Kaplan & Ors, Re

MR JUSTICE WARREN: This is an application for an administration order in respect of Indemnity Guarantee Assurance Limited under paragraph 12.1(b) of Schedule B1 of the Insolvency Act 1986. Apart from one technical point, this application raises no issues which would demand a judgment. Having read the supporting witness statement of 20 February 2015 of Mr Oren Kaplan, a director of the company, and the exhibits to that I am perfectly satisfied that the case is one in which an administration order should be made and that the requirements of the Insolvency Rules have been complied with. Since the company is an insurance entity, an out of court appointment cannot be made by the directors.

The issue arises in this way. The company is authorised to carry on insurance business, including direct insurance, but in fact only conducts reinsurance business and has been in run-off for many years. The question which had not been addressed in any of the authorities, although the textbooks do have something to say about it, is whether the Council Regulation 1346/2000 on insolvency proceedings (“the Insolvency Regulation”) applies to the administration of a company which is authorised by the Prudential Regulation Authority to undertake both insurance and reinsurance business but which in practice only undertakes the latter type of business (that is the factual position of the company in the present case), or whether EC Directive 2001/17/EC on the reorganisation and winding up of insurance undertakings (“the Insurance Directive”) as implemented into UK law by the Insurers (Reorganisation and Winding Up) Regulations 2004 ("the Insurers Regulations") applies to a proposed administration or whether neither piece of legislation applies.

I have jurisdiction to make an administration order whatever the correct answer to those questions is because, if the Insolvency Regulation applies, I have jurisdiction by way of article 3(1) since the company's registered office is in the UK. If the Insolvency Regulation does not apply and either the Insurers Regulations apply, or neither of them apply, the court has jurisdiction under its domestic rules under Schedule B1. As I have said, the answers to those questions do not impact on my jurisdiction, although if the Insurers Regulations apply there are a number of changes to our usual domestic rules which would take effect in respect of the administration.

I start with the Insolvency Regulation. Article 1(2) provides that the Insolvency Regulation should not apply to insolvency proceedings concerning insurance undertakings. That is as far as I need to read. There is no definition of insurance undertaking so it is necessary to look at a combination of other EU law, both statutory and case law if there is any, and our domestic legislation and case law to see what insurance undertaking might mean.

The next piece of legislation of a little relevance is the Insurance Directive which is not of direct effect. Article 1(1) provides that the directive applies to reorganisation measures and winding up proceedings concerning insurance undertakings and for the purposes of this directive an insurance undertaking means an undertaking which has received official authorisation under two other directives which apply only to direct insurance and not to reinsurance.

The next is our domestic legislation in the Insurers Regulation. It is relevant here to look at the definition of a UK insurer. It means:

There are two limbs therefore to that definition. It is a person who is authorised; but that person does not include one who, in accordance with that permission, carries out that activity exclusively in relation to reinsurance contracts.

The question then arises whether that is focusing on what the person could potentially do or what he in fact does. I think the natural reading of that provision, as is submitted to me, is that the company in the present case does not carry on business as a UK insurer because it is carrying on its business exclusively in relation to reinsurance contracts.

So far as authority is concerned, I know of no relevant EU authority and, for what it is worth, I refer simply to paragraph 2 of the judgment of Lewison J in re DAP Holdings NV [2005] EWHC 2092, [2006] BCC 48. The judge there held that, as a reinsurer only, the company fell outside the EU definition of a company carrying on insurance business. So the position thus far is that a pure reinsurer is not an insurance undertaking for the purposes of EU law and that the company in the present case is not a UK insurer as defined in our Insurers Regulations.

The Insurers Regulations were intended to fill a lacuna for insurance undertakings left by the Insolvency Regulation. It is submitted that it follows logically that the express carve out from the ambit of the Insurer Regulations for insurers who carry on activity only as reinsurers means that they fall instead within the Insolvency Regulation. As I have already concluded, a company such as in the present case does not fall within the definition of UK insurer in our domestic legislation.

The textbook writers have considered this point to some small extent. The first book I mention is EC Regulation on Insolvency Proceedings by Gabriel Moss and others (2nd Ed) 2009 sections 8.10 - 12. The view expressed there is that a reinsurer who has been authorised to conduct direct insurance will be included in the Insurance Directive but that a reinsurer who is not authorised to conduct direct insurance would fall under the Insolvency Regulation.

It is submitted to me, and it seems to me to be correct, that the text, and I have to say this is the approach taken by the Prudential Regulation Authority as well, does not appear to note the lack of differentiation between the authorisation/permission to carry on regulated insurance and reinsurance activities and fails to grapple with the Insurers Regulations at all and so does not consider the impact of the carve out contained in the definition of UK insurer, (a carve out which, I should add, does not appear in the Insurance Directive itself).

The other textbook is Cross Border Insolvency by Richard Sheldon and others (4th Ed) 2015 at sections 2.19 to 2.22. The conclusion there is that either the Insolvency Regulation must apply, reliance being placed on DAP Holdings in reaching that conclusion, or neither the Insolvency Regulation nor the Insurers Regulations apply. In other words, the domestic rules under schedule B1 apply un-amended.

As between the two textbook views, I have no doubt that the view expressed by Mr Sheldon is the one to be preferred but I have found it rather more difficult to resolve whether the correct answer is that the Insolvency Regulation applies or whether neither the Insolvency Regulation nor the Insurers Regulations applies leaving the answer simply to the usual domestic law. My view on that is that the case does fall within the Insolvency Regulation. I will make an administration order on the basis that I am correct in that view. If I am wrong in rejecting Mr Moss's view, it does not much matter because I have jurisdiction to make the order nonetheless and all that would be in error is a declaration within the administration order that the Insolvency Regulation applies when it does not.