Time To Wake Up

The recent British Aviation Insurance Company (BAIC) sanction ruling is a timely wake up call as to the vital role of expert consultation and process execution when developing solvent schemes of arrangement.

Although the ruling hinged on whether under the BAIC scenario policyholders’ IBNR exposures needed to be treated as a different class to outstanding claims, Mr Justice Lewison’s incidental comments have also triggered extensive debate on such factors as the value of voting rights, the scope of revert to run-off clauses and the inclusion of direct policyholders with IBNR claims.

Perhaps what has been less widely acknowledged is that these are all questions which can and should be tackled at the pre-scheme drafting consultation stage. As such, there is a danger that too much focus on the legal framework for such agreements could detract from the real issue.

Solvent schemes are about creating consensual agreements between all parties that enable a discontinued business to be closed in a fair and transparent manner.

There is nothing particularly new or radical about this approach. Schemes using the same law (section 425 of the Companies Act 1985 and predecessors) have been the main method of effecting public company acquisitions for years. No public company would go to its shareholders without soliciting support before the vote.