Scottish Appellate Court Affirms There’s Nothing Inherently Wrong With Solvent Schemes of Arrangement
Insurance Law Update
The decision of Scotland’s Court of Session’s Outer House in Scottish Lion Insurance Company Limited,  CSOH 127, has been overruled on appeal, with the appellate court ruling that the contingent rights of insured creditors will not automatically defeat a decision by a statutory majority of creditors in favor of a solvent scheme of arrangement.
The lower court had rejected a proposed solvent scheme, notwithstanding its approval by the majority of the company’s creditors, on the basis that it was both unfair and unreasonable to force a number of insured creditors into an arrangement that would deprive them of ongoing rights to indemnification from the company under occurrence policies that could not be replaced.
On appeal, the Court of Session’s Inner House found that the trial judge had given undue consideration to the fact that the scheme involved a solvent company. The court had clear statutory authority to sanction schemes involving solvent companies and although the company’s solvency was a matter the judge was entitled to take into account, it was not the only factor that he should have considered. Instead, the court must consider all relevant factors identified by the judicial authorities when determining whether the sanction was justified in the circumstances.
Although the Scottish Lion case involves the application of Scots law, it is also of interest to run-off practitioners in England and Wales.