Sir
Peter Viggers: I do not wish to oppose the clause. In
noting its importance, I assume that the word “property”
in the present context means anything capable of being owned. I assume
that it is a broad definition and not restricted to real property. I
assume that the word “foreign” means anything that is not
susceptible to UK law. I can see that the Government are trying to make
the proposals as comprehensive as possible. They need to be sweeping
proposals because the subject with which we are dealing is extremely
complicated. 12
pm My
hon. Friend the Member for Wellingborough referred to American law but
I think I am correct in saying it is not American law that would govern
such a contract but the law of Delaware or California or Rhode Island.
That, too, is a
complication. Some
of the instruments that can be brought forward can be extremely opaque.
I remember that the most opaque instrument I was capable of creating
when I operated many years ago was a Liechtenstein Anstalt, which is an
unincorporated body in Liechtenstein, controlled by Virgin Island
bearer shares, which is almost impossible to work through. It is a very
opaque suitcase. So we are dealing with complicated fields which can
require very sweeping provisions.
Subsection
(6) says that
“an obligation
imposed by this section is enforceable as if created by contract
between the transferor and the
transferee.” That
is a sweeping provision indeed. Similarly, subsection (7)(b)
says
that “obligations
imposed by direction are enforceable as if created by contract between
the transferor and the Bank of
England.” It
is important that we keep a sense of proportion in having these
sweeping provisions. If one goes too far with them it may well be
resented by foreign legal bodies and diminish foreign law recognition.
I would be reassured if the Minister could tell me that this point has
been considered, that we have gone as far as we need to go and no
further, that careful consideration
has been given to foreign law recognition and that he is confident that,
insofar as it is possible to ensure the certainty that he desires, this
will indeed be the
result. Ian
Pearson: Let me try to answer some of the direct questions
that have been asked. The hon. Member for Gosport asked about the
definition of foreign. I refer him to subsection (8), which makes it
clear that this is a jurisdiction other than the UK. I am happy to
confirm that property has a wider definition and is not confined to
real
estate. This
is an important clause. Subsection (3) states that
“the transferor
and the transferee must take any necessary steps to ensure that the
transfer is effective as a matter of foreign
law.” It
is not the case, as the hon. Member for Wellingborough suggests, that
we have to have extensive dialogue with other jurisdictions. We are
trying to ensure that the transferor and the transferee fulfil
obligations that we are imposing to take the necessary steps to help
bring about a successful resolution.
Subsection
(4) makes provision for the period before a transfer may be fully
effective as a matter of foreign law. For this period the transferor
must act on behalf of the transferee by holding any property or right
for its benefit and discharging any liability on its behalf. Subsection
(5) makes it clear that expenses incurred by the transferor in relation
to these acts must be met by the transferee.
The hon.
Member for Gosport raised some issues about what he regarded as the
sweeping powers and obligations under subsections (6) and (7). As I
sought to make clear in a previous debate on an amendment, we believe
that it is important that there is enforceability as a contract in the
unlikely instance where someone might be unwilling to comply. As I
explained, in those circumstances there will be potential remedies that
the authorities could bring, such as a claim for substantial damages.
Other contractual remedies could potentially be available to encourage
compliance with the obligation, and I mentioned an interim injunction
or an order for specific performance. We think that it is right that
those enforcement powers are contained in those subsections. As a
general matter of course, however, we would expect to reach agreement
with both the transferor and the transferee about the circumstances
that will pertain with regard to foreign property. As is always the
case when framing legislation, it is of course appropriate to consider
every eventuality, and that is what we are seeking to do with some of
the wording in the clause’s
subsections. Question
put and agreed
to. Clause
36 ordered to stand part of the
Bill. Clause
37 ordered to stand part of the
Bill.
Clause
38Procedure Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: I will raise two brief points on clause 38, which
relates to the procedure followed after a property transfer is made.
The Bank of England is required to send a copy to the relevant bank,
the Treasury, the Financial Services Authority and any other person
specified in the code of practice. I want to raise the issue of the
role of Parliament. I am not suggesting that Parliament
can or should be included within that list, but I assume that the
Treasury would make available a property transfer instrument to
Parliament, or would that not be possible because it contained
information of a sensitive commercial
nature?
