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We venture to submit this definition: To amalg. is to fuse the interests of two or more bodies theretofore distinct and separate, so as that they, by the process, become one. AMALGAMATION: Act of amalgamating; state of being amalgamated.-Worcester. The union of the businesses of two or more ins. cos.-Ins. Agent. A remedy when the supply of offices exceeds the demand.-Hand-Book of Assu.
All ins. asso. that are not strictly mut. in their constitution are necessarily composed of two classes of persons-1. Shareholders; 2. Policy-holders. A complete amalg. of two or more offices, other than mut., must therefore comprehend a fusion of the interests of each of these classes, with the interests of the same class in each of the asso. forming the subject of amalg. Very few of such cases have occurred; very few could possibly arise.
Certainly two or more purely mut. asso. may perfect an amalg, to the extent that from a given day each and every member of the two or more asso. should have equal rights, benefits, and advantages, from one common fund, provided by the amalg. asso. But even to carry out such an arrangement, on an equitable basis, each of the amalg. asso. must contribute its just proportion to such common fund, as determined by a valuation of all the ins. contracts of each; and the rates of prem. to be paid from the date of amalg. must be equal (unless any difference shall have been taken into account in valuing the contribution to the general fund), and the conditions of the policies uniform. We venture to think but few such cases have arisen in practice.
But an amalg. may be either partial or complete. A complete amalg, may arise under the conditions we have named in mut. asso. It would be possible also for two or more proprietary offices to be so circumstanced as to justify the term amalg. to be applied to their union. But the chances are much further removed by the fact that the share and policy-holders must each, and in each co., have their rights and interests equitably adjusted and provided for. Wherever and whenever the interest of both share and policyholders are not regarded, the amalg. is only partial.
Partial amalg. may be said to be the rule-complete ones the exception. It almost always happens that one set of shareholders are either bought out, or left out of the arrangement. If a Life Co. falls into difficulties, the shareholders, as a rule, know and feel that the sacrifice must be with them; the policy-holders must be provided for at the expense of that sacrifice. It may even be that the interests of the shareholders, who seem to be the victims, may not have been disregarded in the arrangement. The sacrifice of past payments for the avoidance of future ones may have embodied the quid pro quo; and the arrangement may be equitable and desirable, although it is no longer an amalg. In many cases the interests of the shareholders on one side are bought out by a cash payThe transaction then assumes the nature or transfer of the ins. contracts from the selling to the purchasing co. It is not strictly an amalg. But if the purchase consideration be paid in shares of the purchasing co., then it may become a complete amalg., because all the interests will be pro rata on the common funds.
Another set of circumstances have next to be regarded, viz., that many ins. asso. have no legal powers in their existing constitutions for any such purpose. Most asso. have
power to purchase a bus. or businesses; very many have no power whatever to sell their own. We shall therefore proceed to a consideration of the legal conditions involved in an amalg. or a transfer of the bus. of an ins. asso.
We have directed our preceding observations mainly to amalg. of Life Asso. There have been very few real amalg. between Marine, Fire, or Accident Ins. Offices. In all cases of yearly or short-term contracts, it is usually a trans. of bus. only, for a consideration paid down or extended over a term of years.
In all cases of amalg. or trans. the question of goodwill enters more or less into account. [GOODWILL.]
The earliest attempts at amalg. were made during the years 1719 and 1720-South-sea period-when several of the projected MARINE Ins. Asso. merged into each other, by way of amalg. their forces in the competition then going on to obtain charters of incorp. There had been something of the same process carried on by the Birth and Marriage Ins. Offices between 1709 and 1712; but these were not asso. at all. They were simply offices opened and kept by individuals at their own risk and for their own advantage.
Some further definition of terms seems to become necessary at this point. An amalg. appears to imply, as we have already said, a union of two or more estab. offices. Projects, before they have assumed tangible shape and form, may "merge" into each other; the weaker ones becoming "absorbed " in the stronger.
By the General Law an amalg. cannot be effected without the aid of Parl. Each co. has its distinct name, its separate cap., and separate creditors, and no act of a majority, however large, can compel a minority, though it consists of only one shareholder, to enter into obligations inconsistent with the separate status of the co. to which it belongs. The statute law has of late years been gradually aiming at a modification of this principle.
