INSOLVENCY Citation, commencement and revocation 1 1 These Rules may be cited as the Insurers (Winding-Up) Rules (Northern Ireland) 2005 and shall come into operation on 19th September 2005. 2 The Insurance Companies (Winding-Up) Rules (Northern Ireland) 1992 are hereby revoked. Interpretation 2 1 In these Rules— “the 2000 Act ” means the Financial Services and Markets Act 2000; ... “company” means an insurer which is being wound up; “contract of general insurance” and “contract of long-term insurance” have the meaning given by Article 3(1) of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 ; “ the Department ” means the Department of Enterprise, Trade and Investment; “excess of the long-term business assets” means the amount, if any, by which the value of the assets representing the fund or funds maintained by the company in respect of its long-term business as at the liquidation date exceeds the value as at that date of the liabilities of the company attributable to that business; “excess of the other business assets” means the amount, if any, by which the value of the assets of the company which do not represent the fund or funds maintained by the company in respect of its long-term business as at the liquidation date exceeds the value as at that date of the liabilities of the company (other than liabilities in respect of share capital) which are not attributable to that business; “Financial Services Compensation Scheme” means the scheme established under section 213 of the 2000 Act; “general business” means the business of effecting or carrying out a contract of general insurance; “the general regulations ” means the Insolvency Regulations (Northern Ireland) 1996 ; “insurer” has the meaning given by Article 2 of the Financial Services and Markets Act 2000 (Insolvency) (Definition of “Insurer”) Order 2001 ; “linked liability” means any liability under a policy the effecting of which constitutes the carrying on of long-term business the amount of which is determined by reference to— the value of property of any description (whether or not specified in the policy), fluctuations in the value of such property, income from any such property, or fluctuations in an index of the value of such property; “linked policy” means a policy which provides for linked liabilities and a policy which when made provided for linked liabilities is deemed to be a linked policy even if the policy holder has elected to convert his rights under the policy so that at the liquidation date there are no longer linked liabilities under the policy; “liquidation date” means the date of the winding-up order or the date on which a resolution for the winding-up of the company is passed by the members of the company (or the policy holders in the case of a mutual insurance company) and, if both a winding-up order and winding-up resolution have been made, the earlier date; “long-term business” means the business of effecting or carrying out any contract of long-term insurance; “non-linked policy” means a policy which is not a linked policy; “the 1979 Order ” means the Industrial Assurance (Northern Ireland) Order 1979 ; “the 1986 Order ” means the Companies (Northern Ireland) Order 1986 ; “the 1989 Order ” means the Insolvency (Northern Ireland) Order 1989; “other business”, in relation to a company carrying on long-term business, means such of the business of the company as is not long-term business; “the principal Rules ” means the Insolvency Rules (Northern Ireland) 1991 ; “stop order”, in relation to a company, means an order of the High Court made under section 376(2) of the 2000 Act, ordering the liquidator to stop carrying on the long-term business of the company; “unit” in relation to a policy means any unit (whether or not described as a unit in the policy) by reference to the numbers and value of which the amount of the liabilities under the policy at any time is measured. 2 Unless the context otherwise requires, words or expressions contained in these Rules bear the same meaning as in the principal Rules, the general regulations, the 1989 Order, the 2000 Act or any statutory modification thereof respectively. 3 The Interpretation Act (Northern Ireland) 1954 shall apply to these Rules as it applies to an Act of the Northern Ireland Assembly. Application 3 1 These Rules apply to proceedings for the winding-up of an insurer which commence on or after the date on which these Rules come into operation. 2 These Rules supplement the principal Rules and the general regulations which continue to apply to the proceedings in the winding-up of an insurer under the 1989 Order as they apply to proceedings in the winding-up of any company under that Order; but in the event of a conflict between these Rules and the principal Rules or the general regulations these Rules prevail. Appointment of liquidator 4 Where the High Court is considering whether to appoint a liquidator under— a Article 118(4) of the 1989 Order (appointment of liquidator where conflict between creditors and contributories), or b Article 119 of the 1989 Order (appointment of liquidator following administration or voluntary arrangement), the manager of the Financial Services Compensation Scheme may appear and make representations to the Court as to the person to be appointed. Maintenance of separate financial records for long-term and other business in winding-up 5 1 This rule applies in the case of a company carrying on long-term business in whose case no stop order has been made. 2 The liquidator shall prepare and keep separate financial records in respect of the long-term business and the other business of the company. 