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129. Subsection (1) enables the independent valuer to do anything necessary or desirable in relation to the performance of his functions. Subsections (2) to (4) enable the Treasury through the order in question to make provision to assist the independent valuer in the discharge of his functions, for example by providing him with certain powers.
130. Subsection (4) gives the independent valuer the power to appoint staff.
131. Subsection (6) requires the order to provide for the reconsideration of the decisions of the valuer, and for onwards rights of appeal from the valuer to a court or tribunal.
132. Under Subsection (7) the independent valuer and his staff are not servants of the Crown, and subsection (8) provides that the records of the independent valuer are public records for the purposes of the Public Records Act 1958.
133. Subsection (1) allows the order to make provision for the remuneration and allowances of the independent valuer, his staff and any appointing persons. Although such payments will be made by the Treasury, the order will require the Treasury to appoint a person to monitor the arrangements made for the remuneration and allowances (subsection (2)). Further functions may be conferred on the monitor, such as requiring his approval to certain actions.
134. Subsections (2)(c)and (d) give the Treasury a power to include provision in the order about records, accounts and staff resources. This clause also provides that the independent valuer and his staff are not liable for damages for anything done in good faith when undertaking their respective roles in relation to independent valuation (save in respect of awards of damages under the Human Rights Act 1998, for unlawful actions under that Act).
135. Subsection (1) allows a compensation order and a third party compensation order (by virtue of subsection (6)) to specify valuation principles to be applied during the determination of the amount of compensation either under a compensation scheme order or third party compensation order. Subsection (2) establishes that valuation principles may require an independent valuer to apply specific methods of valuation, assess values at specified dates or periods, take specified matters into account or not take specified matters into account.
136. Subsection (3) requires the valuer to disregard actual or potential financial assistance provided by the Bank of England or Treasury (other than ordinary market assistance offered by the Bank on its usual terms).
137. Subsection (4) sets out assumptions as to the position of the bank that can or may be required to be taken into account by the valuer. These include that the bank has had a permission under Part IV of Financial Services and Markets Act 2000 varied or cancelled; that it is unable to continue as a going concern; that it is in administration; or that it is being wound up. Subsection (5) provides that there is nothing to prevent the application of valuation principles from resulting in no compensation being payable.
138. A resolution fund order may provide for persons to share in the proceeds of the disposal of things transferred (for example, the full or partial sale of a bridge bank whether through business or share transfer). Subsection (1) further provides for the order to provide for how proceeds and shares are to be calculated.
139. Subsection (2) allows for any payments to be net of resolution costs, which include public financial assistance or administrative expenses.
140. Subsection (3) provides that a resolution fund order can confer discretion on a number of people and subsection (4) may include provision for the determination of disputes about the application of its provisions.
141. Subsection (5) allows the Treasury to place a management duty on the Bank of England in managing the bridge bank and set out how the Bank is to meet this duty. This management duty will be subservient to the SRR objectives. Subsection (6) enables a similar duty to be imposed on the Treasury, in cases where the Treasury elects to make a resolution fund order following a transfer of a bank to temporary public ownership.
Clause 54: Third party compensation: discretionary provision
142. Subsection (1) provides that a third party compensation order is about setting up a scheme for determining any compensation to be paid to persons other than a transferor, for example, any creditors of the failed bank who have suffered compensatable interference with a property right. Compensation for transferors is dealt with under compensation scheme orders.
143. Subsection (2) provides that a third party compensation order can be a part of a compensation scheme order or a resolution fund order or may be separate.
144. Subsection (3) provides that a third party compensation order may include provisions for arranging to appoint an independent valuer and to apply the valuation principles.
Clause 55: Third party compensation: mandatory provision
145. This clause contains a power to make regulations about third party compensation orders made in the circumstances where a partial transfer of the property of a failed bank has taken place.
146. Subsection (2) sets out the principle that where a residual bank is wound up following such a transfer, pre-transfer creditors (defined in subsection (3)(b)) should not receive less favourable treatment they would have received than had the bank been wound up prior to the partial transfer. Treasury is to have regard to the principle in making regulations under the clause.
