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
124Objectives Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: The point I would like to make about this clause is
similar to one that my hon. Friend the Member for Fareham made about
bank insolvency or liquidation.
I know there was a debate about the terminology. My point relates to the
credit institutions reorganisation and winding up directive 2001 and
the 2004 regulations that enforced it. The purpose of that directive
and those regulations is to have some mutual recognition arrangement
within the European economic area for winding-up proceedings.
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
130Grounds
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
132General
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.]
| 
