Banking Bill

House of Commons

Session 2007 - 08
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Banking Bill

Banking Bill
Part 1 — Special Resolution Regime
35

Building societies, &c.
71
Application of Part 1: general
This Part shall apply to building societies (within the meaning of section 119 of
the Building Societies Act 1986) as it applies to banks, subject to the provisions
of the Table.
5

Section
Topic
Modification or note

10
Private sector
A share transfer instrument may not be made.

purchaser

12
Temporary public
The procedure provided by section 72 has effect in place of share

ownership
transfer orders.

10

13 to 29
Transfer of securities
The procedure provided by section 72 has effect in place of share

transfer orders; and—

(a)
sections 27 and 28 do not apply), and

(b)
section 26 applies following an order under section 72

as following a share transfer order.

15

30
Property transfer
A property transfer instrument in respect of a building society

instrument: nature
may—

(a)
cancel shares in the building society;

(b)
confer rights and impose liabilities in place of cancelled

shares (whether by way of actual or deemed shares in a

20

transferee building society or by way of other rights

and liabilities in relation to a transferee bank).

30 and
Property transfer
A property transfer instrument in respect of a bank which

33
instrument: continuity
provides for transfer to a building society may confer rights and

impose liabilities by way of actual or deemed shares in the

25

building society.

31
Property transfer
A property transfer instrument may, in particular, have effect

instrument: effect
without causing sections 93 to 102D of the Building Societies Act

1986 (mergers and transfers) to apply.

39
Supplemental
A supplemental property transfer instrument in respect of a

30

property transfer
building society may—

instrument
(a)
cancel shares in the building society;

(b)
confer rights and impose liabilities in place of cancelled

shares (whether by way of actual or deemed shares in a

transferee building society or by way of other rights

35

and liabilities in relation to a transferee bank).

41
Temporary public
(a)
Section 41 applies following an order under section 72

ownership: property
as following a share transfer order.

transfer
(b)
A property transfer order in respect of a building

society may cancel shares in the building society.

40

44 to 56
Compensation
(a)
A reference to a share transfer order includes a

reference to an order under section 72.

(b)
A resolution fund order may not be made under

section 47(2)(b).

(c)
If and in so far as an order under section 72 provides

45

for the issue of new deferred shares, section 47(2) shall

not apply.

57 to 65
Incidental functions
A reference to a share transfer order includes a reference to an

order under section 72.

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Part 1 — Special Resolution Regime
36

72
Temporary public ownership
(1)
For the purpose of exercising the third stabilisation option in respect of a
building society the Treasury may make one or more orders for the purposes
of—
(a)
arranging for deferred shares of a building society to be publicly
5
owned,
(b)
cancelling private membership rights in the building society,
(c)
allowing the building society to continue in business while in public
ownership, and
(d)
eventually either winding up or dissolving the building society.
10
(2)
For the purpose specified in subsection (1)(a) an order may—
(a)
arrange for the transfer of existing deferred shares;
(b)
provide for new deferred shares.
(3)
For the purpose of arranging for the transfer of existing deferred shares an
order may—
15
(a)
provide for deferred shares to be transferred;
(b)
make other provision for the purposes of, or in connection with, the
transfer of deferred shares (whether or not the transfer has been or is to
be effected by the order, by another order under this section or
otherwise);
20
(c)
relate to all or any specified class or description of deferred shares
issued by the building society.
(4)
For the purpose of providing for new deferred shares an order may—
(a)
issue or allow the Treasury to issue new deferred shares on behalf of the
building society;
25
(b)
specify or allow the Treasury to specify the terms and effect of new
deferred shares;
(c)
specify or allow the Treasury to specify the recipient of new deferred
shares.
(5)
For the purpose specified in subsection (1)(b) an order may—
30
(a)
cancel or permit the cancellation of shares (whether or not deferred) in
the building society;
(b)
confer rights and impose liabilities, or allow them to be conferred and
imposed, in place of cancelled shares;
(c)
prevent the issue or acquisition of shares in or other rights in respect of
35
the building society otherwise than in accordance with the order.
(6)
For the purpose specified in subsection (1)(c) an order may make any provision
which the Treasury think desirable to facilitate the business of the building
society after the making of provision in accordance with subsections (3) to (5).
(7)
An order in respect of a building society may—
40
(a)
make provision expressly or impliedly disapplying or modifying the
memorandum or rules of the building society;
(b)
disapply or modify an enactment about, or in its application to,
building societies.
(8)
The following sections apply to orders under this section as to share transfer
45
orders: sections 16, 17, 19, 20, 21, 22, 24, 61, 62 and 63.

