Banking Bill

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Mr. Gauke: Let me prolong the pleasure of discussing politics for a moment. If the distinction the Minister is making is between a partial transfer and then administration of part of a bank compared with administration of the whole of the bank, would he not agree with his initial statement to the Committee that an administrator would act in a “responsible and appropriate manner”, whether it is the whole of a bank or part of a bank? That is what administrators do. They do not engage in fire sales.
Ian Pearson: I agree that it is the responsibility of administrators to act in a fair and responsible manner. Let me move on to address the point that the hon. Member directly raised about transferring out parts of a bad bank and the specific issue of whether the residual company could be the good company. I want to make two points. Certainly there are powers in the legislation to have multiple transfers. Those could be transfers of good assets. They could possibly be transfers of bad assets as well. Certainly the Bill provides for flexibility.
With regard to the specific points, I do not think that it would meet the Government’s policy objectives to leave good assets under the control of the original owner once the bank has failed its threshold conditions. However, it is certainly perfectly possible that a decision could be taken to take the whole of the bank into temporary public ownership and then bad assets could be transferred out using the onward transfer powers. That would be a conceivable scenario.
As the hon. Gentleman notes, part 3 has attracted relatively little attention from outside commentators because they have recognised that it is a necessary part of what we are trying to achieve. We shall come on to some technical amendments, which have been tabled largely in response to some of the outside comments and also on areas where we need to improve drafting to make things clearer. Otherwise, this clause is in very good shape and is widely welcomed.
Question put and agreed to.
Clause 123 ordered to stand part of the Bill.

Clause 124

Question proposed, That the clause stand part of the Bill.
A concern has been raised with us that the arrangements for bank administration feel more like regulatory arrangements than insolvency arrangements, particularly because objective 1 takes priority over objective 2. Objective 1 is support for a commercial purchaser of a bridge bank, so I seek reassurance from the Minister that in those circumstances, as far as the Government are concerned, those arrangements will be recognised under the directive, creditors will be treated equally, we will not run into difficulties and essentially those arrangements will not be recognised in other jurisdictions. That means that for assets held in other jurisdictions we will have two separate sets of insolvency proceedings or administration proceedings, so the whole process will become rather confused and dragged out and there will be an issue concerning what happens to assets held in other jurisdictions within the EEA.
Will the Minister also mention the “normal” administration objective 2, which is subservient—to use the Treasury language—to objective 1? Does that mean that shareholders in a bank that is in administration will be in a worse position than those in a company that is in normal administration because we have objective 1? We are broadly supportive of clause 124, but it might be helpful if he could outline that to the Committee and address those points.
Ian Pearson: The clause provides that the bank administrator has specific statutory objectives, the first being the provision of support for the bridge bank or private sector purchaser. Once such support is no longer required, the objective is to achieve either of the two principal aims of an ordinary administration: either to rescue the company as a going concern or to achieve a better result for creditors in an immediate liquidation.
I can confirm to the hon. Gentleman that the bank administration procedure will fall within the scope of the directive he mentioned as a reorganisation measure, and shareholders in the administration will be in the same position in the bank administration procedure as in a normal administration procedure, so there is no intention to do anything differently. I remind him about clause 55 and the “no creditor worse off” position outlined in the Bill. We believe that there are proper safeguards, and those in the industry, whom we will continue to talk to, are broadly satisfied with what we are trying to achieve.
Question put and agreed to.
Clause 124 ordered to stand part of the Bill.
Clauses 125 to 129 ordered to stand part of the Bill.

