Ian
Pearson: Let us compare this to the process for a normal
liquidation. We are talking about an initial fast front-end process and
a committee consisting of the FSCS, the Bank of England and the FSA,
working with the liquidator to ensure—probably in
most circumstances—a quick bulk transfer of accounts or fast
payout. After that, the rump of the liquidation would go through the
normal process, with creditors involved on the liquidation committee.
That is how I envisage the process
operating.
Mr.
Hoban: If it is a fast front-end process, does the
Minister envisage the initial liquidation committee lasting for only
one or two weeks, rather than for several months? After all, we have
talked about payments made within seven days and we saw the transfer of
deposits from Bradford & Bingley to Abbey Santander literally
overnight. Subsection (6)(d) suggests that the FSCS may resign from the
liquidation committee. Presumably, if it was still a creditor of a bank
and did not choose to resign, it would remain part of the liquidation
committee and other creditors could
join.
Ian
Pearson: As I have been trying to explain, we are talking
about a two-stage process. I likened it to an initial fast front-end
process. Normally, a month or two into the winding-up proceedings, a
liquidation committee would be formed at the request of creditors
following a meeting of those creditors. The arrangements we are
discussing are not the normal way of doing things; we
have proposed them to try to speed up the process. That is the purpose
of subsections (1) and (2), which provide that following the making of
a bank insolvency order, a liquidation committee must be formed made up
of representatives from the Bank, the FSA and the FSCS. Those are the
appropriate bodies to be included in the initial liquidation
proceedings.
Mr.
Bone: In a normal situation, the Minister would be
correct, but the situation is abnormal. Huge assets are being removed
from the enterprise, which desperately affects the remaining creditors.
Unless he has a particular objection, I cannot see why there cannot be
provision for a creditor to be on that committee, just to represent the
interests of all the other creditors. I do not see what harm there is.
It can only be of benefit, can it not?
Ian
Pearson: A key point in response to the hon. Gentleman is
that the assets are not being removed from the liquidation. The FSCS
pays out when it comes to depositors and will become an ordinary,
unsecured creditor as part of the liquidation. Once we have moved from
stage one of the process, we move to stage two. Once eligible
depositors have been paid by the FSCS, or their accounts have been
transferred, the liquidation committee will pass a full payment
resolution. Following that, if the creditors elect to continue with a
liquidation committee they will take the place of the authorities on
that committee, so we move into a normal liquidation phase. Many of the
formalities concerning membership and the role of an ordinary
liquidation committee are set out in secondary legislation and
subsection (7) preserves that position for the bank insolvency
procedure.
The clause is
important. It provides the authorities with a key role in the early
stages of the proceedings. It enables the FSCS to make a fast payout
and then to stand in the shoes of depositors by being an ordinary
unsecured creditor. Then we move to the second stage of the
liquidation, where the creditors would take the place of the
authorities on the liquidation committee and events would proceed as
with the normal liquidation process with which people are familiar. In
our view, that is a sensible measure, which combines procedures that
will be familiar to companies and their professional advisers with the
short, first phase that we believe is important if we are to achieve
the objectives of the bank insolvency procedure—to ensure a fast
payout through the
FSCS. Question
put and agreed
to. Clause
87 ordered to stand part of the
Bill.
Clause
88Liquidation
committee:
supplemental Question
proposed, That the clause stand part of the
Bill.
Sir
Peter Viggers: It is quite unusual to read that a meeting
is
quorate “only
if all the members are present”,
as specified by
subsection (2). I realise that under subsection (6) it is
possible for the nominating body under clause 87(2) to replace its
nominee at any time, but it could be quite inconvenient to call three
people
together under the same roof at short notice. The point would be
completely resolved if being present was interpreted as being present
in person or by telephone, which may be the interpretation the law
would put on the clause. It is a tiny point, but I should be reassured
if the Minister could look into
it. Ian
Pearson: I confirm that the liquidation we are talking
about in this subsection is stage one of the liquidation process, so it
is just the liquidation committee: the Bank, the FSA and the FSCS. It
is right that all three should be present. I am sure that the Bill has
not been written in a way that is completely inflexible. There would be
representatives from those organisations, but all three should be
present and involved in the decisions that are being taken at the
initial
stage. Question
put and agreed
to. Clause
88 ordered to stand part of the
Bill.
Clause
89Objective
1: (a) or
(b)? Question
proposed, That the clause stand part of the
Bill.
Mr.
Hoban: My assumption regarding the action that the
administrator should take in implementing objective 1—prompt
payout to customers—is that the order of preference for that
action is not as set out in the Bill:
“Objective
1(a)...Objective 1(b)...Objective 1(a) for one specified
class of case and Objective 1(b) for another.
It would actually be
objective 1(a), then the hybrid of 1(a) and 1(b) and, perhaps as a last
resort, objective 1(b), given that 1(a) provides fast payout for all
depositors, the second option provides fast payout for some and the
third is the default. I assume that is how the liquidation committee
would judge the various
options.
Sir
Peter Viggers: Similarly, may I assume that if
circumstances were to change quickly and dramatically—as they
can in a fast-moving situation—it would be possible for the
liquidation committee to change its options and indicate that to the
bank
liquidator?