147. Subsection (4). The regulations may require a third party compensation order to be made. The regulations may also require a third party compensation order to include certain provisions or the regulations may make provisions that are deemed to be a part of the third party compensation orders.
148. Subsection (5) enables the regulations to provide for whether compensation is to be paid, its amount and the factors upon which the determination of the amount is to be made. Any factors could be included, particular factors are, in part, the amount payable under a resolution fund order, contingent events and a determination by an independent valuer.
149. The regulations are to be made by the affirmative procedure.
150. The procedure for a compensation scheme order, a resolution fund order and a third party compensation order is that they must be made by statutory instrument subject to the draft affirmative procedure. Other orders to be made by the Treasury are subject to the negative procedure.
151. This clause provides for services to be provided to a transferee from the transferor and other companies within the group through means of a general obligation, following a transfer of property. Subsection (5) provides that the obligation is not limited to the provision of services and facilities directly to the transferee.
152. Subsection (2) provides that the residual bank and each group company (as defined in subsection (1)) must provide such services and facilities as required to enable the transferee to operate the transferred business effectively. This duty may be enforced as a contract (subsection (3)).
153. As provided by subsection (6), the Bank of England may, with the consent of the Treasury, by notice to the residual bank or group company require specific activities to be undertaken (or provide that activities are to be undertaken on specific terms).
154. Subsection (4) provides that market terms can be imposed by the residual bank or group company.
155. This clause provides for the Bank of England, through property transfer instrument, to create or vary rights and obligations between a transferee, a residual bank and group companies of the residual bank. It applies following the exercise of property transfer powers.
156. Subsection (2) describes the particular provision which the Bank of England can make in a property transfer instrument in this connection.
157. Subsection (3) provides that the Bank of England shall aim to preserve or include provision for consideration at market rate and terms.
158. Subsection (4) provides that the powers under subsection (2) 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 required to operate the transferred business effectively. The Treasury must consent to the exercise of this power.
159. This clause makes provision for services to be provided to a transferee from former group companies through means of a general obligation, following a transfer of securities. Subsection (5) provides that the obligation is not limited to the provision of services and facilities directly to the transferee.
160. Subsection (2) provides that each former group company (as defined in subsection (1)) must provide such services and facilities as required to enable the transferred bank to operate effectively. This duty may be enforced as a contract (subsection (3)).
161. As provided by subsection (6), the Treasury or Bank of England (with the consent of the Treasury), may by notice to the former group company (as described in subsection (7)), state that specific activities on specific terms should be undertaken.
162. Subsection (4) provides that market terms may be imposed by the former group company.
163. This clause provides for the relevant authority, through share transfer instrument or order, to create or vary rights and obligations between a transferred bank and former group companies. It applies following the exercise of share transfer powers.
164. Subsection (2) describes how the Treasury or the Bank of England (with the consent of the Treasury) may create, modify or cancel contracts between the transferee, and the group company (as defined in clause 59).
165. Subsection (3) provides that the continuing authority shall aim to preserve or include provision for consideration at market rate and terms.
166. Subsection (4) provides that the powers under subsection (2) may be exercised only in so far as the Bank of England or Treasury thinks it necessary to ensure the provision of such services and facilities as are required to operate the transferred business effectively.
167. This clause allows for a share transfer instrument or order or a property transfer instrument to make provision in relation to pensions. The power may be exercised to make provision about the consequences of a transfer of securities or property etc. for pension schemes. For example, the need to make such provision could arise when the pension schemes of employees who are subject to the transfer form part of the pension scheme of a wider corporate group.
168. Subsection (5) provides that this power may be exercised only by the Bank of England, with the consent of the Treasury.
169. The purpose of this clause is to enable provision to be made as to the enforcement obligations arising under share transfer instruments and orders and property transfer instruments.
