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22 December 2013
If Lovells has its way at the High Court, this week should see the conclusion of Equitable Life's att-empts to steer a course for the less troubled waters of a compromise scheme of arrangement. Its progress has not always been smooth. A number of disgruntled former and current policyholders have attempted to run the scheme aground with threats of litigation. But, with Lovells at the rudder, Equitable seems set to achieve the outcome it needs.
The mutual, although never far from the headlines since reports of its troubles were brought to general awareness last year, has been back in the news as it seeks final approval for a compromise scheme. Once agreed, the scheme should placate some and guarantee the delivery of funds from Halifax.
While Equitable's name has become embedded in the public consciousness, its legal advisers, working away behind the scenes, have maintained a low profile. A Lovells team including partners Robin Spencer, John Young, Stephen Ito, James Reeves, Neil Fagan and Cary Kochberg has been beavering away to come up with what it claims is the largest and most complex scheme of arrangement under Section 425 of the Companies Act 1985.
Speculation is rife about whether Equitable's efforts to secure its future will work. The scheme should engender some confidence, but not, according to financial pundits, a resounding amount. The life assurer has already announced that in the final quarter of last year, almost £1.9bn was sliced off its with-profits fund as policyholders took their funds elsewhere or whose policies matured. Its build-up to the January compromise vote and subsequent High Court deliberations has seen an exodus of policyholders looking to get out before being tied in to the scheme of arrangement.
The compromise received a positive response from those policyholders who chose to use their vote. Few would doubt that, by now, remaining policyholders simply want to draw a line under the matter and move on. The compromise would cap Equitable's £1bn-plus liability to holders of guaranteed pension policies.
With the High Court's approval, members with guaranteed annuity rate (GAR) policies will receive an average uplift of 17.5 per cent to their funds, in return for waiving their GAR rights. Non-GAR policyholders will gain a 2.5 per cent rise but cannot sue the insurer for misselling.
Lovells came in for some stick following Nick Frome's departure for Clifford Chance. While the knives were being sharpened for the firm's restructuring practice, Spencer et al were knuckling down to sort out the Equitable debacle. Insurance insolvency has always been strong at Lovells and bringing a semblance of accord and stability to Equitable should reinforce its reputation. Well, that is except in the eyes of one policyholder, who has described the compromise as a "stitch-up by the lawyers".
In addition to Lovells, the nation's law firms have been champing at the bit, waiting for the compromise to be finally reached before they launch claims. Irwin Mitchell has already made known its intention to represent former equitable members in a group action against the mutual.
Shareholder avenger Class Law has also entered the fray. Partner Stephen Alexander has two claims pending. One, like Irwin Mitchell's, is acting for disaffected former policyholders making misselling claims. The other includes both former and current policyholders. Its aim is to challenge Equitable's regulators - the Financial Services Authority (FSA) and the Department of Trade and Industry (DTI) - over their monitoring of the mutual's financial situation. This claim will challenge the FSA's immunity to prosecution.
These examples are just a sample of the claims expected to dog Equitable as it attempts to shake off its acrimonious recent past. Lovells may have helped Equitable live to see the future, but, given the current mood among policyholders, it is a future over which a shadow of lengthy litigation could be cast.