funds held in the CopRe Trust will be combined with those in the Marlon Trust so that Marlon's obligations under policies written on a surplus or excess lines basis are supported by a single trust fund.
52. The provisions of sections 112(1)(a) and 112(2)(b) do not enable a specific order to be made relating to the CopRe Trust, as the assets in it are not held by CopRe as trustee but by a separate corporate trustee. Nor did Mr. Moore seek a specific order under section 112(1)(d) of the type proposed in relation to the variation of the ILU Guarantees. Instead, Mr. Moore told me that the mechanism by which the initial amendment of the CopRe Trust deed was to be effected was by virtue of a general provision in the order (pursuant to section 112(1)(d)) declaring that references in any document referring to CopRe as the insurer of a transferred policy should be read, construed and treated as references to Marlon.
53. I was initially a little concerned about relying upon this very general provision in the order, especially when Mr. Moore showed me the relevant provisions of the CopRe Trust agreement under which the agreement can only be amended by consent of the parties and with prior written consent of the relevant office of the National Association of Insurance Commissioners ("the NAIC") which is the US authority responsible for regulating surplus and excess lines insurance. However, the evidence is that the NAIC has been informed by telephone of the proposals and has provided its written consent to the Part VII transfer and to the subsequent combination of the two trusts.
54. Mr. Moore also told me that CopRe is confident of obtaining the consent of the trustee to a variation of the terms of the CopRe trust, and I see no reason to doubt that such consent will be forthcoming in light of the NAIC's consent having been given. Mr. Moore also submitted that even if the trustee's consent was not forthcoming, this would simply raise the same type of issue as to the recognition of the Scheme in the US to which I have already referred above.
55. In that regard, Mr. Moore pointed out that the assets and potential claims covered by the CopRe Trust are relatively small compared to the overall Scheme. The proposals for dealing with the CopRe Trust were referred to without any adverse comment by the Independent Expert or any suggestion that modification of the CopRe Trust was in any sense an important factor in his opinion on the fairness of the Scheme, even for the policyholders that might be entitled to take advantage of the trust. That doubtless reflects the fact that the CopRe Trust only acts as a backstop, and the far more important protection for such policyholders is the financial strength of Marlon. Mr. Moore therefore submitted that any potential difficulties in relation to the CopRe Trust would not cause any material prejudice to policyholders, and (applying Sompo Japan Insurance Inc), would not deprive the Scheme of its overall utility.
56. I accept those submissions, and accordingly, whilst I think that it would have been preferable for the position in relation to the CopRe Trust to have been dealt with more specifically in advance of the hearing and in the order, I am content to approach matters on the basis suggested by Mr. Moore.

The Dissolution of CopRe

57. The final point that I need to address is the question of whether it is appropriate to order the dissolution of CopRe without winding up, to take effect after the Scheme has become effective, after all of its assets have been transferred to Marlon and after its regulatory permission has been cancelled. That power is given by section 112(8)(b) FSMA.
58. In circumstances in which the Scheme provides for all of CopRe's business to be transferred to Marlon, it seems to me that there is no reason for CopRe to continue in existence after the Scheme has become effective and all of CopRe's assets and liabilities have been transferred. But if there are no assets or liabilities and CopRe's regulatory permission has been cancelled, a winding up would serve no useful purpose. I therefore agree that it would be appropriate for CopRe to be dissolved without being wound up once the Scheme has taken effect and its authorisation has been withdrawn.

Conclusion

59. For the reasons set out above, I decided to make an order sanctioning the Scheme and making additional provision in relation to the ILU Guarantees and for dissolution without winding up.