Banking Bill

House of Commons

Session 2007 - 08
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Other Bills before Parliament

Banking Bill

Banking Bill
Part 2 — Bank Insolvency
44

Bank insolvency order
88
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
5
an insolvency practitioner.
(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 92; and—
(a)
the process of a bank insolvency order having effect may be described
as “bank insolvency” in relation to the bank, and
10
(b)
while the order has effect the bank may be described as being “in bank
insolvency”.
89
Application
(1)
An application for a bank insolvency order may be made to the court by—
(a)
the Bank of England,
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(b)
the FSA, or
(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 119 below).
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90
Grounds for applying
(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
25
interest, and
(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
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(b)
the Bank of England is satisfied—
(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
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(b)
the FSA is satisfied—
(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—
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Banking Bill
Part 2 — Bank Insolvency
45

(a)
that the bank has eligible depositors, and
(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
5
public interest).
91
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
10
(b)
that Ground A or C of section 90 applies.
(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 90 apply.
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(3)
On an application for a bank insolvency order the court may—
(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.
92
Commencement
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(1)
A bank insolvency order shall be treated as having taken effect in accordance
with this section.
(2)
In the case where—
(a)
notice has been given to the FSA under section 114 of an application for
an administration order or a petition for a winding up order, and
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(b)
the FSA or the Bank of England applies for a bank insolvency order in
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
30
when the application for the order was made.
(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.
Process of bank liquidation
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93
Objectives
(1)
A bank liquidator has two objectives.
(2)
Objective 1 is to work with the FSCS so as to ensure that as soon as is
reasonably practicable each eligible depositor—
(a)
has the relevant account transferred to another financial institution, or
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Banking Bill
Part 2 — Bank Insolvency
46

(b)
receives payment from (or on behalf of) the FSCS.
(3)
Objective 2 is to wind up the affairs of the bank so as to achieve the best result
for the bank’s creditors as a whole.
(4)
Objective 1 takes precedence over Objective 2 (but the bank liquidator is
obliged to begin working towards both objectives immediately upon
5
appointment).
94
Liquidation committee
(1)
Following a bank insolvency order a liquidation committee must be
established, for the purpose of ensuring that the bank liquidator properly
exercises the functions under this Part.
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(2)
The liquidation committee shall consist initially of 3 individuals, one
nominated by each of—
(a)
the Bank of England,
(b)
the FSA, and
(c)
the FSCS.
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(3)
The bank liquidator must report to the liquidation committee about any
matter—
(a)
on request, or
(b)
which the bank liquidator thinks is likely to be of interest to the
liquidation committee.
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(4)
In particular, the bank liquidator—
(a)
must keep the liquidation committee informed of progress towards
Objective 1 in section 93, and
(b)
must notify the liquidation committee when in the bank liquidator’s
opinion Objective 1 in section 93 has been achieved entirely or so far as
25
is reasonably practicable.
(5)
As soon as is reasonably practicable after receiving notice under subsection
(4)(b) the liquidation committee must either—
(a)
resolve that Objective 1 in section 93 has been achieved entirely or so
far as is reasonably practicable (a “full payment resolution”), or
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(b)
apply to the court under section 168(5) of the Insolvency Act 1986 (as
applied by section 97 below).
(6)
Where a liquidation committee passes a full payment resolution—
(a)
the bank liquidator must summon a meeting of creditors,
(b)
the meeting may elect 2 or 4 individuals as new members of the
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liquidation committee,
(c)
those individuals replace the members nominated by the Bank of
England and the FSA,
(d)
the FSCS may resign from the liquidation committee (in which case 3 or
5 new members may be elected under paragraph (b)), and
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(e)
if no individuals are elected under paragraph (b), or the resulting
committee would have fewer than 3 members or an even number of
members, the liquidation committee ceases to exist at the end of the
meeting.

