The process to effect a court scheme, including a portfolio transfer, is divided roughly into three parts.  The first part is concerned with preparing and reviewing the necessary corporate documents and liaising with the relevant regulatory authorities.  The second part is concerned with applying for the court approval to transfer.  The final part is usually concerned with the surrender of the Irish authorisation and any subsequent liquidation.

A key element of the process is to look at the type of business involved.  An Irish insurance company that proposes to transfer its insurance business is required to apply to the Irish High Court to sanction the proposed transfer pursuant to the Assurance Companies Act 1909.  Reinsurance transfers are not, however, covered by this or indeed any other legislation.  This differs from, for example, the UK where the “Part VII” regime can apply to both insurance and reinsurance.  Given the lack of specific legislation concerning reinsurance, there is a greater focus on the use of broader corporate law court-sanctioned approaches, such as schemes of arrangement and company mergers.

Portfolio Transfers
Broadly, the court process can be said to have two main stages, as follows:

• Initially, the High Court’s direction will be sought in relation to the proposed transfer (the “Directions Hearing”). The companies will undertake to comply with the various notification and advertising requirements, and to obtain any necessary regulatory approvals.  Typically EU regulators must respond within a period of three months and, in practical terms, the gap between the court hearings must allow for this period
• At a second hearing, the companies will produce evidence that they have complied with the various directions given at the Directions Hearing.  They will then seek an order from the court directing the transfer of the portfolio insurance policies to the transferee company

Alternative Approaches
Given that there is no direct court process for transfers of reinsurance business, a lot of recent attention has focused on the use of the “scheme of arrangement” under Section 201 of the Companies Act 1963.  Potentially, this can be used for both insurance and reinsurance books.  To date, there has been only one “solvent scheme” in Ireland (i.e. the AXA Colonia case).  

As well as allowing court-sanctioned schemes involving portfolios of business, the Section 201 process can potentially be used to enable mergers of one company into another.  For example, it may be possible to merge a reinsurance company into an insurance company to form a single platform.

Section 201 Schemes of Arrangement & Amalgamations
A scheme of arrangement can be approved by a company’s creditors or shareholders (or classes thereof, if relevant).  The approving creditors or shareholders must make up the majority in number of affected creditors or shareholders and must also represent 75% “in value” of the affected group.

A petition is made to Court in relation to the proposed scheme by the transferor company.  The initial application will seek directions from the court in regard to what classes need to vote in relation to the application and seeking leave for the convening of any necessary meetings and the serving of notice (and a copy of the scheme) on interested parties.

Typically the first return date before the High Court is to report on the results of the class meetings and any other feedback.  The court will then usually require advertising of the application and, on the final return date, will hear any objections from those present.

On the assumption that the efficacy of the scheme is approved by the High Court, the transferor company will be granted an order that its assets and liabilities which comprise the portfolio shall transfer.  It can also be used for an outright amalgamation of one company with another. 

European Communities (Mergers and Divisions of Companies) Regulations 1987
Another area which has received much recent attention from (re)insurance companies is the domestic merger regime.  This has similar characteristics to the better-known “cross-border merger” regime.

The 1987 Regulations apply only to public limited companies, therefore in order to avail of the 1987 Regulations, the corporate entities involved may first need to re-register as such.  In practical terms this can usually be achieved quite easily, by the passing of a resolution of the members and the making of lodgements at the Companies Registration Office. 

The companies will then prepare a merger document, which is formally adopted by the boards of directors of each company.  The document must include minimum levels of information.  An expert’s report (and/or form of actuarial report) is generally also needed, although this may be dis-applied in certain cases.  The merger document is then published, through inclusion in the Companies Registration Office Gazette and national newspapers.  After a thirty-day waiting-period, an application is then made to the High Court to approve the merger.

For further information, please contact John Larkin or Eoin Caulfield of our Insurance and Reinsurance unit.

Contributed by Eoin Caulfield