MMI estimates future claims could amount to around £925 million, compared with assets of around £45m. The 'scheme of arrangement' was approved at separate meetings in London last week of MMI's members and creditors. It will only come into effect if the firm's directors believe it cannot meet all its liabilities without becoming insolvent.
If the scheme is triggered, the biggest creditors - who number around 700 and account for more than 85% of MMI's outstanding liabilities - will have to repay a portion of any claims they have had paid since last September. Subsequent claims by major creditors will not be paid in full.
Everyone else, including all personal policy holders, will have their agreed claims paid in full even if the firm becomes insolvent. At the firm's extraordinary general meeting for members, chairman Sir John Lovill said a recent agreement with the Inspector of Taxes had helped increase MMI's assets from less than £1m to almost £45m.
But if there are surplus assets once all creditors have been paid they will get 'commission' for taking the risk. The overriding objective of the firm was to try to pay all its liabilities in full, he said. This meant careful management of assets and attempting to match investment income and disposal proceeds to the estimated timing of the settlement of liabilities.
The scheme had to be supported by three quarters of MMI members, and creditors representing three quarters of the value of outstanding claims. At the members' meeting 216 voted in favour while only two opposed it. At the creditors' meeting six voted against while 535 voted in favour.
'We supported the scheme because it avoids the risk of enormous costs in the event of the company .becoming insolvent', said Association of County Councils' Under Secretary Clive Grenyer. If a liquidator was brought in to run it and dispose of its assets, their value could drop by 80%, he believed. The scheme is due to go to the high court on 19 January for final approval.