SCOTTISH LION INSURANCE CO LTD V GOODRICH CORPORATION

[2010] ScotCS CSIH_6, Court of Session, Lord Hamilton, Lord Reed and Lord Mackay, Inner House, 29 January 2010

Scheme of arrangement - Solvent insurer with long-tail business seeking approval for a scheme of arrangement - Companies Act 2006, section 899

The applicant, an insurance company, which had been in run-off since 1994, sought the approval of a solvent scheme of arrangement. The run-off business consisted of both short-tail and long-tail claims, the latter mainly related to asbestos. The company wished to draw a line under future potential liabilities in respect of future claims and also IBNR (losses incurred but not reported). Under the scheme all liabilities would be valued as of 31 December 2007 and creditors would be invited to submit claims, which would then be resolved by an agreed procedure. Separate provision was made for IBNR and non-IBNR claims. Once all claims had been resolved, the company would go into voluntary liquidation. A number of policyholders objected. The Outer House of the Court of Session ruled, following Re The British Aviation Insurance Co Ltd [2006] BCC 14, and held that "where the company is solvent it is unnecessary for the body of creditors or class of creditors as a whole that there should be any scheme, still less a scheme forced upon unwilling participants". That ruling was reversed on appeal by the Inner House, which held that the lower court had been wrong to dismiss the application on the principle that a solvent scheme could not be approved. A loss of contingent rights was not something which of itself prevented the sanctioning of the scheme. The entire factual circumstances should be put before the court and those circumstances should be addressed before a decision could be reached. It was wrong to deny the company "the opportunity of establishing, if it can, the positive benefits of the scheme, as well as the soundness and robustness of the procedures it has put in place for valuing claims".