Clause 130

Grounds for applying
Question proposed, That the clause stand part of the Bill.
Mr. Gauke: The Minister was complaining about all the technical talk, but I have a technical question for him. The clause relates to the grounds for applying for a bank administration order and states the conditions that must apply before the Bank of England may apply for a bank administration order. It states:
“Condition 1 is that the Bank of England has made or intends to make a property transfer instrument in respect of the bank in accordance with section 10(2) or 11(2).”
Clause 7 sets out the conditions under which the powers contained in clauses 10 and 11 may apply. One of those conditions is whether the Financial Services Authority is satisfied that certain conditions have been met. Clause 130 says that the Bank of England may apply for a bank administration order if
“it intends to make a property transfer instrument”.
It can make a property transfer instrument only once the FSA is satisfied that certain conditions apply. That is what we have in clauses 7 and 8. Clause 130 seems to allow an application to be made and clause 131 allows a bank administration order to be made by the court before clauses 7 and 8 are satisfied, because of the words that the Bank
“intends to make a property transfer instrument”.
Is it necessary that all the conditions in clauses 7 and 8 have been satisfied—relating to clauses 10 and 11—before clause 130 becomes operative? It seems that the Bank can apply before the FSA says it is appropriate and then the FSA can subsequently determine whether the conditions set out in clauses 7 and 8 have been met. I am sure that is all entirely clear to the Minister but if he wants any clarification I will try to help him.
Ian Pearson: I think it is clear and I shall try to be clear in how I explain it. The legislation is framed so that the FSA has responsibility for deciding whether the threshold conditions have been met. Clause 7 relates to this in subsection (1) where it says:
“A stabilisation power may be exercised in respect of a bank only if the FSA is satisfied that the following conditions are met.”
We have talked about this before. First, the FSA—having consulted the Bank and the Treasury—decides whether the threshold conditions are met and pulls the trigger. Then, the Bank is responsible for deciding which stabilisation option should be taken. If the Bank decides that one stabilisation option is a bridge bank and wants to make a property transfer instrument, then clause 130—subsections (1) and (2) in particular—would apply. The FSA’s decision to trigger the special resolution regime comes first. As I understand it, the Bank could not decide to make a property transfer instrument before the decision had been taken that a bank was failing.
Mr. Gauke: The Minister’s answer has been clear. He has addressed the degree of ambiguity in the Bill and I am grateful.
Question put and agreed to.
Clause130 ordered to stand part of the Bill.
Clause131 ordered to stand part of the Bill.

