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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,

15

(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).

20

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

30

(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

35

(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—

40

 
 

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.

15

(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

20

(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

25

(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

35

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

40

 
 

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.

10

(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.

15

(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.

20

(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

30

(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

35

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

40

(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.

 
 

Banking Bill
Part 2 — Bank Insolvency

47

 

(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.

20

(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.

25

(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

30

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

35

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—

40

(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),

45

 
 

Banking Bill
Part 2 — Bank Insolvency

48

 

(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

10

(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—

20

(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).

25

(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

30

(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,

 
 

Banking Bill
Part 2 — Bank Insolvency

49

 

(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.

 

35

 
 

Banking Bill
Part 2 — Bank Insolvency

50

 
 

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.

 
 
 

 
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