The Joint Stock Cos. Act, 1857, 20 & 21 Vict. c. 14, which, however, did not apply to Ins. Asso., in sec. 17 recognized the principle of amalg, without making use of the term. The Cos. Act of 1862 extends the principles to all Asso. which shall become regis. under it: hence it includes Ins. Asso. The following are the clauses relating to amalg. :
SEC. 161.-Where any co. is proposed to be or is in the course of being wound up altogether volun
tarily, and the whole or a portion of its bus. or property is proposed to be transferred or sold to another co., the liq. of the first-mentioned co. may, with the sanction of a special resolution of the co. by whom they were appointed, conferring either a general authority on the liq., or an authority in respect of any particular arrangement, receive in compensation or part compensation for such transfer or sale shares, policies or other like interests in such other co., for the purpose of distribution amongst the members of the co. being wound up, or may enter into any other arrangement whereby the members of the co. being wound up may, in lieu of receiving cash, shares, policies, or other like interests, or in addition thereto, participate in the profits of or receive any other benefit from the purchasing co.; and any sale made or arrangement entered into by the liq. in pursuance of this sec. shall be binding on the members of the co. being wound up: subject to this proviso, that if any member of the co. being wound up, who has not voted in favour of the special resolution passed by the co. of which he is a member, at either of the meetings held for passing the same, expresses his dissent from any such special resolution in writing addressed to the liq. or one of them, and left at the registered office of the co. not later than seven days after the date of the meeting at which such special resolution was passed, such dissentient member may require the liq. to do one of the following things as the liq. may prefer: that is to say, either to abstain from carrying such resolution into effect, or to purchase the interest held by such dissentient member at a price to be determined in manner hereinafter mentioned, such purchase-money to be paid before the co. is dissolved, and to be raised by the liq. in such manner as may be determined by special resolution: No special resolution shall be deemed invalid for the purposes of this section by reason that it is passed antecedently to or concurrently with any resolution for winding up the co. or for appointing liquidators; but if an order be made within a year for winding up the co. by or subject to the supervision of the court, such resolution shall not be of any validity unless it is sanctioned by the court.
SEC. 162. The price to be paid for the purchase of the interest of any dissentient member may be determined by agreement, but if the parties dispute about the same, such dispute shall be settled by arbitration, and for the purposes of such arbitration the provisions of the "Cos. Clauses Consolidation Act, 1845," with respect to the settlement of disputes by arbitration, shall be incorp. with this Act; and in the construction of such provisions this Act shall be deemed to be the special Act, and the co, shall mean that which is being wound up; and any appointment by the said incorp. provisions, directed to be made under the hand of the secretary, or any two of the directors, may be made under the hand of the liq., if only one, or of any two or more of the liquidators, if more than one.
It will be seen that these sections only apply to the cos. being liquidated voluntarily. If two cos. therefore desire to amalg., one at least must place itself in voluntary liq.; and if from any cause it afterwards passes into a winding-up under the Court, all that has been done must receive the sanction of the Court, or it will be void. [VOLUNTARY WINDING-UP.]
The clauses, as we have pointed out, only apply to asso. regis. under the Cos. Act, 1862, and as a large majority of ins, asso. are so constituted that they cannot regis. under that Act, except for the purpose of winding-up, the facilities for amalg. are not much extended by its aid, except in the mode we shall proceed to point out. Sec. 180 of the Act defines what cos. may register under it. [LEGISLATION for INS. Asso.]
The method by which an amalg. can be carried out as the law now stands, between two cos. regis., or capable of being regis., under the Cos. Act, 1862, is as follows: Suppose Co. A. and Co. B. are desirous of amalg. ; they register under the Act, and Co. A. passes special resolutions containing not merely a declaration that the Co. is to be wound up, but stating the very arrangements that have been entered into with Co. B. The liq. will then proceed to wind up Co. A. If any member dissents, he must be dealt with under the clauses already quoted; and the arrangements may then be completed--subject_to certain special requirements of the Life Assu. Cos. Act, 1870, of which we shall hereafter speak.