3 Paragraphs (4) and (5) apply in the case of a company to which this rule applies which also carries on permitted general business (‘a hybrid insurer’). 4 Where, before the liquidation date, a hybrid insurer has, or should properly have, apportioned the assets and liabilities attributable to its permitted general business to its long-term business for the purposes of any accounts, those assets and liabilities must be apportioned to its long-term business for the purposes of complying with paragraph (2) of this rule. 5 Where, before the liquidation date, a hybrid insurer has, or should properly have, apportioned the assets and liabilities attributable to its permitted general business other than to its long-term business for the purposes of any accounts, those assets and liabilities must be apportioned to its other business for the purposes of complying with paragraph (2) of this rule. 6 Regulation 10 of the general regulations (financial records) applies only in relation to the company’s other business. 7 In relation to the long-term business, the liquidator shall, with a view to the long-term business of the company being transferred to another insurer, maintain such accounting, valuation and other records as will enable such other insurer upon the transfer being effected to comply with the requirements of any rules made by Financial Conduct Authority or the Prudential Regulation Authority under Part X of the 2000 Act relating to accounts and statements of insurers. 8 In paragraphs (4) and (5)— a “accounts” means any accounts or statements maintained by the company in compliance with a requirement under the 1986 Order or any rules made by Financial Conduct Authority or the Prudential Regulation Authority under Part X of the 2000 Act; b “permitted general business” means the business of effecting or carrying out a contract of general insurance where the risk insured against relates to either accident or sickness. Valuation of general business policies 6 Except in relation to amounts which have fallen due for payment before the liquidation date and liabilities referred to in paragraph 2(1)(b) of Schedule 1, the holder of a general business policy shall be admitted as a creditor in relation to his policy without proof for an amount equal to the value of the policy and for this purpose the value of a policy shall be determined in accordance with Schedule 1. Valuation of long-term policies 7 1 This Rule applies in relation to a company’s long-term business where no stop order has been made. 2 In relation to a claim under a policy which has fallen due for payment before the liquidation date, a policy holder shall be admitted as a creditor without proof for such amount as appears from the records of the company to be due in respect of that claim. 3 In all other respects a policy holder shall be admitted as a creditor in relation to his policy without proof for an amount equal to the value of the policy and for this purpose the value of a policy of any class shall be determined in the manner applicable to policies of that class provided by Schedules 2, 3 and 4. 4 This Rule applies in relation to a person entitled to apply for a free paid-up policy under Article 30 of the 1979 Order (provisions as to forfeited policies) and to whom no such policy has been issued before the liquidation date (whether or not it was applied for) as if such a policy had been issued immediately before the liquidation date— a for the minimum amount determined in accordance with Article 30(2) and (3) of the 1979 Order, or b if the liquidator is satisfied that it was the practice of the company during the five years immediately before the liquidation date to issue policies under Article 30 of that Order in excess of the minimum amounts so determined, for the amount determined in accordance with that practice. 8 1 This Rule applies in relation to a company’s long-term business where a stop order has been made. 2 In relation to a claim under a policy which has fallen due for payment on or after the liquidation date and before the date of the stop order, a policy holder shall be admitted as a creditor without proof for such amount as appears from the records of the company and of the liquidator to be due in respect of that claim. 3 In all other respects a policy holder shall be admitted as a creditor in relation to his policy without proof for an amount equal to the value of the policy and for this purpose the value of a policy of any class shall be determined in the manner applicable to policies of that class provided by Schedule 5. 