The Court of Appeal has issued guidelines for provisional liquidators deciding if creditors of an insolvent insurance company should be divided into separate classes.

Hawk Insurance Company's liquidators, represented by the DLA Insurance and Risk Solutions Group believed their creditors should fall into a single category and their claims should be valued according to uncertainties and early receipt of money.

The High Court initially refused to sanction the scheme, despite it being voted for unanimously by the creditors.

It argued that there was more than one class of creditor and each category should have voted at a separate meeting.

But the Court of Appeal overturned this decision and has given clear guidance on reviewing the system.

Creditors will now form a single class unless they are not on the same terms. Those with different arrangements will be divided into different classes.

Nigel Montgomery, head of marine, aviation and insurance at the DLA, said: “We now have a firm appellate decision on this hotly debated topic which gives much-needed clarity to the process of constructing schemes of arrangement.”

Philip Singer, a joint provisional liquidator of Hawk, added: “It is unfortunate that we have had to go to the Court of Appeal to validate the procedure we followed, but we are delighted to have obtained such a clear statement of principle.

“This will also clarify the position for the future.”