My second
point confirms that that would not be confidential because a copy of
the instrument will be placed on the Bank’s website and in two
newspapers. I would be grateful if the Minister could provide some
guidance on that. Clearly, putting something on the website is cheap,
but placing a copy of it in two newspapers might be expensive. Is that
what the Government normally do, and what newspapers do they have in
mind? From my memory of legal practice I know that notices used to be
published in the London Gazzette, but I do not know whether that
is what the Government have in mind. Perhaps the Minister could
elaborate on which newspapers the Government intend to publish a copy
of the instrument
in.
Ian
Pearson: The clause sets out various procedural provisions
in relation to property transfer instruments and is analogous to clause
23, which makes similar provisions for share transfer instruments.
Naturally, the making of a property transfer instrument will follow a
period of intensive consultation between the authorities, and that is
required by the provisions of clauses 7, 8 and 9, which we have already
considered. The Clause adds to that process by providing for a formal
requirement for the Bank of England to send a copy of the instrument to
the FSA and the Treasury.
As the hon.
Member for South-West Hertfordshire suggests, the clause also provides
that the Bank of England should publish a copy of the instrument on its
website and in two newspapers. We think that that is a reasonable
requirement, designed to ensure that an instrument producing legal
effects is adequately publicised and that all appropriate parties are
fully aware of the transfer. In practice, given the ubiquitous nature
of modern media, it is difficult to imagine a transfer being carried
out under the radar, but I confirm that it is not our intention to do
so. That is why we make it explicitly clear in clause 38(2), which
overall is a relatively uncontentious
clause.
Mr.
Bone: Other than not knowing which two newspapers, the
contents of the clause are not contentious. That sort of detail has not
been published on the current nationalisation of the three banks,
although some draft memorandums of share transfers have been placed in
the Library. Will the Government publish in that way the details of the
current situation, even before the Bill goes through the
House?
Ian
Pearson: I shall confine my comments to the Bill. I stress
again that we believe that it is right that the instrument is
adequately publicised, because it alters legal rights. Publication in
newspapers, in addition to on the Bank’s website, seems the most
appropriate option. How much detail will be in the instrument will
depend on the individual case. We have an appropriate procedure in the
clause for the making of the property transfer instrument, and I urge
that the clause stand part of the
Bill. Question
put and agreed
to. Clause
38 ordered to stand part of the
Bill.
Clause
39Supplemental
instruments
Ian
Pearson: I beg to move amendment No. 96, in
clause 39, page 17, line 39, leave
out subsection
(5).
The
Chairman: With this it will be convenient to discuss the
following: Government amendment No.
97. Government
new clause 12—Reverse property
transfer— Government
new clause 13—Temporary public ownership: reverse property
transfer.
Ian
Pearson: The measures in this group are analogous to those
that we debated under clause 25 on the share transfer
powers. I
have already referred to the general context in which transfers may
take place. The general principle is that due to the swiftness with
which the authorities may have to act, and the complex nature of the
businesses that they are acting on, it is sensible to provide for
considerable flexibility. These measures provide further flexibility
for supplemental and reverse property
transfers. Supplemental
and reverse property transfers provide particularly valuable
flexibility for property transfers. Not only do the powers provide the
Bank of England with the means to ensure that an initial property
transfer is effective, but they may also produce a better outcome for
the resolution. For example, a further transfer of property to a bridge
bank may increase the value of the bridge bank, in turn increasing the
amount that a private sector purchaser is prepared to pay for the
business. That will be treated as proceeds of resolution under a bank
resolution fund, the net proceeds being available for the failing
bank. The
Bill already provides flexibility to the Bank of England to make
supplemental transfers in relation to the bridge bank stabilisation
option. The Government consider it desirable to extend that power.
Amendment No. 96 provides the Bank of England with the flexibility to
effect a supplemental property transfer to a private sector purchaser.
As I made clear in the debate last week on the analogous Government
amendment for supplemental share transfers, the measure would be used
where a transfer to a private sector purchaser had occurred at speed
and before all due diligence could be completed. In that situation, a
supplemental transfer of property could be made to ensure that the
purchaser had all the relevant things for carrying on the banking
business
effectively. The
existence of the power should increase the likelihood of an immediate
private sector solution being successful, as commercial purchasers are
assured that the authorities have the means to ensure that the transfer
is fully effective. However, I should emphasise that a supplemental
transfer would never be made simply because a private sector purchaser
had requested it. The action would have to meet the resolution
objectives, and the authorities would have to consider it necessary and
proportionate. New
clauses 12 and 13 introduce powers to make reverse property transfers.
