Banking Bill

House of Commons

Session 2007 - 08
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Other Bills before Parliament

Banking Bill

Banking Bill
Part 1 — Special Resolution Regime
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55
Third party compensation: mandatory provision
(1)
The Treasury may make regulations about third party compensation
arrangements in the case of partial property transfers.
(2)
In making regulations the Treasury shall, in particular, have regard to the
desirability of ensuring that if a residual bank is wound up after transfer, pre-
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transfer creditors do not receive less favourable treatment than they would
have received had it been wound up immediately before transfer.
(3)
In subsection (2)—
(a)
“residual bank” means a bank that is a transferor under a property
transfer instrument,
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(b)
“pre-transfer creditor” means a person who—
(i)
is a creditor of a residual bank immediately before a property
transfer instrument takes effect, and
(ii)
satisfies conditions specified by the regulations, and
(c)
the reference to winding-up includes a reference to winding-up
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through insolvency or bank insolvency.
(4)
The regulations may—
(a)
require a compensation scheme order or a resolution fund order to
include a third party compensation order;
(b)
require a third party compensation order to include provision of a
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specified kind or to specified effect;
(c)
make provision which is to be treated as forming part of a third party
compensation order (whether (i) generally, (ii) only if applied, (iii)
unless disapplied, or (iv) subject to express modification).
(5)
Regulations may provide for whether compensation is to be paid, and if so
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what amount is to be paid, to be determined by reference to any factors or
combination of factors; in particular, the regulations may provide for
entitlement—
(a)
to depend in part upon the amounts which are or may be payable under
a resolution fund order;
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(b)
to be contingent upon the occurrence or non-occurrence of specified
events;
(c)
to be determined wholly or partly by an independent valuer (within the
meaning of sections 49 to 51) appointed in accordance with a
compensation scheme order or resolution fund order.
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(6)
Regulations may make provision about payment including, in particular,
provision for payments—
(a)
on account subject to terms and conditions;
(b)
by instalment;
(c)
by the Treasury;
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(d)
by the Financial Services Compensation Scheme.
(7)
Regulations—
(a)
shall be made by statutory instrument, and
(b)
may not be made unless a draft has been laid before and approved by
resolution of each House of Parliament.
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Banking Bill
Part 1 — Special Resolution Regime
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56
Procedure
(1)
This section applies to—
(a)
compensation scheme orders,
(b)
resolution fund orders, and
(c)
third party compensation orders.
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(2)
An order may not be made unless a draft has been laid before and approved by
resolution of each House of Parliament.
Incidental functions
57
General continuity obligation: property transfers
(1)
In this section and section 58—
10
(a)
“residual bank” means a bank all or part of whose business has been
transferred in accordance with section 10(2)(b) or 11(2),
(b)
“group company” means a company which is a group undertaking in
relation to a residual bank,
(c)
“group undertaking” has the meaning given by section 1161(5) of the
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Companies Act 2006 (interpretation),
(d)
“the transferred business” means the part of the bank’s business that
has been transferred, and
(e)
“transferee” means a commercial purchaser or bridge bank to whom
the transferred business has been transferred.
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(2)
The residual bank and each group company must provide such services and
facilities as are required to enable a transferee to operate the transferred
business effectively.
(3)
The duty under subsection (2) (the “continuity obligation”) may be enforced as
if created by contract between the residual bank or group company and the
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transferee.
(4)
The residual bank or a group company may—
(a)
require consideration at market rate for anything done in fulfilment of
the continuity obligation, and
(b)
impose any other terms or conditions that would be expected in
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arrangements concluded between parties dealing at arm’s length on
market terms.
(5)
The continuity obligation is not limited to the provision of services or facilities
directly to a transferee.
(6)
The Bank of England may, with the consent of the Treasury, by notice to the
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residual bank or a group company state that in the Bank’s opinion—
(a)
specified activities are required to be undertaken in accordance with
the continuity obligation;
(b)
activities are required be undertaken in accordance with the continuity
obligation on specified terms.
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(7)
A notice under subsection (6) shall be determinative of the nature and extent of
the continuity obligation as from the time when the notice is given.