In the case here put, Co. B. is supposed to be legally capable of purchasing the property of Co. A., by virtue of the provisions of its own constitution. If that be not the case, a further step is taken. A third co. is formed, having powers to purchase the property of each of the orig. Cos. A. and B. The orig. cos. proceed to pass special resolutions dissolving themselves, and declaring the terms on which their members engage to become members of the new co. ; and as soon as the dissolution of the orig. cos. is completed, their members, as a matter of course, become members of the new co. This process has in several cases been adopted with success.
The question immediately suggests itself: why adopt this indirect method of effecting what might be done directly, by enacting that cos. should be at liberty to amalg. with the sanction of special resolutions of their members? The answer, from a legal point of view, is, that if an alteration in the separate status of a co. were permitted without compelling the co. to dissolve itself, creditors would constantly be defrauded, and members be entrapped into arrangements possibly detrimental to their interests. The Act, by interposing the necessity of a dissolution, provides for the payment of creditors before amalg. can be effected, whilst it enables a shareholder, who dissents from the opinion of the majority, to retire from the co., and to receive the market value of his shares.-Thring.
The author believes that the most successful amalgamations have been those in which the requisite powers have been assumed on both sides, and the arrangements carried out with such completeness that all parties have been bound by acquiescence, the shareholders in the amalg. co. by the acceptance of new shares, or at least dividends, from the purchasing co., and the policy-holders by paying their prems. to the latter, and either accepting new policies, or having their old ones endorsed, with a memorandum of the transfer. -Bunyon.
It will be observed that in describing the legal process of amalg. we have dealt mainly with the position of shareholders. We have next to approach the more extended, and, in the case of ins. asso., the far more important interests of the policy-holders. Upon this
question the legislature has hitherto remained silent; but from the courts there are decisions in abundance.
We may at this point quote a passage from Bunyon's Law of Life Assu., which affords a philosophical explanation of much which is to follow :
The liabilities of ins. cos. vary in kind from those of almost any other co.; they are liabilities undertaken to be performed at future and perhaps very distant dates, and although susceptible of valuation with some accuracy in the mass, are in detail scarcely capable of valuation at all. For example, if the liabilities of an office are represented by one or five millions insured, an actuary can tell very nearly what sum of money, in addition to the annually accruing premiums, will eventually pay the claims; but if we take the case of a single policy, effected on the life of a person now become infirm, or perhaps lying at death's door, and for an amount absolutely necessary at his death to provide for the renewal of a lease, and the preservation of a valuable family property, who can say what sum short of the whole amount assured can compensate for its loss or surrender. And hence it follows, that the only way in which the liabilities of an ins. co. can be fairly met is by inducing another co. to undertake them, or in other words by an amalgamation or transfer. . . . The mode by which the affairs of a life office are met by the Court of Chancery in the case of a compulsory winding-up appears to be this: treating the pols, and annu. granted as claims to be valued, as upon a bankruptcy, and giving to the individual holders the estimated value as upon an actuary's valuation upon the day upon which the co. closed its bus. The form of an order on the subject of immature ins. is given in the case of Evans v. Coventry (re London Mutual) directing an inquiry: "What ins, were in existence on the day when the co. closed its business, distinguishing whether for life, or during sickness, or for money payable at a deferred period, and what annuities were then in existence, and whether then payable or deferred, and in whose favour, and who were then and are now entitled to the benefit of those ins. and annuities, and what was then the value of such ins. and annuities respectively.".. This may be scant justice to persons whose health will not allow them to insure elsewhere; while to others who may be able at once to effect policies in a solvent co., it may give more than the values their policies might otherwise realize, since an ins. co. never purchases its pol. at their full value, and at the auction mart they might be worthless. [ALBERT ARBITRATION.]
We propose now to review some of the more important cases of amalg. which have come before our law courts, stating the leading points involved in each. We also propose to quote the several authors who have written upon the subject, and it will be more convenient to proceed in chronological order, as we may thereby trace the development of the principles enunciated. On the whole, the courts of law have certainly been
favourable to amalg.
In the case of King v. Accumulative Assu. Co., decided in the Exchequer Chamber, 1857, the important point was raised: How far the concurrence of the policy-holders is necessary to a trans. of business? We give the principal points of the ruling, this being now regarded as a leading case.
