Re Northstar Financial Services (Bermuda) Ltd and Omnia Ltd

• Jurisdiction: Bermuda
• Judgment Date: 26 August 2021
• Docket Number: Commercial Jurisdiction 2020 Nos 304 & 305
• Court: Supreme Court (Bermuda)

[2021] Bda LR 78

In The Supreme Court of Bermuda

Commercial Jurisdiction 2020 Nos 304 & 305

Companies (Winding Up)

In the matter of the Companies Act 1981

In the matter of the Insurance Act 1978

In the matter of the Investment Business Act 2003

And in the matter of the Segregated Accounts Companies Act 2000

In the matter of Northstar Financial Services (Bermuda) Ltd

In the matter of Omnia Ltd

Mr M Todd QC, Ms K Tornai and Ms C Herrero for the JPLs

Mr C Luthi for United Nations Federal Credit Union

Mr M Mason for the Cititrust Group

The following cases were referred to in the judgment:

Sinclair v Brougham[1914] AC 398

In re Islington Metal & Plating Works Ltd[1984] 1 WLR 14

UBS Fund Services (Cayman) Ltd v New Stream Capital Fund[2009] Bda LR 74

Emerald Supplies Ltd and anor v British Airways PLC[2010] EWCA Civ 1284

Duke of Bedford v Ellis and ors[1901] AC 1

Irish Shipping Ltd v Commercial Union Assurance Co PLC[1992] 2 QB 206

John v Rees[1970] Ch 345

Harrison Jalla v Shell International Trading & Shipping Ltd[2020] EWHC 2211

Appointment of representatives to represent classes of creditors in winding up proceedings — Scope of RSC Order 15 rule 12 — Meaning and scope of “same interest” and “same grievance” — Scope of Rule 111(2) of the Winding-Up Rules

JUDGMENT ofHargun CJ

Introduction

1. By ex parte Summonses dated 1 June 2021 (amended 26 July 2021), Rachelle Ann Frisby and John Johnston of Deloitte Ltd, the Joint Provisional Liquidators (the “JPLs”) of Northstar Financial Services (Bermuda) Ltd (in liquidation) (“Northstar”) and Omnia Ltd (“Omnia”) (collectively the “Companies”) seek determination of the following issues in the liquidation of Northstar and Omnia:

• (a) To what extent, if any, have Northstar and Omnia established segregated or separate accounts in respect of investments made in them or policies issued by them (the “Segregated Accounts”)?

• (b) To what extent, if any, are the assets of Northstar and Omnia to be held exclusively for the benefit of any such Segregated Accounts?

• (c) To what extent, if any, do the claimants in respect of any Segregated Accounts have claims against the general assets of Northstar and/or Omnia? (the “Segregation Issues”).

2. For purposes of seeking a determination of these issues the JPLs seek, pursuant to Order 15, Rule 12 of the Rules of the Supreme Court 1985 (“RSC”), the following representation orders in relation to the substantive hearing:

• (a) an investor or policyholder in Northstar and/or Omnia holding only variable investments shall be appointed as the “Variable Representative” and shall represent the interests of those investors or policyholders in Northstar and/or Omnia holding variable investments;

• (b) an investor or policyholder in Northstar and/or Omnia holding only fixed or indexed investments shall be appointed as the “Fixed Representative” and shall represent the interests of those investors or policyholders in Northstar and/or Omnia holding fixed and/or indexed investments; and

• (c) a creditor of Northstar and/or Omnia not holding any such investments or policies shall be appointed as the “Creditor Representative” and shall represent the interests of creditors in Northstar and/or Omnia not holding fixed, indexed or variable investments.

(together, the “Representatives” and, together with the JPLs, the “Parties”).

