Linklaters claims legal hitch in Equitable offer

The compromise solution sought by the troubled Equitable Life insurer hit complications last week when City firm Linklaters cast doubt on the legality of investors' rights.

In December 2000, the Equitable - Britain's oldest mutual society - closed to further investments following the discovery of a 1.5 billion shortfall in its accounts.This was caused by a House of Lords ruling compelling Equitable to honour fixed-guarantee annuity rates (GAR) offered to customers during the 1980s, but unsustainable when interest rates fell in the 1990s.The company has since then forged a compromise under which customers accept fewer dividends than anticipated.

Votes on the compromise are now in and are expected to be counted by the end of the month.However, Linklaters has cast doubt on whether the Equitable has the right to treat many GAR rights held within institutional holdings, such as group pension schemes, as non-GAR rights without seeking the permission of trustees.A spokesman for Linklaters said the firm had given the advice in relation to a specific request by a client, and that the practice had subsequently felt obliged to bring the issue to the attention of other clients.The spokesman stressed that the firm had not provided an opinion on whether clients should accept or reject Equitable's compromise offer.Equitable rejected Linklaters' advice.

But a spokesman argued that even if investors could prove the advice correct in court, this would not invalidate the compromise offer made last year.Jeremy Fleming