Cockburn, C. J.: There is no implied covenant in a policy, on the part of the grantors, to continue the bus. of an ins. co. It has been contended, that such an implied covenant arises on that part of the policy, which provides that "the capital stock and other the securities, funds, and property of the said co. remaining, at the time of any claim or demand made, unapplied and undisposed of, and inapplicable to prior claims and demands in pursuance of the provisions of the Deed of Sett., shall alone be liable to answer and make good all claims, etc., under or by virtue of this policy; and that no director, officer, or shareholder, etc., shall be in any wise individually or personally liable, etc., beyond the amount unpaid of his shares." It seems to me, all that was intended by that proviso was, to protect the shareholders from individual and personal liability to the holders of policies. It was evidently introduced, not for the purpose of enlarging the security and extending the remedy of the policyholder, but precisely the reverse.
Williams, J.: It seems to me to be impossible to say, that the policy amounts to anything more than a contract, that the plaintiff or his executors shall receive the sum assured, when the time for payment shall have arrived. It is difficult to imply from the circumstance of the policy-holder being entitled to a share of profits, a contract on the part of the co. that they will, in order to give him a better chance of profits, continue to carry on the business, supposing it should turn out to be disadvantageous to them to do so.
Crowder, J.: What injury has the plaintiff sustained? It may very well be that the co. were in a bad way, and that the new co. are much more likely to meet the claims of the policy-holders, when the proper time arrives. This has been very properly characterized as an action quia timet. When the event assured against has happened, and not till then, the plaintiff or his representatives will be entitled to enforce the policy.
Willes, J.: There is no contract by the defendants with the plaintiff, that they will not alien or transfer their funds.
It would be difficult to conceive anything more clear and distinct than the principles here laid down.
In the case of Ernest v. Nicholls, arising out of an amalg. between the Sea, Fire, Life, and the Port of London Co. (Ernest being official manager of the former, and Nicholls the official manager of the latter), which came before the House of Lords in 1857, on appeal from the Lords Justices, the Lord Chancellor said in delivering judgment :
Your lordships will observe that the transaction in question was a purchase by the one co. of the goodwill and the whole concern of the other. That would ordinarily speaking be a transaction in which no co. would be justified in engaging, because it certainly cannot be said to be within the ordinary scope of the object of any co. to purchase the goodwill of another. But all question upon that head is removed by a clause that there is in the deed under which the Sea, Fire, Life Assu. So. was constituted, and which expressly authorized such a transaction.
This was really obiter dicta, not being necessarily involved in the question before the Court.
In February, 1858, Mr. Jellicoe submitted to the Inst. of Actuaries a paper: On the Principles which should govern Assu. Cos. in amalg. The learned gentleman prefaced his paper by saying that the subject was one "as to which a good deal of misapprehension exists," and then proceeded :
An impression, I believe, very commonly prevails that combinations of the nature in question are little better than rude and arbitrary arrangements, in which the rights of the several parties concerned are not much regarded, and which are usually carried out by sacrificing more or less the interests of one class in those of another. I propose now to show that such is by no means the case that these arrangements are susceptible of the nicest and most accurate adjustment-that the advantages derived from them are appreciable with great exactness, and that the rights of all concerned may be most scrupulously maintained. It is true that details being somewhat complicated, persons unfamiliar with such subjects are not very well able to satisfy themselves of this; but the fact is so nevertheless, as we will now endeavour to demonstrate.
He then gives a summary of the details required to be known regarding each asso., and says thereon:
It will be obvious that whatever elements are used in estimating the value of the properties of the one co. the same must be strictly adhered to in determining that of the other. Thus the rates of mort. and int. must be the same, and the formulæ made use of in the various investigations on the one side must, for similar purposes, be always applied on the other. It will be found most convenient to take credit in the gross for all prems. payable in respect of the several existing contracts, so that the amounts put down as representing the liability under them will be sufficient merely to provide for the risks; for it is to be borne in mind that the object is to determine what remains after every liability legally incurred is provided for. For expenses, and for add. by way of bonus, etc., we must look to the "surplus;" and thus this particular item becomes, in conjunction with others, the indicator of the relative condition of the two cos.