170. It allows for provision to be made for enforcement of an obligation under the share transfer order or instrument.
171. Provision may not include creating a criminal offence or impose a penalty, but may impose jurisdiction on a court or tribunal, this may include a creating an enforceable private law right or statutory duty.
172. This clause makes provision for share transfer orders or property transfer orders made by the Treasury to include a method for disputes to be determined. Such a method may include conferring jurisdiction on a particular court or tribunal or discretion on a specified person.
173. This clause enables the Treasury to make regulations including provision in relation to tax in connection with the exercise of powers in this Part of the Bill.
174. Subsection (2) sets out the taxes in relation to which provision may be made.
175. Subsections (3), (4), (5) and (6) set out the effects which the regulations may have. The regulations may have retrospective effect but only up to three months before the date the stabilisation power is first exercised in relation to the bank concerned.
176. Subsection (7) allows the Treasury to change the taxes listed in subsection (2) by order. Subsections (8), (9) and (10) set out the procedures to be followed in making regulations and orders.
177. This clause enables the Treasury to modify legislation (both primary and secondary) and the provisions of common law for the purpose of enabling the powers in Part 1 to be used effectively, having regard to the objectives of the special resolution regime. Subsection (3) establishes that such an order may make provision which has retrospective effect.
178. The power is to be exercised by order and is subject to the affirmative procedure. In cases of urgency, the clause makes provision for the Treasury to make the order immediately, following which there are 28 days for both Houses of Parliament to approve the order, failing which, the order would lapse.
179. This clause describes the role of the Treasury in meeting international obligations when the stabilisation powers are being exercised
180. Subsection (1) provides that the Treasury, by notice in writing, may require the Bank of England not to exercise a stabilisation power where that exercise would be likely to contravene an international obligation of the UK. Subsection (2) sets out the procedure for such notices. Subsection (3) provides that, if the Treasury gives notice that an action would be likely to contravene an international obligation, then the Bank of England must consider alternative actions, which both pursue the SRR objectives and avoid the objections on which Treasurys notice or refusal was based. Subsection (4) allows the Treasury, by notice, to disapply the requirement to consider alternative actions (as set out in subsection (3)). Such notice may be revoked.
181. This clause describes the role of the Treasury with regard to meeting international obligations when controlling a bridge bank.
182. Subsection (2) states that the Bank of England must comply with any notice provided by the Treasury, for the purpose of ensuring compliance by the UK with its international obligations, to take or not to take specified action in respect of a bridge bank
183. Subsection (3) sets out the procedure for such notices
184. Subsection (4) provides that a notice may include requirements on timing
185. This clause describes the role of the Treasury with regard to public funds when the stabilisation powers are being exercised. It provides that the Bank of England may not exercise a stabilisation power without the Treasurys consent if the exercise would be likely to have implications for public funds.
186. Subsection (2) defines public funds and implications for public funds
187. Subsection (3) provides the Treasury with the power, by order, to specify considerations that should or should not be taken into account in determining whether action has implications for public funds
188. Subsection (4) requires the Bank to consider another exercise of the stabilisation powers if the Treasury has refused consent. In doing so the Bank must pursue the special resolution regime objectives and avoid the objections that the Treasury first made.
189. Subsection (5) allows the Treasury, by notice, to disapply the requirement to consider alternative actions (as set out in subsection(4)). Such notice may be revoked.
190. This clause describes the role of the Treasury with regard to public funds when controlling a bridge bank
191. Subsection (2) states that the Bank of England may not take any action in respect of the bridge bank without the Treasurys consent if the action would be likely to have implications for public funds.
192. Subsection (3) applies clause 68(2) and (3) for the purpose of this clause.
193. This clause sets out requirements for the Bank of England to report to the Treasury on the activities of a bridge bank.
194. Subsections (2) and (3) requires the first report to be made as soon as is reasonably practicable after the end of one year and each subsequent year.
195. Subsection (4) requires the Chancellor of the Exchequer to lay a copy of the reports mentioned in subsections (2) and (3) before Parliament.