Banking Bill
Part 1 — Special Resolution Regime
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58
Special continuity obligations: property transfers
(1)
Expressions in this section have the same meaning as in section 57.
(2)
The Bank of England may—
(a)
cancel a contract or other arrangement between the residual bank and
a group company (whether or not rights or obligations under it have
5
been transferred to a transferee);
(b)
modify the terms of a contract or other arrangement between the
residual bank and a group company (whether or not rights or
obligations under it have been transferred to a transferee);
(c)
add or substitute a transferee as a party to a contract or other
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arrangement between the residual bank and a group company;
(d)
confer and impose rights and obligations on a group company and a
transferee, which shall have effect as if created by contract between
them;
(e)
confer and impose rights and obligations on the residual bank and a
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transferee which shall have effect as if created by contract between
them.
(3)
In modifying or setting terms under subsection (2) the Bank of England shall
aim, so far as is reasonably practicable, to preserve or include—
(a)
provision for consideration at market rate, and
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(b)
any other provision that would be expected in arrangements concluded
between parties dealing at arm’s length on market terms.
(4)
The power under subsection (2)—
(a)
may be exercised only in so far as the Bank of England thinks it
necessary to ensure the provision of such services and facilities as are
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required to enable the transferee to operate the transferred business
effectively,
(b)
may be exercised only with the consent of the Treasury, and
(c)
must be exercised by way of provision in a property transfer
instrument (or supplemental instrument).
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59
General continuity obligation: share transfers
(1)
In this section and section 60—
(a)
“transferred bank” means a bank all or part of the ownership of which
has been transferred in accordance with section 10(2)(a) or 12(2),
(b)
“former group company” means a company which was a group
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undertaking in relation to the transferred bank immediately before the
transfer,
(c)
“group undertaking” has the meaning given by section 1161(5) of the
Companies Act 2006 (interpretation), and
(d)
“the continuity authority” means—
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(i)
the Bank of England, where ownership was transferred in
accordance with section 10(2)(a), and
(ii)
the Treasury, where ownership was transferred in accordance
with section 12(2).
(2)
Each former group company must provide such services and facilities as are
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required to enable the transferred bank to operate effectively.

Banking Bill
Part 1 — Special Resolution Regime
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(3)
The duty under subsection (2) (the “continuity obligation”) may be enforced as
if created by contract between the transferred bank and the former group
company.
(4)
A former group company may—
(a)
require consideration at market rate for anything done in fulfilment of
5
the continuity obligation, and
(b)
impose any other terms or conditions that would be expected in
arrangements concluded between parties dealing at arm’s length on
market terms.
(5)
The continuity obligation is not limited to the provision of services or facilities
10
directly to the transferred bank.
(6)
The continuity authority may by notice to a former group undertaking state
that in the authority’s opinion—
(a)
specified activities are required to be undertaken in accordance with
the continuity obligation;
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(b)
activities are required be undertaken in accordance with the continuity
obligation on specified terms.
(7)
A notice under subsection (6) shall be determinative of the nature and extent of
the continuity obligation as from the time when the notice is given.
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Special continuity obligations: share transfers
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(1)
Expressions in this section have the same meaning as in section 59.
(2)
The continuity authority may—
(a)
cancel a contract or other arrangement between the transferred bank
and a former group company;
(b)
modify the terms of a contract or other arrangement between the
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transferred bank and a former group company;
(c)
confer and impose rights and obligations on a former group company
and the transferred bank, which shall have effect as if created by
contract between them.
(3)
In modifying or setting terms under subsection (2) the continuity authority
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shall aim, so far as is reasonably practicable, to preserve or include—
(a)
provision for consideration at market rate, and
(b)
any other provision that would be expected in arrangements concluded
between parties dealing at arm’s length on market terms.
(4)
The power under subsection (2)—
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(a)
may be exercised only in so far as the continuity authority thinks it
necessary to ensure the provision of such services and facilities as are
required to enable the transferee to operate the transferred business
effectively,
(b)
may be exercised by the Bank of England only with the consent of the
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Treasury, and
(c)
must be exercised by way of provision in a share transfer instrument or
order (or supplemental instrument or order).