The equality supposed to exist as above will of course rarely be found to exist, and hence there will be an excess to be thrown off. This excess will have to be dealt with by the co. to which it belongs prior to the amalg., and should be apportioned amongst its members in the manner prescribed by its own regulations; and an equality being thus estab., the two sos. are in a condition to be blended without any unfairness to either.
He shows the conditions essential to the fulfilment of these requirements, and concludes the paper as follows:
That these operations, when properly carried out, are productive of much good, nobody, we think, will deny; while they serve, on the one hand, to give strength and vigour to the surviving inst., they arrest the downward course of the more feeble ones, and in some instances, it may be, avert no small amount of distress and embarrassment from those concerned with them.
This paper was printed in Assu. Mag. vol. vii., and in the same vol. will be found a letter from Mr. Sprague commenting thereon-approving of the plan suggested by Mr. Jellicoe for remedying differences in rates of prem., and equalizing bonuses-and showing that the rules laid down for accomplishing these ends have even a wider application than Mr. Jellicoe had claimed for them.
In the case of the Saxon Assu. ex parte Anchor Assu., heard before V.C. Wood in 1862, a claim against the Saxon Co. was admitted, notwithstanding that an attempt had been made to trans. its liabilities to another Co. (the Era), and that the Anchor had accepted an exchange of an Era security for their Saxon one. [See Carr's case in Waterloo Ins. Co. 1864.] And in the same year, in the case of the Saxon Assu. ex parte the Era Assu., a petition on the part of the purchasing Co. to be repaid by the selling Co., the excess of the liabilities they had incurred over the assets which had been trans., was dismissed by
V. C. Wood.
In the case of Bishop v. Scott, arising out of the amalg. of the United Kingdom Life with the North British, which was heard before V.C. Wood, in 1863, the facts were as follows: A bill was filed by a parti. policy-holder in the United Kingdom to restrain that Co. from carrying out an arrangement for a transfer of the funds, assets, etc., of that Co. to the North British by way of amalg. The Bill also prayed for an account of the assets and liabilities of the first-named Co., and for the appointment of a receiver. On a motion for injunction, it was held that the Court, considering that the policy-holder would not be damnified by the proceedings for the amalg. remaining in statu quo until the hearing of the cause, would decline to grant an injunction as prayed, the principal part of the arrangements having been carried out.
The point was raised in this case whether a policy-holder in a Life Ins. Co. with parti. in profits was not a partner. It was not pursued.
In Carr's case, arising out of the affairs of the Waterloo, which came before the Master of the Rolls in 1864, the facts were as follows:
The Deed of Asso. of the Co. which bound the policy-holders, contained a power to dissolve; and thereupon the Directors were to get from another Co. an undertaking to pay all future liabilities, and to trans. to such guaranteeing Co. so much of the funds as should be agreed on between the contracting parties, and as would be sufficient to enable the Co. to comply with their undertaking. The Court held that the amount to be paid over was a matter of agreement between the two cos. with which policy-holders had no concern, and that a policy-holder who refused to be trans. had no claim upon the Waterloo. “I am of opinion (said the Judge) that the policy-holders are bound, and that if they do not choose to accept the undertaking of the British Nation (to which offices the bus. had been trans.), they cannot prove against the Waterloo Co."
In the case of Aldebert v. Leaf, arising out of a proposed trans. of the bus. of the Argus Life to the Eagle, it was held by V. C. Wood, that when by the provisions of the D. of Sett. of an Ins. Co., the directors are bound upon a dissolution to set aside sufficient funds out of the assets of the Co. to meet existing engagements, an agreement for the
trans. of a bus. without making such a provision is ultra vires. It was further held that a policy-holder, though he has no such charge upon the funds of the Co. as will give him priority over other creditors, or entitle him to interfere with the directors in the ordinary management of the bus., has a right to file his bill in such a case; but the Court will only extend its relief to the circumstances that have arisen, and not to those that may thereafter arise.