4 Rule 7(4) applies for the purposes of this Rule as if references to the liquidation date (other than that in sub-paragraph (b) of that paragraph) were references to the date of the stop order. Attribution of liabilities to company’s long-term business 9 1 This Rule applies in the case of a company carrying on long-term business if at the liquidation date there are liabilities of the company in respect of which it is not clear from the accounting and other records of the company whether they are or not attributable to the company’s long-term business. 2 The liquidator shall, in such manner and according to such accounting principles as he shall determine, identify the liabilities referred to in paragraph (1) as attributable or not attributable to a company’s long-term business and those liabilities shall for the purpose of the winding-up be deemed as at the liquidation date to be attributable or not as the case may be. 3 For the purpose of paragraph (2) the liquidator may— a determine that some liabilities are attributable to the company’s long-term business and that others are not (the first method); or b determine that a part of a liability shall be attributable to the company’s long-term business and that the remainder of the liability is not (the second method), and he may use the first method for some of the liabilities and the second method for the remainder of them. 4 Notwithstanding anything in paragraph (1) to (3), the High Court may order that the determination of which (if any) of the liabilities referred to in paragraph (1) are attributable to the company’s long-term business and which (if any) are not shall be made in such manner and by such methods as the Court may direct or the Court may itself make the determination. Attribution of assets to company’s long-term business 10 1 This Rule applies in the case of a company carrying on long-term business if at the liquidation date there are assets of the company in respect of which— a it is not clear from the accounting and other records of the company whether they do or do not represent the fund or funds maintained by the company in respect of its long-term business, and b it cannot be inferred from the source of the income out of which those assets were provided whether they do or do not represent those funds. 2 Subject to paragraph (6) the liquidator shall determine which (if any) of the assets referred to in paragraph (1) are attributable to those funds and which (if any) are not and those assets shall, for the purpose of the winding-up, be deemed as at the liquidation date to represent those funds or not in accordance with the liquidator’s determination. 3 For the purpose of paragraph (2) the liquidator may— a determine that some of those assets shall be attributable to those funds and that others of them shall not (the first method); or b determine that a part of the value of one of those assets shall be attributable to those funds and that the remainder of that value shall not (the second method), and he may use the first method for some of those assets and the second method for others of them. 4 a In making the attribution the liquidator’s objective shall in the first instance be so far as possible to reduce any deficit that may exist, at the liquidation date and before any attribution is made, either in the company’s long-term business or in its other business. b If there is a deficit in both the company’s long-term business and its other business the attribution shall be in the ratio that the amount of the one deficit bears to the amount of the other until the deficits are eliminated. c Thereafter the attribution shall be in the ratio which the aggregate amount of the liabilities attributable to the company’s long-term business bears to the aggregate amount of the liabilities not so attributable. 5 For the purpose of paragraph (4) the value of a liability of the company shall, if it falls to be valued under Rule 6 or 7, have the same value as it has under that Rule but otherwise it shall have such valued as would have been included in relation to it in a balance sheet of the company prepared in accordance with the 1986 Order as at the liquidation date; and for the purpose of determining the ratio referred to in paragraph (4) but not for the purpose of determining the amount of any deficit therein referred to, the net balance of shareholders' funds shall be included in the liabilities not attributable to the company’s long-term business. 6 Notwithstanding anything in paragraphs (1) to (5), the High Court may order that the determination of which (if any) of the assets referred to in paragraph (1) are attributable to the fund or funds maintained by the company in respect of its long-term business and which (if any) are not shall be made in such manner and by such methods as the Court may direct or the Court may itself make the determination. Excess of long-term business assets 11 1 Where the company is one carrying on long-term business and in whose case no stop order has been made, for the purpose of determining the amount, if any, of the excess of the long-term business assets, there shall be included amongst the liabilities of the company attributable to its long-term business an amount determined by the liquidator in respect of liabilities and expenses likely to be incurred in connection with the transfer of the company’s long-term business as a going concern to another insurance company being liabilities not included in the validation of the long-term policies made in pursuance of Rule 7. 