3. United Nations Federal Credit Union (“UNFCU”), represented by Mr Luthi of Conyers Dill & Pearman Limited, and Cititrust Group, represented by Mr Mason of Wakefield Quin Limited, are members of the ad hoc Committee of Inspection (“AHCOI”) for Northstar. Approximately 475 UNFCU members hold approximately 705 Northstar policies, with an estimated value of US $87 million. Cititrust Group has an interest in a total of 28 Northstar policies with a total cash surrender value of over US $17 million. As members of the AHCOI, the JPLs have provided counsel for UNFCU and the Cititrust Group with copies of all documents before the Court in relation to Northstar. The JPLs have further agreed that they do not object to UNFCU and Cititrust Group attending the directions hearing and making submissions to the Court on the basis that the applications will remain ex parte, that UNFCU and the Cititrust Group are not being made parties to the proceedings and that UNFCU and the Cititrust Group will attend the hearing solely in their capacity as members of the AHCOI.

Background

4. Northstar was incorporated on 18 February 1998 under the name Nationwide Financial Services (Bermuda) Ltd, before changing its name to Northstar Financial Services (Bermuda) Ltd on 6 April 2006. On 1 June 2007, Northstar amalgamated with MetLife (formerly known as Citicorp International Life Insurance Company Ltd). Northstar then amalgamated with NFSB Investment Ltd on 14 November 2012. Northstar was registered as a segregated accounts company under the Segregated Accounts Companies Act 2000 (“SACA”) on 4 April 2008.

5. Northstar's business involved the sale and management of investment and annuity products. Those products fall under three broad categories of business:

• (a) Investment business written under the Northstar Financial Services (Bermuda) Ltd Private Act 2008 (the “Northstar Act”) (the “Northstar Business”). The Northstar Business postdates the company's registration under SACA and is the largest of Northstar's businesses.

• (b) Long-term insurance business issued prior to Northstar's registration under SACA pursuant to the Nationwide Financial Services (Bermuda) Ltd Act 1998 (the “Nationwide Act”) (the “Nationwide Business”); and

• (c) Insurance business written by MetLife International Insurance Company Limited (“MetLife”) under the private Act entitled Citicorp International Insurance Company, Ltd Act 1999 (the “Citicorp Act”) (the “MetLife Business”). The MetLife Business included segregated and non-segregated products and predates Northstar's registration under SACA.

6. Omnia was incorporated in Bermuda on 15 May 2000 under the name of Sage Life (Bermuda) Ltd and has since undergone several name changes. Between 2003 and 2016, Omnia formed part of the Old Mutual Group of companies. On 30 June 2017, Omnia was acquired by PBX Bermuda Holdings Ltd.

7. Omnia was not registered under SACA, but instead established segregated accounts under two private acts: the Sage Life (Bermuda) Ltd (Separate Accounts) Act 1999 and the Omnia Bermuda Ltd (Segregated Accounts) Consolidation and Amendment Act 2004.

8. Omnia sold three main kinds of annuity products: The Universal Investment Plan (“UIP”), the Guaranteed Index Plan (“GIP”), and the Guaranteed Rate Plan (“GRP”). Omnia also sold a fourth product, the Sage Wealth Accumulation Policy (“SWAP”). Omnia discontinued writing new business from 9 March 2009 and has been in run off since that.

9. In relation to both Companies, investors' funds were initially advanced to a master trust before reaching the relevant company. In most cases, the trustee of the master trust would settle a sub-trust in relation to each policy. Contracts with Northstar and Omnia were purchased by the trustees of the sub-trusts and held on behalf of the beneficiaries nominated by each policyholder.

10. The JPLs have taken advice from English leading and junior counsel (Mr Michael Todd QC and Mr Andrew Blake of Erskine Chambers) (“Counsel”) on the question of whether the various accounts maintained by Northstar and Omnia were segregated for the purposes of the SACA, any applicable private Acts and the contracts by which the segregated accounts were established.

11. As regards the Northstar Business and Nationwide Business it is the opinion of Counsel that:

• (a) Northstar has established segregated accounts for each of the investment and annuity contracts issued by those Businesses and that assets linked to a particular account of those Businesses should only be used to meet the liabilities of that account.

• (b) It is more likely than not that investments acquired by Northstar in mutual funds on instructions from variable investors and policyholders are linked to the particular account of the relevant investor or policyholder. As such, they are of the opinion that those assets may only be used to meet the liabilities of the account to which they are linked.

• (c) The same does not apply to investments made by Northstar with the proceeds of fixed investments and counsel are of the...