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Part 2 — Bank Insolvency
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(7)
Subject to provisions of this section, rules under section 411 of the Insolvency
Act 1986 (as amended by section 119 below) may make provision about—
(a)
the establishment of liquidation committees,
(b)
the membership of liquidation committees,
(c)
the functions of liquidation committees, and
5
(d)
the proceedings of liquidation committees.
95
Liquidation committee: supplemental
(1)
A meeting of the liquidation committee may be summoned—
(a)
by any of the members, or
(b)
by the bank liquidator.
10
(2)
While the liquidation committee consists of the initial members (or their
nominated replacements) a meeting is quorate only if all the members are
present.
(3)
A person aggrieved by any action of the liquidation committee before it has
passed a full payment resolution may apply to the court, which may make any
15
order (including an order for the repayment of money).
(4)
The court may (whether on an application under subsection (3), on the
application of a bank liquidator or otherwise) make an order that the
liquidation committee is to be treated as having passed a full payment
resolution.
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(5)
If a liquidation committee fails to comply with section 94(5) the bank liquidator
must apply to the court—
(a)
for an order under subsection (4) above, or
(b)
for directions under or by virtue of section 168(3) or 169(2) of the
Insolvency Act 1986 as applied by section 97 below.
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(6)
A nominating body under section 94(2) may replace its nominee at any time.
(7)
After the removal of the nominated members under section 94(6)(c) the FSA
and the Bank of England—
(a)
may attend meetings of the liquidation committee,
(b)
are entitled to copies of documents relating to the liquidation
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committee’s business,
(c)
may make representations to the liquidation committee, and
(d)
may participate in legal proceedings relating to the bank insolvency.
(8)
Where a liquidation committee ceases to exist by virtue of section 94(6)(e)—
(a)
it may be re-formed by a creditors’ meeting summoned by the bank
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liquidator for the purpose, and
(b)
the bank liquidator must summon a meeting for the purpose if
requested to do so by one-tenth in value of the bank’s creditors.
(9)
Where a liquidation committee ceases to exist by virtue of section 94(6)(e) and
has not been re-formed under subsection (8) above—
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(a)
ignore a reference in this Part to the liquidation committee,
(b)
for section 107(2) to (4) substitute requirements for the bank liquidator,
before making a proposal—
(i)
to produce a final report,
(ii)
to send copies in accordance with section 107(2)(b),
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Banking Bill
Part 2 — Bank Insolvency
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(iii)
to make it available in accordance with section 107(2)(c), and
(iv)
to be satisfied as specified in section 107(4)(b),
(c)
ignore Condition 2 in section 108, and
(d)
for section 109(1) to (5) substitute a power for the bank liquidator to
apply to the Secretary of State or Accountant of Court for release and
5
requirements that before making an application the bank liquidator
must—
(i)
produce a final report,
(ii)
send copies in accordance with section 109(2)(b),
(iii)
make it available in accordance with section 109(2)(c), and
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(iv)
notify the court and the registrar of companies of the intention
to vacate office and to apply for release.
96
Objective 1: (a) or (b)?
(1)
As soon as is reasonably practicable, a liquidation committee must recommend
the bank liquidator to pursue—
15
(a)
Objective 1(a) in section 93,
(b)
Objective 1(b) in section 93, or
(c)
Objective 1(a) for one specified class of case and Objective 1(b) for
another.
(2)
In making a recommendation the liquidation committee must consider—
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(a)
the desirability of achieving Objective 1 as quickly as possible, and
(b)
Objective 2 in section 93.
(3)
If the liquidation committee thinks that the bank liquidator is failing to comply
with their recommendation, they must apply to the court for directions under
section 168(5) of the Insolvency Act 1986 (as applied by section 97 below).
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(4)
Where the liquidation committee has not made a recommendation the bank
liquidator may apply to the court under section 95(3); and the court may, in
particular, make a direction in lieu of a recommendation if the liquidation
committee fail to make one within a period set by the court.
97
General powers, duties and effect
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(1)
A bank liquidator may do anything necessary or expedient for the pursuit of
the Objectives in section 93.
(2)
The following provisions of this section provide for—
(a)
general powers and duties of bank liquidators (by application of
provisions about liquidators), and
35
(b)
the general process and effects of bank insolvency (by application of
provisions about winding up).
(3)
The provisions set out in the Table apply in relation to bank insolvency as in
relation to winding up, with—
(a)
the modifications set out in subsection (4),
40
(b)
any other modification specified in the Table, and
(c)
any other necessary modification.
(4)
The modifications are that—
(a)
a reference to the liquidator is a reference to the bank liquidator,

