The amendment relates to the applied provisions set out in the clause that would amend section 178 of the Insolvency Act 1986. Our concern is that the provisions amended by the Bill for the most part relate to administration, as one would expect given that the clause relates to administration. Section 178 of the 1986 Act relates to liquidation and specifically gives power to a liquidator to disclaim any onerous property. For those purposes onerous property includes
any unprofitable contract, and...any other property of the company which is unsaleable or not readily saleable or is such that it may give rise to a liability to pay money or perform any other onerous act.
Why should that power of disclaiming onerous property be available to an administrator rather than a liquidator? I recognise that the power is only to be given with the Bank of Englands consent and exercised with that consent, but it does not seem appropriate to give the power of disclaiming onerous property to an administrator, especially given the protection for creditors in section 178(6) of the 1986 Act:
Any person sustaining loss or damage in consequence of the operation of a disclaimer under this section is deemed a creditor of the company to the extent of the loss or damage and accordingly may prove for the loss or damage in the winding up.
With an administration there may not be a winding-up, so that section does not fit well with the modification to it in clause 132. It would help the Committee if the Minister could explain why section 178 is amended and
Ian Pearson: Amendment No. 179 would remove the ability of a bank administrator to disclaim onerous property. I shall set out why that ability is important and why we disagree with the amendment.
Onerous property includes unprofitable contracts and property that is unsaleable or not easily saleable, or that might give rise to a continuing liability. The ability to disclaim onerous property is a useful tool for the benefit of creditors, but it is normally availableas the hon. Gentleman saysonly to a liquidator. We have applied the provision to bank administration, with some modifications, as giving the bank administrator that power will help to achieve the best result for creditors. Many members of the insolvency community, including practitioners and lawyers, think that an ordinary administrator should also be able to disclaim onerous property, so it is sensible to apply such a provision, which benefits creditors, to the bank administration procedure.
The modifications in clause 132 are in line with the application of other powers that are normally available only to a liquidator, for example the ability to bring an action before the court for fraudulent or wrongful trading and to pay dividends to unsecured creditors without requiring permission from the court. Such provisions will ensure that a bank administrator has all the powers necessary to fulfil his or her objectives. The application of the liquidation powers, including the power to disclaim, will also help to ensure that the bank administration procedure is a cost-effective and efficient stand-alone regime, which operates in the best interests of creditors.
I thank the hon. Gentleman for his amendment because it has enabled us to look at why table 2 applies only to section 178 of the 1986 Act, and not the following four sections, which also deal with disclaimers. He has brought that point to our attention and we will look into it. If technical amendments are required to apply further provisions of the 1986 Act relating to the operation of disclaimers, we will consider how to deal with them. Any necessary amendments will, of course, be subject to normal scrutiny. I urge the hon. Gentleman to withdraw his amendment because it is sensible that bank administrators have that power, but we will look at whether we need to address in due course the issues raised by the amendment.
Mr. Gauke: I am grateful to the Minister for his remarks. At times, we do seek to be a constructive Opposition, and we have been in this case, even if inadvertently.
I am not entirely convinced by the Ministers argument that as some insolvency lawyers think that the power to disclaim onerous property should apply to administrators generally we should therefore apply it in these provisions. There may or may not be a case for general reform. However, I will not press for a Division; the Minister has given his explanation and it has been useful to highlight the matter. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 132, as amended, ordered to stand part of the Bill.
Clauses 133 to 137 ordered to stand part of the Bill.
Property transfer from bridge bank
Ian Pearson: I beg to move amendment No. 167, in clause 138, page 75, line 7, after first bank insert (the original bank).
Ian Pearson: The amendments are of a technical nature. They provide for two things. First, amendments Nos. 167 to 172 clarify some of the terms used in the clause in relation to original bank and onward transferee. Secondly, amendments Nos. 173 and 174 provide for an added level of flexibility in relation to onward property transfers from a bridge bank. Where an onward property transfer is made from a bridge bank to a transferee, it may require services from the original residual bankclause 138 already provides for thatbut it may also require services from the bridge bank. This is because some of the facilities may have been transferred from the residual bank to the bridge bank. These may be necessary to operate the business transferred from the bridge bank.
Amendments Nos. 173 and 174 provide that both the original residual bank and the original bridge bank may provide services to business transferred from the bridge bank. These are sensible amendments, which ensure that the bank administration procedure is effective for additional resolution scenarios.
Amendment agreed to.
Amendments made: No. 168, in clause 138, page 75, line 7, after bridge bank insert (the original bridge bank).
No. 169, in clause 138, page 75, line 10, after bridge bank insert
to a transferee (the onward transferee)..
No. 170, in clause 138, page 75, line 11, leave out
transferee under the onward property transfer instrument
and insert onward transferee.
No. 171, in clause 138, page 75, line 13, after first the insert onward.
No. 172, in clause 138, page 75, line 15, leave out
bridge bank under the original property transfer instrument
and insert original bridge bank.
No. 173, in clause 138, page 75, line 17, leave out subsection (3) and insert
(3) In any other case, the Bank of England may determine that the original bridge bank is to be treated as a residual bank for the purposes of this Part.
