The society, with nearly pounds 100m under management and 70,000 policyholders, has stopped taking on new business pending court action to resolve questions raised by the problems. It is continuing to honour commitments on existing business.
The problems could affect more than half the society's policies. In 1987 L&Y began investing in property, including its own head office and a hotel. While the value of these holdings has more than halved from pounds 6.8m to pounds 2.5m, it has emerged that the terms of many policies may not have permitted property investments.
It has also become apparent that the society sold policies between October 1990 and December 1991 before the details were formally approved by the Registry of Friendly Societies. There is also a question mark over a number of policies where the premiums were funded by lump sum payments. These problems could disqualify the policyholders from receiving the proceeds of their investments free of tax.
L&Y said it was impossible to put a figure on the losses that it might be facing as a result of the problems.
John Ramsden, who took over as executive chairman at the end of last year, said a merger with another society could not be ruled out.
He explained that the problems came to light after an investigation by himself and other members of the management committee, who have all taken up their posts in the last two years.
The Registry of Friendly Societies said: 'We have been concerned and remedial steps are being taken.'Reuse content