In Ex parte Webster, arising out of British Provident L. and F., heard before V. C. Kindersley in 1864, the following circumstances arose. By deed dated 1st June, 1858, the Anglo-Australian L. was to be amalg. with the Brit. Provident, the terms being that the bus., property and effects of the Anglo-Australian should be trans. to the Brit. Provident, and that the shareholders of the former should become shareholders in the latter, and should execute its D. of Sett. ; and that thereupon the said shareholders should, out of the funds and property of the Brit. Provident, be indemnified against all claims in respect of the Anglo-Australian Co., and that such shareholders as should fail to execute the D. of Sett. should be precluded from the benefit of such amalg. The Brit. Provident being afterwards wound up, the official manager sought to place one of the shareholders of the Anglo-Australian, who had not executed the Deed of the Brit. Provident, upon the list of contributories. The application was dismissed with costs.
In March, 1864, the present Premier, whilst introducing his Post Office Life Insurance Bill, remarked:
That amalgamation is an illustration of what you will probably say is no better than wholesale robbery. (Loud cries of "Hear, hear.") Nay more, I will go a step further, and say that a great many of these proceedings are worse than wholesale robbery, and there are many persons who have never seen the inside of a gaol, and yet who had fitter be there than many a rogue who has been convicted ten times over at the Old Bailey. ("Hear, hear.") The inside of a gaol would be the proper locale for some of the persons connected with insurance amalgamations.
If Mr. Gladstone really believed this, why did he not move for a committee of inquiry, armed with full parliamentary powers? He might have prevented some of the mischief which has since arisen.
Mr. Lindley, in his great work on Partnerships and Cos. (2nd ed. 1867), offers the following observations on this subject :
A co. incorp. by Charter or special Act of Parl. cannot delegate its powers, and therefore cannot transfer its bus. even for a time to another co., nor can the majority of shareholders of any co. bind the minority by an agreement to transfer its property and business, unless such power is conferred by the original constitution of the co. Nor is it competent for the majority of one co. to purchase the assets and liabilities of another without similar powers. Whence it follows that two cos. cannot amalg. with each other unless such a transaction is authorized by the constitutions of both cos., or unless all the shareholders in both consent to the amalg. And where there is power to amalg., that power must be strictly pursued, or at least there must be no substantial departure from it.
In the case of the International and Hercules, ex parte Blood, heard before V.C. Malins in January, 1870, the V.C. stated his opinion that an Act of Parl. ought to be passed prohibiting these trans. of bus. and assets from one ins. co. to another. They placed the policy-holders in a position of great embarrassment as to what course they ought to adopt - whether they were bound to go over to the new co. or had any option in the matter. The numerous transfers which had been effected had worked infinite injury during the last 25 years.
In the case of Southall v. British Mutual, a suit by a policy-holder of that co. to set aside an amalg. between it and the Prudential, on the ground of being ultra vires, heard before the Master of the Rolls in December, 1870, it was held to be quite legal for any co. to be placed under the winding-up sections of the Cos. Act, 1862, for the sole purpose of carrying out an amalg. contract.
This decision, which is a very important one, was confirmed by the Lords Justices, on appeal (1871). We hear that it is now to be carried to the House of Lords.
In view of the decided cases, and as a matter of prudence, every new ins. asso. should embody in its constitution, when founded, the most ample powers for amalg. with, trans. itself to, or taking over the bus of any other ins. asso. This may be readily accomplished by inserting such a clause as the following in the "objects" set forth in mem. of asso. :
To promote, establish, and aid other cos. or asso. for effecting any objects similar or analagous to the objects of the co., or which may be auxiliary, subsidiary, or otherwise conducive to or connected with such objects, and to acquire and hold shares and interests in such cos, and asso. or the property or bus. thereof. To amalg. or unite with and absorb into the co. any other cos. or asso. already or hereafter to be formed for effecting any of the objects of the co., or any similar or analagous objects; and to acquire and hold shares and interests in, and to acquire the bus. and property of such cos.
Then, in the body of the articles, there should be inserted, under "powers of directors," the following:
To carry into effect any arrangements which may be recommended by the directors [and approved of by a General Meeting], for the amalg. or union of the co. with any other co. or asso. already or to be hereafter formed for objects similar or included in the objects of the co., as specified in the Memo. of Asso., or for the dissolution or extinction of the co., or the winding-up of its affairs, or for the transfer of its business, property, and liabilities to any other co.
The words in brackets may be inserted or not, as a rule it is better they should be.