The High Court today rejected attempts to block a scheme under which insurance group Aviva is offering policyholders £500 million in exchange for giving up their rights in a fund worth £1.2 billion.
A judge sanctioned the deal - giving eligible customers between £200 and £1,150 each - despite objections from a minority group of dissident policyholders, supported by consumer champion Which?
The pay-out is less than half of what could have been available before the banking crisis and was described by Which? as "derisory".
But after a three-day hearing in London, Mr Justice Norris sanctioned the "reattribution" of Aviva's "inherited estate" - a surplus with-profits fund built up over decades from policyholders' payments.
The judge said he would give reasons for his decision at a later date.
Aviva, relying on favourable reports from the Financial Services Authority (FSA) and policyholder advocate Clare Spottiswoode, argued that the scheme would allow it to retain sufficient funds to help support future investment flexibility and security against risk, and provide initial capital to support new business, all to the benefit of existing customers.
Of the 852,400 eligible policyholders - those who hold Commercial Union Life, CGNU Life and Norwich Union Life with-profits policies under the Aviva banner and whose policies were in force on the scheme's launch date of November 21 2006 - 80 per cent have voted, and of those, 96 per cent accepted the offer.
Those who have refused or failed to respond will retain their interest in the fund, but run the risk that it will not pay out in the future.
Consumer groups take the view that policyholders should get 90 per cent of the cash held in such funds when it is distributed.
Before the court hearing, Which? chief executive Peter Vicary-Smith accused the FSA of allowing Aviva to "plunder" the fund to meet shareholders' tax bills and to pay mis-selling compensations costs and prop up the company's pension deficit.
Dissenting policyholder Fran Budd told the judge the scheme promoted the interests of the company and its shareholders "at a bargain basement price" by encouraging policyholders to "sell their future rights".
Aviva is expected to put the scheme into effect next month.
After today's ruling, Ms Spottiswoode said the reattribution, together with a special distribution payment announced last year, meant that policyholders would be getting about 70 per cent of the inherited estates.
She said that although dissenters and non-voters would have their position protected, she would continue to press for even stricter governance for such policyholders.
Current FSA rules, under which the Aviva offer was conducted, did not properly protect the interests of policyholders, she said.
Ms Spottiswoode, appointed to represent shareholders' interests, had come under fire over her handling of the talks surrounding the highly complex reattribution scheme, which took more than two and a half years.
Today she took issue with the FSA's statement to the court that she had obtained "the best deal available in the circumstances".
She said the ability to improve the offer from Aviva lay with the FSA, not with her.
"I have not had the power to get 'the best deal' or to judge whether more might be available if a stronger approach were taken by the FSA - only the FSA can do that," she said.
As a Treasury committee had pointed out, it was up to the FSA to ensure that a fair price was offered, not just an adequate price.
The negotiating support given to her team by the FSA "fell short of what I had requested", she said.Reuse content