2 Where the liquidator is carrying on the long-term business of an insurer with a view to that business being transferred as a going concern to a person or persons (“transferee”) who may lawfully carry out those contracts (or substitute policies being issued by another insurer), the liquidator may, in addition to any amounts paid by the Financial Services Compensation Scheme for the benefit of the transferee to secure such a transfer or to procure substitute policies being issued, pay to the transferee or other insurer all or part of such funds or assets as are attributable to the long-term business being transferred or substituted. Actuarial advice 12 1 Before doing any of the following, that is to say— a determining the value of a policy in accordance with Schedules 1 to 5 (other than paragraph 3 of Schedule 1); b identifying long-term liabilities and assets in accordance with Rules 9 and 10; c determining the amount (if any) of the excess of the long-term business assets in accordance with Rule 11; d determining the terms on which he will accept payment of overdue premiums under Rule 21(1) or the amount and nature of any compensation under Rule 21(2); the liquidator shall obtain and consider advice thereon (including an estimate of any value or amount required to be determined) from an actuary. 2 Before seeking, for the purpose of valuing a policy, the direction of the High Court as to the assumption of a particular rate of interest or the employment of any rates of mortality or disability, the liquidator shall obtain and consider advice thereon from an actuary. Utilisation of excess of assets 13 1 Except at the direction of the High Court, no distribution may be made out of and no transfer to another insurer may be made of— a any part of the excess of the long-term business assets which has been transferred to the other business; or b any part of the excess of the other business assets, which has been transferred to the long-term business. 2 Before giving a direction under paragraph (1) the High Court may require the liquidator to advertise the proposal to make a distribution or a transfer in such manner as the Court shall direct. 14 In the case of a company carrying on long-term business in whose case no stop order has been made, Regulation 5 of the general regulations (payments into the Insolvency Account) applies only in relation to the company’s other business. Custody of assets 15 1 The Department may, in the case of a company carrying on long-term business in whose case no stop order has been made, require that the whole or a specified proportion of the assets representing the fund or funds maintained by the company in respect of its long-term business shall be held by a person approved by it for the purpose as trustee for the company. 2 No assets held by a person as trustee for a company in compliance with a requirement imposed under this Rule shall, so long as the requirement is in force, be released except with the consent of the Department but they may be transposed by the trustee into other assets by any transaction or series of transactions on the written instructions of the liquidator. 3 The liquidator may not grant any mortgage or charge of assets which are held by a person as trustee for the company in compliance with a requirement imposed under this Rule except with the consent of the Department. Maintenance of accounting, valuation and other records 16 1 In the case of a company carrying on long-term business in whose case no stop order has been made, Regulation 10 of the general regulations (financial records) applies only in relation to the company’s other business. 2 The liquidator of such a company shall, with a view to the long-term business of the company being transferred to another insurer, maintain such accounting, valuation and other records as will enable such other insurer upon the transfer being effected to comply with the requirements of any rules made by Financial Conduct Authority or the Prudential Regulation Authority under Part X of the 2000 Act relating to accounts and statements of insurers. Additional powers in relation to long-term business 17 1 In the case of a company carrying on long-term business in whose case no stop order has been made, Regulation 9 of the general regulations (interest) applies only in relation to the company’s other business. 2 The liquidator of a company carrying on long-term business shall, so long as no stop order has been made, have power to do all such things as may be necessary to the performance of his duties under section 376(2) of the 2000 Act (continuation of contracts of long-term insurance where insurer in liquidation) but the Department may require him— a not to make investments of a specified class or description, b to realise, before the expiration of a specified period, the whole or a specified proportion of investments of a specified class or description held by the liquidator. Accounts and audit 18 1 In the case of a company carrying on long-term business in whose case no stop order has been made, Regulation 12 of the general regulations (liquidator carrying on business) applies only in relation to the company’s other business. 