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Part 1 — Special Resolution Regime
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73
Distribution of assets on dissolution or winding up
(1)
The Treasury may by order make provision about the distribution of surplus
assets of a building society which—
(a)
is the subject of a property transfer instrument or order, and
(b)
is later wound up or dissolved by consent.
5
(2)
An order under section 72 may include provision about the distribution of
surplus assets of the building society if it is later wound up or dissolved by
consent.
(3)
“Surplus” means remaining after the satisfaction of liabilities to creditors and
shareholders.
10
(4)
An order under or by virtue of this section—
(a)
may include any provision of a kind that may be made by order under
section 90B of the Building Societies Act 1986 (power to alter priorities
on dissolution or winding up),
(b)
may be made whether or not the power under that section has been
15
exercised, and
(c)
shall be treated for all procedural purposes in the same way as an order
under that section.
74
Interpretation
(1)
Expressions used in this group of sections and in the Building Societies Act
20
1986 have the same meaning in this group of sections as in that Act.
(2)
An order under section 119(1) of that Act defining “deferred shares”—
(a)
may make special provision for the meaning of that expression in the
application of this group of sections, and
(b)
shall otherwise apply to this group of sections as to that Act.
25
75
Consequential provision
(1)
The Treasury may by order make provision, in addition to the provisions of
this group of sections, in consequence of the application of this Part to building
societies.
(2)
An order may, in particular, amend or modify the effect of an enactment
30
(including a fiscal enactment) passed before the commencement of this Part.
(3)
An order—
(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.
35
76
Credit unions
(1)
The Treasury may by order provide for the application of this Part to credit
unions (within the meaning of section 31 of the Credit Unions Act 1979) subject
to modifications set out in the order.
(2)
An order may disapply, modify or apply (with or without modifications) any
40
enactment which relates, or in so far as it relates, to credit unions.

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Part 2 — Bank Insolvency
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(3)
An order—
(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.
(4)
Provision made under or by virtue of this Part may make special provision in
5
relation to the application of this Part to credit unions.
(5)
In the application of this section to Northern Ireland the reference to section 31
of the Credit Unions Act 1979 is to be treated as a reference to Article 2 of the
Credit Unions (Northern Ireland) Order 1985.
Part 2
10
Bank Insolvency
Introduction
77
Overview
(1)
This Part provides for a procedure to be known as bank insolvency.
(2)
The main features of bank insolvency are that—
15
(a)
a bank enters the process by court order,
(b)
the order appoints a bank liquidator,
(c)
the bank liquidator aims to arrange for the bank’s eligible depositors to
have their accounts transferred or to receive their compensation from
the FSCS,
20
(d)
the bank liquidator then winds up the bank, and
(e)
for those purposes, the bank liquidator has powers and duties of
liquidators, as applied and modified by the provisions of this Part.
(3)
The Table describes the provisions of this Part.

Sections
Topic

25

Sections 77 to 80
Introduction

Sections 81 to 85
Bank insolvency order

Sections 86 to 92
Process of bank liquidation

Sections 93 to 99
Tenure of bank liquidator

Sections 100 to 103
Termination of process, &c.

30

Sections 104 to 109
Other processes

Sections 110 to 122
Miscellaneous

78
Interpretation: “bank”
(1)
In this Part “bank” means a UK institution which has permission under Part 4
of the Financial Services and Markets Act 2000 to carry on the regulated
35
activity of accepting deposits (within the meaning of section 22 of that Act,
taken with Schedule 2 and any order under section 22).

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Part 2 — Bank Insolvency
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(2)
But “bank” does not include—
(a)
a building society within the meaning of section 119 of the Building
Societies Act 1986,
(b)
a credit union within the meaning of section 31 of the Credit Unions Act
1979, or
5
(c)
any other class of institution excluded by an order made by the
Treasury.
(3)
In subsection (1) “UK institution” means an institution which is incorporated
in, or formed under the law of any part of, the United Kingdom.
(4)
An order under subsection (2)(c)—
10
(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.
(5)
Section 117 makes provision for the application of this Part to building
societies.
15
(6)
Section 118 makes provision for the application of this Part to credit unions.
79
Interpretation: “the court”
In this Part “the court” means—
(a)
in England and Wales, the High Court,
(b)
in Scotland, the Court of Session, and
20
(c)
in Northern Ireland, the High Court.
80
Interpretation: other expressions
(1)
In this Part “the FSA” means the Financial Services Authority.
(2)
In this Part a reference to “the FSCS” is a reference to—
(a)
the Financial Services Compensation Scheme (established under Part
25
15 of the Financial Services and Markets Act 2000), or
(b)
where appropriate, the scheme manager of that Scheme.
(3)
In this Part “eligible depositors” means depositors who are eligible for
compensation under the FSCS.
(4)
For the purposes of a reference in this Part to inability to pay debts—
30
(a)
a bank that is in default on an obligation to pay a sum due and payable
under an agreement, is to be treated as unable to pay its debts, and
(b)
section 123 of the Insolvency Act 1986 (inability to pay debts) also
applies; and

