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Restructuring firm Resolution Ltd. (RSL.LN) Tuesday defended its management structure and the reasons why it outsources the bulk of its work, in the latest twist in its takeover attempt of U.K. insurer Friends Provident Group PLC (FP.LN), which itself is proposing to buy Resolution Ltd.

Resolution Ltd., in comments by a spokesman and in an emailed statement, said it has "outsourced the vast majority of its head-office functions" to Resolution Operations LLP "to protect the tax status for Resolution Ltd. for its shareholders, as it is essential that the company is not seen as being managed from the U.K."

"We are considering our position and looking at ways to move things forward," the spokesman said.

He said Resolution Ltd. was incorporated in Guernsey to avoid the double taxation of shareholders, not to avoid paying tax altogether. The setting up of Guernsey-incorporated investment companies is common practice among asset managers, he said.

"When we approached the institutions and told them we would have a Guernsey-domiciled company, they understood it straightaway. It's not something new or strange or mysterious," he said. Friends Provident declined to comment Tuesday, but Monday evening it rejected a sweetened proposal from Resolution Ltd., saying that Resolution Ltd.'s structure and governance "are totally inappropriate in a public company context and materially out of line with currently accepted best governance practice."

Resolution Ltd. said that even though Resolution Operations manages the head-office functions of Resolution Ltd. as well as its acquisition and disposal strategy, "all decisions" still have to be made by the Resolution Ltd. board."

"Resolution Operations cannot make decisions or enter into agreements on behalf of Resolution Ltd. without express approval from the Resolution Ltd. board," it said.

Resolution Operations is headed by insurance entrepreneur Clive Cowdery. Resolution Ltd. Chairman Mike Biggs was formerly the group finance director of Cowdery's Resolution PLC.

Cowdery made his name after becoming chairman in 2005 of Resolution PLC, which he rapidly grew by buying life-insurance businesses that U.K. companies had decided to close. Resolution PLC is the indirect previous incarnation of Resolution Ltd.

Despite the rejection from Friends Provident on Monday, a merger deal "should happen," one analyst said.

"We believe that Friends Provident has played its hand too aggressively in dismissing Resolution's proposals on grounds that we see as largely spurious," MF Global analyst Trevor Moss said.

"Friends Provident's refusal to give ground means that either Resolution walks away from this deal or it appeals directly to shareholders at the same, or only slightly preferential, terms," Moss said.

"If Resolution walks away and nobody else appears, then Friends Provident could be left out in the cold. The future, on its own does not look rosy in the context of a consolidating sector with Friends Provident a marginal player within it," Moss said.

Other experts say that Resolution's management structure is unusual because it appears to delegate much of its management operations to a third-party vehicle, Resolution Operations, whose board membership has no overlap with the board of Resolution Ltd., which is the only one accountable to shareholders.

"Resolution's current board structure doesn't appear to be a conventional board structure for an Official List company," said Hugh Raven, corporate finance partner at international lawfirm Eversheds. "That's not to say it's wrong or right, but it is unusual."

As part of its sweetened - but rejected - proposal, Resolution said it can offer cash for up to the first 2,500 Friends Provident shares held by each Friends Provident shareholder, "subject to the total amount of cash not exceeding a specified amount."

This differs from just over a week ago, when Resolution proposed an all-share, no-cash offer of 0.8 new Resolution shares for every share owned by Friends shareholders. That was rejected, too.

On Friday, Friends Provident turned the tables around and proposed instead to buy Resolution Ltd. and make it its own consolidation vehicle.

Friends shares closed Tuesday down 2 pence, or 2.5%, at 71 pence, giving it a market value of GBP1.66 billion. Resolution closed down 2 pence, or 2.5%, at 88 pence. It has a market capitalization of GBP584 million.

Company Web site: www.resolution.gg, www.friendsprovident.co.uk

-By Vladimir Guevarra, Dow Jones Newswires. Tel. +44 (0) 2078429486, vladimir.guevarra@dowjones.com

(Marietta Cauchi contributed to this report.)