Those powers are available in three situations. The first is when the
Bank of England has made an initial transfer to a bridge bank and
wishes to transfer some of the property back to the failing
bank. The second is when the Treasury has taken a bank into temporary
public ownership, transfers property to a publicly owned onward
transferee and subsequently wishes to transfer some property back to
the bank in temporary public ownership. The third is when the Bank of
England has a bridge bank, transfers some of its property to a publicly
owned onward transferee and subsequently wishes to transfer some
property back to the bridge
bank. 12.15
pm In
summary, the Government amendments provide the flexibility to make
reverse property transfers subject to one constraint—that
property may not be transferred back from the private sector
purchaser.
It may help
the Committee if I provide some examples of how the power may be used.
If the Bank of England had transferred the majority of a failing
bank’s business to a bridge bank but it became clear in due
course that some small aspect of its balance sheet was not attractive
to a private sector purchaser, that item could be transferred back to
the failing bank, allowing the bridge bank to be sold. Another example
would be using the power to transfer back if a particular class of
asset suddenly deteriorated in quality. In summary, the powers may be
used to optimise the balance sheet of the bridge bank.
The partial
transfer safeguards apply to supplemental and reverse property
transfers. They offer three protections. First, the authorities will
need to provide the same degree of protection to set-off and netting
arrangements when effecting supplemental and reverse property
transfers. Secondly, security interests will need to be protected.
Thirdly, supplemental and reverse property transfers will need to be
taken into account when determining the compensation amount for
creditors left in the residual bank. I look forward to debating those
safeguards in detail when we come to clauses 42, 43 and
55. In
addition, the Government consider it appropriate to introduce another
safeguard to run alongside the flexibility provided by the amendments.
It is proposed that secondary legislation should set out a list of
property rights and liabilities that may not be transferred back. For
example, if a creditor in a bridge bank thought that the bridge bank
would be transferred back to the failing bank, the creditor may not
have sufficient confidence to continue doing business with the bridge
bank. In broad terms, the Government therefore propose to protect
liability holders from being transferred back. That, of course,
includes depositors. I emphasise that in no circumstances would
protected depositors be transferred back. The consultation document on
safeguards, published last Thursday, provides further detail on this
point; the document also consults on what types of asset and liability
should be protected.
To conclude,
the Government consider this group of amendments and new clause to be a
worthwhile addition to the Bill. I remind the Committee that when using
the powers provided by the amendments, the authorities must have regard
to the special resolution objectives. They will guide any decision to
make a supplemental or reverse property transfer. I hope that the
Committee will accept the amendments and new
clauses.
Mr.
Gauke: The Minister was right to mention safeguards in
this context. I hope that we will turn to them shortly, although I note
that according to the discussion paper that the Government produced
last week, they are at an
earlier stage of development than others, and draft secondary
legislation has not yet been prepared. We are therefore unable to
debate the detail of reverse and supplemental transfers today. We will
return to that subject later.
The Minister
gave hypothetical examples of how the provisions in the Government
amendments and new clauses would be of assistance. That was a great
help. However, as the Treasury’s consultation paper makes clear,
the amendments are driven by
“the light of
recent
experience”. We
may talk about hypothetical examples, but partial property transfers
have already happened. We have seen it with Bradford & Bingley and
with Kaupthing and Heritable. The Government are therefore able to
benefit from the experience of those processes to find weaknesses
within the system and seek to improve it.
It seems that
the amendments, which have come relatively late in the process, derive
from the experience of Bradford & Bingley and the Icelandic banks.
The Minister will correct me if I am wrong, but that is the impression
given by the Treasury document, which on two occasions says that in the
light of recent experience, the Government consider it appropriate to
increase flexibility.
We are not
against flexibility in these circumstances. We have some sympathy with
what the Government are seeking to do and the Minister made a
reasonable case for the provisions. However, they seem to be a
consequence of something happening in the Bradford & Bingley and
Icelandic bank cases, so it might help the Committee if the Minister
could explain the particular problems that arose in those cases and why
the clauses would be helpful. He gave examples which sounded
hypothetical, but are they in fact rooted in the experience of the past
few weeks?
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