Ian
Pearson: In direct response to the question put by the
hon. Member for Fareham, it would probably be wrong to speculate on the
detail of future cases. The authorities would want to make a decision
based on the available information. They would be working behind the
scenes to figure out whether a bulk transfer of accounts was possible
in respect of subsection (1)(c). If not, they would obviously resort to
objective 1(b). In the clause, we give the authorities all the options,
but we have to be clear that bulk transfer of accounts would be the
preferred option if someone were willing to take the accounts, and if
the expenses of the bank liquidator cost the FSCS less than paying out
compensation. However, we need to operate case by case. It would be up
to the authorities to make the best decision, based on the information
available at the
time. Question
put and agreed
to. Clause
89 ordered to stand part of the
Bill.
Clause
90general
powers, duties and
effect
Ian
Pearson: I beg to move amendment No. 158, in
clause 90, page 45, line 44, at
end
insert— ‘Section
135 | Provisional
appointment | (a)
Treat the reference to the presentation of a winding-up 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
(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
who consents to act may be
appointed. | | | (e)
A provisional bank liquidator may not pay dividends to
creditors. | | | (f)
The appointment of a provisional bank liquidator lapses on the
appointment of a bank
liquidator.’. |
The
amendment provides for the appointment by a court of a provisional bank
liquidator, following an application for a bank insolvency order.
Clause 82(3) specifies that a bank must be given notice of an
application for such an order. That is important, because to ensure
compatibility with human rights legislation, it is necessary for the
directors of the bank or other parties to put their case to the court
against the making of the order. That is a standard approach in
insolvency
proceedings. There
will thus be a gap between making the application for an insolvency
order, and the court hearing that considers whether it should be made.
It is crucial to avoid the possibility of a run on the bank or any
other scramble for assets during that period. In an ordinary compulsory
liquidation, if it is considered that assets may be at risk in the
period between the filing of an insolvency application and the making
of a winding-up order, the court may appoint a provisional liquidator,
without notice if necessary, to protect the interests of creditors. The
amendment applies that provision to the bank insolvency
procedure. Being
able to appoint a provisional bank liquidator will protect the
interests of all creditors. For example, such a liquidator should be
able to take steps to shut down operations, preventing any scramble for
assets. In practice, the period between the application for a bank
insolvency order and the court hearing is likely to be hours only, but
the court’s facility to appoint a provisional bank liquidator
will be a useful provision if the court needs to adjourn a
hearing. The
possibility of appointing a provisional liquidator is consistent with
ordinary compulsory liquidation, in which a provisional liquidator can
be appointed under section 135 of the Insolvency Act 1986, after a
winding-up petition is filed and before the hearing for the making of
the winding-up order. Such an appointment is generally sought only when
it is more or less certain that the court will make a winding-up order.
A provisional liquidator has powers specified by the court, generally
to protect or preserve a company’s assets pending the
appointment of a liquidator and the making of the winding-up order.
Provisional liquidators are common in high-profile and/or complex cases
where assets are perceived to be at risk
following an application for winding up, such as in situations where it
is thought that the directors might attempt to dispose of assets prior
to the making of a winding-up
order. 2.15
pm Provisional
liquidation, therefore, exists to protect the interests of creditors.
The Committee should note that the provisional bank liquidator’s
powers are limited. For example, modification (e) means that a
provisional bank liquidator may not pay dividends to creditors. Neither
would the provisional bank liquidator be able to facilitate the payout
to depositors under objective 1, as they would have to wait for a
recommendation from the liquidation committee on what option under
objective 1 to pursue. Any ambiguities about the powers of the
provisional liquidation would be clarified by the court when the
appointment was made. We believe that the amendment is necessary and
will help to ensure that we can continue to protect
creditors.
Amendment
agreed
to. Clause
90, as amended, ordered to stand part of the
Bill. Clauses
91 to 100 ordered to stand part of the
Bill.
Clause
101Administration
Ian
Pearson: I beg to move amendment No. 159, in
clause 101, page 54, line 3, after
‘payments’ insert ‘or have their accounts
transferred’. Under
objective 1 of the bank insolvency procedure, which is set out in
clause 86(2), the bank liquidator must either work with the FSCS for
rapid payout to eligible depositors through the scheme or transfer
their accounts to another institution. The amendment is a tidying-up
provision reflecting those two strands of objective 1. Under clause
101(5), the bank liquidator can put the bank into normal administration
only if appropriate arrangements are in place to deal with depositors
still eligible for compensation. The amendment allows those appropriate
arrangements for either the payment of eligible depositors or the
transfer of their account. It is a simple tidying-up
provision. Amendment
agreed
to. Clause
101, as amended, ordered to stand part of the
Bill. Clauses
102 to 106 ordered to stand part of the
Bill.
Clause
107Notice
to FSA of preliminary
steps Question
proposed, That the clause stand part of the
Bill.
Mr.
Hoban: I think I understand what subsection (9) is
intended to do. It is intended to create a condition whereby the notice
can prevent wrongful trading from taking place, but I do not think that
it has the most elegant phrasing for that intention and I wonder
whether the Minister might revisit that language to make it
clearer.
Ian
Pearson: I will undertake to investigate whether
subsection (9) does what it is intended to do and does so in an elegant
way. If it can be improved, I will undertake to do
so. Question
put and agreed
to. Clause
107 ordered to stand part of the
Bill. Clause
108 ordered to stand part of the
Bill.
Clause
109Application
of insolvency
law Amendment
made: No. 13, in clause 109, page 57, line
25, leave out subsection (2).—[Ian
Pearson] Clause
109, as amended, ordered to stand part of the
Bill.
| 
