Banking Bill

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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 88

Liquidation 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 89

Objective 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 90

general 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 101

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 107

Notice 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 109

Application 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.
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