Clause 132

General Powers, Duties and Effect
11 am
Ian Pearson: I beg to move amendment No. 163, in clause 132, page 65, line 33, after ‘administration’ insert ‘or administrators’.
The Chairman: With this it will be convenient to discuss Government amendments Nos. 164 to 166.
Ian Pearson: This group of amendments tidies up clause 132 and also puts in place arrangements for the appointment of a provisional bank administrator. The amendments are similar to provisions previously discussed under amendment No. 158 for the provisional bank liquidator for the bank insolvency procedure, and they serve a similar purpose.
Amendments Nos. 163 and 164 are straightforward tidying-up provisions to include the phrases “or administrators” and “or liquidators” where required in the application and modification of existing provisions of the Insolvency Act 1986 to the bank administration procedure. That is necessary because clause 132 modifies various provisions of the Act in their application to the bank administration procedure. Those provisions refer to the powers of liquidators, as well as to the process of liquidation. The amendments simply reflect that.
Amendment No. 165 is another tidying-up provision, which corrects a conflict in the drafting. Clause 132, table 1, applies schedule B1(65)(3) of the Insolvency Act, and table 2 applies section 168(4) of the Act, both of which allow for the payment of dividends to creditors. However, section 168(4) allows a dividend to be paid to unsecured creditors at the discretion of the liquidator, while schedule B1(65)(3) requires an administrator to seek permission from the court before paying a dividend to unsecured creditors. It should not be necessary for the bank administrator to seek the permission of the court, since that would incur additional expenses for the creditors. Amendment No. 165 therefore removes the reference to paragraph 65(3). That sensible approach benefits creditors.
Amendment No. 166 is probably the most significant amendment in the group. It provides for the appointment by the court of a provisional bank administrator, following an application for a bank administration order. During the brief hiatus between the application for a bank administration order and the court hearing to make the order, it might be necessary for the residual bank to continue to provide services to the private sector purchaser or bridge bank. The appointment of a provisional bank administrator will facilitate that process and will also protect assets for the benefit of creditors in that initial brief period.
Following the making of the bank administration application, an interim moratorium will be in put in place to preserve the assets of the residual company. The court will also be able to appoint a provisional bank administrator where necessary, granting him or her powers to protect assets and manage the residual company in accordance with objective 1 of the bank administration procedure, which is to provide services to the bridge bank or private sector purchaser. The provisional bank administrator will not be entitled to pursue either strand of objective 2, and will not be allowed to make subsequent transfers, which means that the powers of a provisional bank administrator will be suitably restricted. Those are the equivalent powers that we were talking about in relation to the bank insolvency procedure. A typical activity that the provisional bank administrator might undertake would be facilitating access to e-mail or computer systems.
In effect, the role of the provisional bank administrator is simply to keep things ticking over for a few hours until the full court hearing for the making of a bank administration order. It is an important provision, which will minimise disruption and protect assets for the benefit of creditors, prior to the making of a bank administration order.
The provisional bank administrator’s appointment will lapse when a bank administrator is appointed, although there is nothing to stop him or her then being appointed as the bank administrator. In all cases, the provisional bank liquidator must be a qualified insolvency practitioner who consents to take on the role. Amendment No. 166 is a necessary provision, which protects the assets of the residual bank and allows for the provision of services to the private sector purchaser or bridge bank.
Mr. Gauke: May I ask a question about amendment No. 166? I acknowledge the point made by the Minister, that the purpose of this provision is for someone to be in place to “keep things ticking over for a few hours”, as he described it, but what is the likely time scale? He referred to a few hours, but is there a maximum period for a provisional appointment? Can the Minister provide a firm reassurance beyond “a few hours”? I acknowledge the intention behind the amendment and it appears to be a useful addition, but it will be helpful if the Minister elaborates.
Ian Pearson: It would not be right to put a time scale on the face of the Bill, but clearly the policy intention is that a provisional administrator would keep things ticking over for a short period. I mentioned a few hours—it might be a few more hours than that, but it would not be a substantial length of time. The intention would be to move to a proper and full bank administration procedure as quickly as possible. Given that things can move extremely quickly, as we know, and that property and assets can be transferred quickly, once the decision has been made that a bank is failing its threshold conditions and action is being taken it is right that we do not leave a time window between a decision being taken and its being implemented.
Mr. Gauke: I am grateful for the Minister’s response and I understand why he does not want to be prescriptive, certainly on the face of the Bill, or to say much more than he already has about the length of time. As he said, objective 2 is disapplied, but will he assure the Committee that even though objective 2 does not apply—that is, the rescue of the residual bank as a going concern to achieve a better result for the residual bank’s creditors as a whole than if it was wound up without bank administration—the provisional administrator will do nothing to prejudice the objective 2 requirements?
Ian Pearson: It certainly is not the Government’s intention that the provisional administration would do anything of the kind. In my opening remarks I mentioned facilitating the exchange of e-mails and such activities to ensure that we can have the properly functioning activities of a bridge bank and allow objective 1 to be pursued. We have been clear about the grounds for what a provisional administrator would be allowed to do, and amendment No. 166 makes clear the limited nature of what is proposed.
Amendment agreed to.
Amendments made: No. 164, in clause 132, page 65, line 34, after ‘insolvency’ insert ‘or liquidators).’.
No. 165, in clause 132, page 68, line 27, at end insert—
‘(b) Ignore sub-para. (3).’.
No. 166, in clause 132, page 71, line 3, 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 administration 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) The court may only confer on a provisional bank administrator functions in connection with the pursuance of Objective 1; and section 125(2)(a) does not apply before a bank administration order is made. (f) A provisional bank administrator may not pursue Objective 2. (g) The appointment of a provisional bank administrator lapses on the appointment of a bank administrator.’.
—[Ian Pearson.]
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