Vanni Treves, the embattled chairman of Equitable Life, pulled no punches yesterday when he spelt out the options for members of the troubled mutual.

He insisted: "We are solvent, we always have been solvent and we fully expect to remain solvent."

However, the leading City lawyer who arrived in Equitable's hot seat in March said the stability of the mutual's £24 billion sterling with-profits fund could be ensured only if policyholders backed the forthcoming compromise.

This will attempt to strike a deal between the 90,000 Equitable members who hold guaranteed annuity rate (GAR) policies and the majority who do not.

It was liabilities arising from these guarantees that forced the mutual to close its doors to new business last December.

Mr Treves also revealed that Equitable had already carefully considered, and rejected, the option of seeking a voluntary liquidation.

He said: "It's a non-starter, for a number of reasons. First of all, you can only have a liquidation if you are insolvent.

"Voluntary wind-up is technically not possible for a mutual but even if it were - even if, for example, we got some legislation through to enable it to happen - the frictional cost of a wind-up is absolutely colossal.

"The sale of investments would have a substantial impact on the market - particularly a fragile market. But also, perhaps most important of all, are the tax implications, which are horrendous. In a voluntary wind-up, members would be taxed on what they receive from the society."

Mr Treves also confirmed that the long-awaited report from Nicholas Warren QC could also point to significant potential mis-selling claims against Equitable from holders on non-GAR policies, on the basis that they had not been informed of the existence of the GAR liabilities.

He said: "Warren is going to tell a waiting world what claims, if any, the non-GARs have against the society. His job is to tell us what the claims are as a matter of law. It will be our job, more than his job, to quantify those claims. The quantification of those claims will have to form part of the compromise." If a compromise was successfully achieved, Mr Treves did not rule out passing on Equitable's book of business, free of liabilities, to another, stronger life assurer.

Halifax, the mortgage bank that paid £500 million for Equitable's operational assets this year, has a 10-year agreement to administer the mutual's existing book of business, which would put it in pole position to clinch such a deal.

Mr Treves said: "Even if those (Halifax) agreements could be renegotiated, I have an entirely open mind as to how this society goes forward. There is no reason of principle why, after a compromise, the society - which then by definition would be a large and stable entity - should not be absorbed by another strong entity. No reason whatever.

"I have been heard to fantasise about this. Occasionally, I allow myself a moment of escape from the realities of the Equitable. I believe that is a real possibility. It is not something we need think or talk about until after the compromise."

Mr Treves also warned that Equitable could increase its exit penalty known as market value adjuster - if there was another sharp fall in equity markets.