2 The liquidator of such a company shall supply the Department, at such times or intervals as it may specify, with such accounts as it may specify and audited in such manner as it may require and with such information about specified matters and verified in such specified manner as it may require. 3 The liquidator of such a company shall, if required to do so by the Department, instruct an actuary to investigate the financial condition of the company’s long-term business and to report thereon in such manner as the Department may specify. Security by the liquidator and special manager 19 In the case of a company carrying on long-term business in whose case no stop order has been made, Rule 4.217 of the principal Rules (security) applies separately to the company’s long-term business and to its other business. Proof of debts 20 1 This Rule applies in the case of a company carrying on long-term business and in whose case no stop order has been made. 2 The liquidator may in relation to the company’s long-term business and to its other business fix different days on or before which the creditors of the company who are required to prove their debts or claims are to prove their debts or claims and he may fix one of those days without at the same time fixing the other. 3 In submitting a proof of any debt a creditor may claim the whole or any part of such debt as attributable to the company’s long-term business or to its other business or he may make no such attribution. 4 When he admits any debt, in whole or in part, the liquidator shall state in writing how much of what he admits is attributable to the company’s long-term business and how much to the company’s other business. Failure to pay premiums 21 1 The liquidator may in the course of carrying on the company’s long-term business and on such terms as he thinks fit accept payment of a premium even though the payment is tendered after the date on which under the terms of the policy it was finally due to be paid. 2 The liquidator may in the course of carrying on the company’s long-term business, and having regard to the general practice of insurers, compensate a policy holder whose policy has lapsed in consequence of a failure to pay any premium by issuing a free paid-up policy for reduced benefits or otherwise as the liquidator thinks fit. Notice of valuation of policy 22 1 Before paying a dividend in respect of claims other than under contracts of long-term insurance, the liquidator shall give notice of the value of each general business policy, as determined by him in accordance with Rule 6, to the persons appearing from the records of the company or otherwise to be entitled to an interest in that policy and he shall do so in such manner as the High Court may direct. 2 Before paying a dividend in respect of claims under contracts of long-term insurance and where a stop order has not been made in relation to the company, the liquidator shall give notice to the persons appearing from the records of the company or otherwise to be entitled to a payment under or to an interest in a long-term policy of the amount of that payment or the value of that policy as determined by him in accordance with Rule 7(2) or (3), as the case may be. 3 If a stop order is made in relation to the company, the liquidator shall give notice to all the persons appearing from the records of the company or otherwise to be entitled to a payment under or to an interest in a long-term policy of the amount of that payment or the value of that policy as determined by him in accordance with Rule 8(2) or (3), as the case may be, and he shall give that notice in such manner as the High Court may direct. 4 Any person to whom notice is so given shall be bound by the value so determined unless and until the High Court otherwise orders. 5 Paragraphs (2) and (3) have effect as though references therein to persons appearing to be entitled to an interest in a long-term policy and to the value of that policy included, respectively, references to persons appearing to be entitled to apply for a free paid-up policy under Article 30 of the 1979 Order and to the value of that entitlement under Rule 7 (in the case of paragraph (2)) or under Rule 8 (in the case of paragraph (3)). 6 Where the liquidator summons a meeting of creditors in respect of liabilities of the company attributable to either or both its long-term business or other business, he may adopt any valuation carried out in accordance with Rules 6, 7 or 8 as the case may be or, if no such valuation has been carried out by the time of the meeting, he may conduct the meeting using such estimates of the value of policies as he thinks fit. Dividends to creditors 23 1 This Rule applies in the case of a company carrying on long-term business. 2 Part 11 of the principal Rules applies separately in relation to the two separate companies assumed for the purposes of Rule 5. 