In a decision which has not yet been confirmed by the German Federal Court, the Higher Regional Court of Celle (an appellate court) has decided that a German policyholder of UK life insurer Equitable Life is not protected by a scheme of arrangement which had been approved by the London High Court in February 2002 (OLG Celle 8 U 46/09 from 8 September 2009). The claimant had challenged that, following the scheme of arrangement, he would have had received lesser profit payments. A final decision of the German Federal Court is expected at the end of 2010.

It has been widely discussed whether this decision is creating a serious challenge to the acceptance of UK schemes of arrangement by foreign jurisdictions, in particular, in Germany.

As a “scheme of arrangement” is not known to the German legal system, the question was always whether it had to be seen and recognized as either an insolvency proceeding or if it had more of a judgment character. Neither of those alternatives has been accepted by the Court. It is worth noting that the relevant scheme was approved by the English courts before the EU Directive on the Reorganization and Winding-up of Insurance Undertakings (the “Insurer’s Directive”) became effective in April 2003, so the Insurer’s Directive could not be applied. Furthermore, as schemes of arrangement are not recognized by the EU insolvency regulation, the court did not recognize it under the German insolvency code. Enforcement under the respective legislation, dealing with the enforcement of EU judgments, was denied as the Higher Regional Court qualified a “scheme” more as a settlement agreement rather than a court ruling. In a kind of obiter dictum, the court said that the “scheme” would most likely not be contrary to German ordre public, an argument which was held by the court of first instance in that case.

It is interesting to see what will be decided by the Federal Court in this matter and whether other cases may have more merit in being recognised as schemes. However, the ruling reflects growing concern amongst legal experts about the recognition of legal constructions “foreign” to German law.