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Part 2 — Bank Insolvency
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(b)
a reference to winding up is a reference to bank insolvency,
(c)
a reference to winding up by the court is a reference to the imposition
of bank insolvency by order of the court,
(d)
a reference to being wound up under Part IV or V of the Insolvency Act
1986 is a reference to being made the subject of a bank insolvency order,
5
(e)
a reference to the commencement of winding up is a reference to the
commencement of bank insolvency,
(f)
a reference to going into liquidation is a reference to entering bank
insolvency,
(g)
a reference to a winding-up order is a reference to a bank insolvency
10
order, and
(h)
a reference to a company is a reference to the bank.
(5)
Powers conferred by this Act, by the Insolvency Act 1986 (as applied) and the
Companies Acts are in addition to, and not in restriction of, any existing
powers of instituting proceedings against a contributory or debtor of a bank,
15
or the estate of any contributory or debtor, for the recovery of any call or other
sum.
(6)
A reference in an enactment or other document to anything done under a
provision applied by this Part includes a reference to the provision as applied.
TABLE OF APPLIED PROVISIONS
20

Provision of
Subject
Modification or comment

Insolvency

Act 1986

Section 127
Avoidance of property
Ignore section 127(2).

dispositions

25

Section 128
Avoidance of attachment, &c.

Section 130
Consequences of winding-up
Ignore section 130(4).

order

Section 131
Company’s statement of affairs
(a)
Treat references to the official

receiver as references to the bank

30

liquidator.

(b)
A creditor or contributory of the

bank is entitled to receive a copy of a

statement under section 131 on

request to the bank liquidator.

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Banking Bill
Part 2 — Bank Insolvency
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Provision of
Subject
Modification or comment

Insolvency

Act 1986

Section 135
Provisional appointment
(a)
Treat the reference to the

presentation of a winding-up

5

petition as a reference to the making

of an application for a bank

insolvency order.

(b)
Subsection (2) applies in relation to

England and Wales and Scotland

10

(and subsection (3) does not apply).

(c)
Ignore the reference to the official

receiver.

(d)
Only a person who is qualified to act

as an insolvency practitioner and

15

who consents to act may be

appointed.

(e)
A provisional bank liquidator may

not pay dividends to creditors.

(f)
The appointment of a provisional

20

bank liquidator lapses on the

appointment of a bank liquidator.

Section 143
General functions of liquidator
(a)
Section 143(1) is subject to Objective

1 in section 93 above.

(b)
Ignore section 143(2).

25

Section 144
Custody of property

Section 145
Vesting of property

Section 146
Duty to summon final meeting
Section 146 is not applied - but section 109 below

makes similar provision.

Section 147
Power to stay or sist
An application may be made only by—

30

proceedings
(a)
the bank liquidator,

(b)
the FSA,

(c)
the Bank of England,

(d)
the FSCS, or

(e)
a creditor or contributory (but only

35

if the liquidation committee has

passed a full payment resolution).

Section 148
List of contributories and
By virtue of the Insolvency Rules the functions

application of assets
under this section are largely delegated to the

liquidator - rules by virtue of section 119 may

40

achieve a similar delegation to the bank

liquidator.

Section 149
Debts due from contributories

Section 150
Power to make calls

Section 152
Order on contributory: evidence

45

Section 153
Exclusion of creditors

Section 154
Adjustment of rights of

contributories

Section 155
Inspection of books by creditors
In making or considering whether to make an

order under section 155 the court shall have

50

regard to Objective 1 in section 93 above.