for the purposes of paragraph (a) “agreement” means an agreement the
35
making or performance of which constitutes or is part of a regulated activity
carried on by the bank.
(5)
Expressions used in this Part and in the Insolvency Act 1986 have the same
meaning as in that Act.
(6)
Expressions used in this Part and in the Companies Act 2006 have the same
40
meaning as in that Act.
(7)
A reference in this Part to action includes a reference to inaction.

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Part 2 — Bank Insolvency
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(8)
The expression “fair” is used in this Part as a shorter modern equivalent of the
expression “just and equitable” (and is not therefore intended to exclude the
application of any judicial or other practice relating to the construction and
application of that expression).
Bank insolvency order
5
81
The order
(1)
A bank insolvency order is an order appointing a person as the bank liquidator
of a bank.
(2)
A person is eligible for appointment as a bank liquidator if qualified to act as
an insolvency practitioner.
10
(3)
An appointment may be made only if the person has consented to act.
(4)
A bank insolvency order takes effect in accordance with section 85; and—
(a)
the process of a bank insolvency order having effect may be described
as “bank insolvency” in relation to the bank, and
(b)
while the order has effect the bank may be described as being “in bank
15
insolvency”.
82
Application
(1)
An application for a bank insolvency order may be made to the court by—
(a)
the Bank of England,
(b)
the FSA, or
20
(c)
the Secretary of State.
(2)
An application must nominate a person to be appointed as the bank liquidator.
(3)
The bank must be given notice of an application, in accordance with rules
under section 411 of the Insolvency Act 1986 (as applied by section 112 below).
83
Grounds for applying
25
(1)
In this section—
(a)
Ground A is that a bank is unable, or likely to become unable, to pay its
debts,
(b)
Ground B is that the winding up of a bank would be in the public
interest, and
30
(c)
Ground C is that the winding up of a bank would be fair.
(2)
The Bank of England may apply for a bank insolvency order only if—
(a)
the FSA has informed the Bank of England that the FSA is satisfied that
Conditions 1 and 2 in section 7 are met, and
(b)
the Bank of England is satisfied—
35
(i)
that the bank has eligible depositors, and
(ii)
that Ground A or C applies.
(3)
The FSA may apply for a bank insolvency order only if—
(a)
the Bank of England consents, and
(b)
the FSA is satisfied—
40

Banking Bill
Part 2 — Bank Insolvency
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(i)
that Conditions 1 and 2 in section 7 are met,
(ii)
that the bank has eligible depositors, and
(iii)
that Ground A or C applies.
(4)
The Secretary of State may apply for a bank insolvency order only if satisfied—
(a)
that the bank has eligible depositors, and
5
(b)
that Ground B applies.
(5)
The sources of information on the basis of which the Secretary of State may be
satisfied of the matters specified in subsection (4) include those listed in section
124A(1) of the Insolvency Act 1986 (petition for winding up on grounds of
public interest).
10
84
Grounds for making
(1)
The court may make a bank insolvency order on the application of the Bank of
England or the FSA if satisfied—
(a)
that the bank has eligible depositors, and
(b)
that Ground A or C of section 83 applies.
15
(2)
The court may make a bank insolvency order on the application of the
Secretary of State if satisfied—
(a)
that the bank has eligible depositors, and
(b)
that Grounds B and C of section 83 apply.
(3)
On an application for a bank insolvency order the court may—
20
(a)
grant the application in accordance with subsection (1) or (2),
(b)
adjourn the application (generally or to a specified date), or
(c)
dismiss the application.
85
Commencement
(1)
A bank insolvency order shall be treated as having taken effect in accordance
25
with this section.
(2)
In the case where—
(a)
notice has been given to the FSA under section 107 of an application for
an administration order or a petition for a winding up order, and
(b)
the FSA or the Bank of England applies for a bank insolvency order in
30
the period of 2 weeks specified in Condition 3 in that section,

the bank insolvency order is treated as having taken effect when the
application or petition was made or presented.
(3)
In any other case, the bank insolvency order is treated as having taken effect
when the application for the order was made.
35
(4)
Unless the court directs otherwise on proof of fraud or mistake, proceedings
taken in the bank insolvency, during the period for which it is treated as having
had effect, are treated as having been taken validly.