196. Subsection (5) requires the Bank of England to comply with any request of the Treasury for a report dealing with specified matters in relation to the bridge bank. The request may include the content or timing (subsection (6)).
197. This clause applies the SRR clauses (with modifications) to building societies. The table sets out these provisions where modifications are made, namely that for a private sector purchaser of a building society a share transfer instrument cannot be made, that there is a separate provision for the temporary public sector ownership tool and that a property instrument for building societies may cancel shares in the building society may confer rights and impose liabilities in place of the cancelled shares and deemed shares, and also confer rights and impose liabilities through actual or deemed shares in a building society.
198. It also provides that a property transfer instrument may have effect without causing parts of the Building Societies Act 1986 to apply (see paragraph 82). A compensation scheme order or a third party compensation order may be made to compensate a building society and its creditors. However, a resolution fund order may not be made for temporary public sector ownership of building societies.
199. This clause provides the powers to take a building society into temporary public ownership.
200. Subsection (1) sets out the procedure and provides that the Treasury may make an order to arrange for deferred shares of a building society to be publicly owned, to cancel private membership rights in the building society, to allow the building society to continue business while in public ownership and for the eventual winding up or dissolution of the building society.
201. Subsection (2) allows the Treasury by order to arrange for the transfer of existing deferred shares or provide for the issue of new deferred shares.
202. Subsection (3) sets out the specific powers for the arranging for the transfer of existing deferred shares, and subsection (4) does the same for the purpose of providing for the issue of new deferred shares by the Treasury on behalf of the building society for a specified recipient.
203. Subsection (5) provides powers to cancel private membership rights in the building society and to allow the rights and liabilities attached to those cancelled shares to be conferred in place of cancelled shares. This would allow, for example, rights attached to shares to be cancelled and replaced with rights to deposits of the same value.
204. Subsection (5) prevents any further issue or acquisition of shares in the building society otherwise than under the Treasurys order.
205. Subsection (6) allows the Treasury to make any provision that it thinks desirable to allow the building society to continue in business while it is in public ownership.
206. Subsection (7) allows the order to disapply or modify the memorandum or rules of a building society in respect of the transfer into public ownership and to make any consequential changes to building society legislation.
207. Subsection (8) applies most provisions relating to the making of share transfer orders to orders made under this clause.
208. This clause allows the Treasury to make provision by order for the distribution of surplus assets of a building society that is subject to a property transfer and then later wound up or dissolved. The order may, for example, also alter priorities on a building societys dissolution or winding up.
209. Subsection (4)(c) makes an order under this clause subject to the affirmative procedure.
210. This clause states that expressions used in this group of clauses (clauses 71 to 75) have the same meaning as in the Building Societies Act 1986. It further states that an order under section 119(1) of the Building Societies Act may make special provision for the meaning of deferred shares with regard to this section of clauses.
The Treasury may, by order, make any consequential provisions to primary and secondary legislation (but not Acts of the Scottish Parliament or secondary legislation made under those acts) required as a result of the application of the special resolution regime to building societies. Any order made under this section is subject to the affirmative procedure
Clause 76: Credit Unions
211. This clause allows the Treasury, by secondary legislation, to apply the SRR clauses to credit unions. An order for this purpose may disapply, modify or apply any enactment, which relates to credit unions in respect of this Part. The order is made by affirmative resolution procedure.
Clause 77: Overview
212. This clause outlines the main features of the bank insolvency procedure which is based largely on the existing liquidation provisions of the Insolvency Act 1986, with modifications where required. The Governments principle reason for seeking to introduce a new insolvency procedure for banks (as an alternative to existing insolvency processes) is to ensure that, where a bank fails, depositors who are eligible claimants under the terms of the Financial Services Compensation Scheme are paid out promptly2.
2 The Financial Services Compensation Scheme was established under Part XV of the Financial Services and Markets Act 2000.
213. The equitable treatment of creditors as a whole is a key feature of the UKs insolvency regime, and the bank insolvency procedure has therefore been designed to enable rapid compensation payments to depositors without creating a regime in which those depositors receive preference over other creditors.
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