Under Part 26 of the Companies Act 2006, it is open to a solvent company to enter into an arrangement or compromise with its creditors or members. Over the past 10-15 years such solvent schemes have been implemented in M&A and restructuring transactions and have proved increasingly popular in the insurance market, permitting insurers to crystallise their contingent liabilities.

Readers of our December 2009 issue will recall that we wrote about the Scottish court decision on the Scottish Lion Insurance Company scheme of arrangement. Just before this issue went to press the decision of the Scottish court of appeal (the Inner House of the Court of Session) on the issue of whether “creditor democracy” would be allowed to prevail or whether unanimity was required became known.

Protecting clients’ money and assets has been a pillar of the UK financial regulatory regime. The obligation on regulated entities to “…arrange adequate protection for clients’ assets when it is responsible for them” is enshrined in Principle 10 of the Principles of Business Sourcebook of the Financial Services Authority (FSA) Handbook. The FSA has made rules to protect client money by requiring FSA regulated entities to hold such money in trust accounts (the Client Money Rules).

Following consultation last autumn, the Government is once again changing the Regulations under s75 Pensions Act 1995.

The changes1 take effect on 6 April 2010. They are intended to facilitate corporate restructurings. They also address some minor technical issues. The Government has postponed any more fundamental rewriting of the Regulations, saying that “this is a complex area that deserves closer consideration”.

Restructurings

A new wrinkle in the Lehman Brothers bankruptcy cases emerged recently when a U.S. bankruptcy judge issued an opinion directly at odds with the decisions previously rendered by certain English courts regarding priority of payment provisions (the “Priority Provisions”) with respect to collateral under the “Dante Program.”

The Dante Program

• Decision will be welcomed by insurers

The Scottish Appeal Court has allowed the appeal by Scottish Lion Insurance against the judgment of Lord Glennie on whether it would ever be fair for a court to sanction a solvent scheme in the face of creditor opposition, says City law firm Reynolds Porter Chamberlain LLP (RPC).

It is likely that changes to the employer debt regulations (the so-called "section 75 debt" regime) will come into force on 6 April. These will prevent a debt from arising on certain internal group restructurings where there is no weakening of the employer covenant. However, the regulations are highly prescriptive and are, therefore, less attractive as a means of dealing with section 75 debts when compared to apportionment or withdrawal arrangements.

The FSA has published a statement that provides an update on The Freedom SIPP Limited - In Liquidation.

PricewaterhouseCoopers, liquidators of the Freedom SIPP Limited has appointed an agent to wind up the Freedom SIPP Scheme.

View Update on The Freedom SIPP Limited - In Liquidation, 29 January 2010  

For nearly a year, the Scottish Lion Insurance Company, Limited ( “Scottish Lion”), an insurance company that wrote coverage in the London insurance market, has been litigating with its creditors (policyholders), including many U.S. creditors, to permit it to enter into what is known under U.K. law as a solvent scheme of arrangement. A Scottish appellate court recently ruled in favor of Scottish Lion on a preliminary question of whether such a scheme could be sanctioned under U.K. law despite opposition from a minority of U.S.

The SFO has announced that managing director and shareholder of Alta Gas Plc, Peter Brian Bradley, has been ordered to pay £1 million compensation to victims following confiscation proceedings on 26 January 2010. In 2001, Alta Gas Plc went into administrative receivership which resulted in the receivers of the company discovering a sophisticated system of false accounts that enhanced the profitability of the company.