3 The High Court may, at any time before the making of a stop order, permit a dividend to be declared and paid on such terms as it thinks fit in respect only of debts which fell due to payment before the liquidation date or, in the case of claims under long-term policies, which have fallen due for payment on or after the liquidation date. Meetings of creditors 24 1 In the case of a company carrying on long-term business in whose case no stop order has been made, the creditors entitled to participate in creditor’s meetings may be— a in relation to the long-term business assets of the company, only those who are creditors in respect of liabilities attributable to the long-term business of the company; and b in relation to the other business assets of the company, only those who are creditors in respect of liabilities attributable to the other business of the company. 1A In a case where separate general meetings of the creditors are summoned by the liquidator pursuant to— a paragraph (1); or b regulation 29 of the Insurers (Reorganisation and Winding-Up) Regulations 2004 (composite insurers: general meetings of creditors), chapter 8 of Part 4 and Part 8 of the principal Rules apply to each such separate meeting. 2 In relation to any such separate meeting— a Rule 4.068(3) of the principal Rules (expenses of summoning meetings) has effect as if the reference therein to assets were a reference to the assets available under the above mentioned Regulations for meeting the liabilities of the company owed to the creditors summoned to the meeting, and b Rule 4.070 of the principal Rules (resolutions) applies as if the reference therein to value in relation to a creditor who is not, by virtue of Rule 6, 7 or 8, required to prove his debt, were a reference to the value most recently notified to him under Rule 22 or, if the High Court has determined a different value in accordance with Rule 22(4), as if it were a reference to that different value. 3 In paragraph (1)— “long-term business assets” means the assets representing the fund or funds maintained by the company in respect of its long-term business; “other business assets” means any assets of the company which are not long-term business assets. Remuneration of liquidator carrying on long-term business 25 1 So long as no stop order has been made in relation to a company carrying on long-term business, the liquidator is entitled to receive remuneration for his services as such in relation to the carrying on of that business as provided for in this Rule. 2 The remuneration shall be fixed by the liquidation committee by reference to the time properly given by the liquidator and his staff in attending to matters arising in the winding-up. 3 If there is no liquidation committee or the committee does not make the requisite determination, the liquidator’s remuneration may be fixed (in accordance with paragraph (2)) by a resolution of a meeting of creditors. 4 If not fixed in paragraphs (2) and (3), the liquidator’s remuneration shall be in accordance with the scale laid down for the official receiver by the general regulations. 5 If the liquidator’s remuneration has been fixed by the liquidation committee, and the liquidator considers the amount to be insufficient, he may request that it be increased by resolution of the creditors. Apportionment of costs payable out of the assets 26 1 Where no stop order has been made in relation to a company, Rule 4.228 of the principal Rules (general rule as to priority) applies separately to the assets of the company’s long-term business and to the assets of the company’s other business. 2 But where any fee, expense, cost, charge, disbursement or remuneration does not relate exclusively to the assets of the company’s long-term business or to the assets of the company’s other business, the liquidator shall apportion it amongst those assets in such manner as he shall determine. Notice of stop order 27 1 When a stop order has been made in relation to the company, the High Court shall, on the same day, send to the official receiver a notice informing him that the stop order has been made. 2 The notice shall be in Form No. 1 set out in Schedule 6 with such variation as circumstances may require. 3 Three copies of the stop order sealed with the seal of the High Court shall forthwith be sent by the Court to the official receiver. 4 The official receiver shall cause a sealed copy of the order to be served upon the liquidator by prepaid letter or upon such other person or persons, or in such other manner as the High Court may direct, and shall forward a copy of the order to the registrar of companies. 5 The liquidator shall forthwith on receipt of a sealed copy of the order— a cause notice of the order in Form 2 set out in Schedule 6 to be gazetted, and b advertise the making of the order in the newspaper in which the liquidation date was advertised, by notice in Form 3 set out in Schedule 6. Signed by the authority of the Lord Chancellor Bridget Prentice Parliamentary Under-Secretary of State, Department for Constitutional Affairs Dated 11th August 2005. The Department of Enterprise, Trade and Investment hereby concurs with the foregoing Rules. Sealed with the Official Seal of the Department of Enterprise, Trade and Investment on 18th August 2005. Michael J. Bohill Senior Officer of the Department of Enterprise, Trade and Investment