(3A) Where the original bridge bank is put into bank administration in reliance on subsection (2)(b), Objective 1 shall apply in accordance with section 125(4) in relation to both
(a) services provided by the original bank to the original bridge bank, and
(b) services provided by the original bridge bank to the onward transferee.
(3B) Where the original bridge bank is put into bank administration in reliance on a determination under subsection (3), Objective 1 shall apply in accordance with
(a) section 125(3) in relation to services provided by the original bridge bank to the onward transferee, and
(b) section 125(4) in relation to services provided by the original bank to the original bridge bank.
(3C) But the Bank may determine
(a) that subsection (3B) does not apply, and
(b) that section 137 shall apply as if the Bank had given
(i) an Objective 1 Interim Achievement Notice in respect of the original bridge bank, and
(ii) a notice under section 137(1)(b) in respect of the onward transferee..
No. 174, in clause 138, page 75, line 22, leave out subsection (4).[Ian Pearson.]
Clause 138, as amended, ordered to stand part of the Bill.
Clause 139 ordered to stand part of the Bill.
Question proposed, That the clause stand part of the Bill.
Mr. Gauke: The clause relates to the successful rescue of a bank and it applies if the bank administrator has pursued objective 2(a), which is the rescue of a residual bank as a going concern, and believes that it has been achieved. It also sets out various procedural matters. It appears that the decision as to whether a successful rescue of a residual bank has been achieved is left to the bank administrator and he will say, Weve made the decision. Thats it. But what happens if the FSA or the Bank of England take a different view? Will the FSA and the Bank of England as a matter of course examine the rescue bank and if they feel that the threshold conditions have not yet been achieved, can they influence the bank administrator?
On the subject of successful rescue and the point at which a residual bank has been rescued, we have an example of how the system works in the case of Bradford & Bingleyas we have mentioned on a number of occasionsalthough I do not want to go into the case of the Icelandic banks. What progress is being made on Bradford & Bingley and does the Minister ever envisage that it could be rescued as a going concern? Does the Treasury expect that to happen and, if so, when?
Ian Pearson: I do not particularly want to be drawn on Bradford & Bingley, which does not really have much to do with what the clause seeks to achieve. Clauses 140 and 141 provide for different ways of bringing a bank administration to an end. The approach is consistent with the ways in which an ordinary administration can be brought to a closethe hon. Gentleman will be familiar with them. Clause 140 is a straightforward technical clause providing a simple way to bring a bank administration to an end where both objective 1support for a private sector purchaser or bridge bankand objective 2(a)rescue of the residual
That means that the bank administration is brought to an end when the bank administrator files an appropriate notice with the court and Companies House. To ensure that creditors are aware that the administration is complete, a copy of that notice must be sent to all the companys creditors and made available to them on request. As the residual bank will have been rescued as a going concern, the FSA must also be notified accordingly.
Mr. Peter Bone (Wellingborough) (Con): The Minister said that the clause had nothing to do with Bradford & Bingley but he then described exactly the situation that the Bradford & Bingley residual bank is in. Have I missed something? Does the Minister not want to comment on it because of commercial confidentiality? Surely it is exactly the situation that Bradford & Bingley is in.
Ian Pearson: I do not want to be drawn into parallels with Bradford & Bingley. We are talking about new legislation. The Bill, as I have already indicated, parallels very closely the Insolvency Act 1986 provisions when there has been a successful rescue.
The hon. Member for South-West Hertfordshire asked about rescue situations. We need to be clear that the Bank of England would already have issued an objective 1 achievement notice and the bank administrator must be satisfied that the residual company has been rescued. However, as I have pointed out, the procedures are similar to those set out in paragraph 80 of schedule B1 to the Insolvency Act 1986. Clause 140 provides an appropriate way to bring a bank administration to an end where support for a commercial purchaser or bridge bank is no longer necessary and the residual bank has also been rescued as a going concern.
Question put and agreed to.
Clause 140 ordered to stand part of the Bill.
Clause 141 ordered to stand part of the Bill.
Disqualification of directors
Question proposed, That the clause stand part of the Bill.
Mr. Gauke: The clause refers to the Company Directors Disqualification Act 1986. Given our recent debate on clause 65 and the treatment of company directors, does the Minister anticipate that clause 65 could be used to amend that Act?
Ian Pearson: The clause establishes that the provisions of the Company Directors Disqualification Act 1986 are applied to the bank administration procedure. That ensures that, where appropriate, action can be taken in the public interest against the directors of the company. As the hon. Gentleman notes, under that Act when a company goes into insolvency the office-holderthe
Action may then be taken, if it is considered to be in the public interest, to disqualify a person from acting as a company director for a specified period. The 1986 Act prescribes that a wide range of matters may be considered in determining whether a directors conduct has been such that action should be taken to bar him or her from acting as a director for a period of between two and 15 years.
Clause 142 applies the Act with necessary modifications. These are important powers to protect the public and it is therefore appropriate to apply them to the bank administration procedure. The provisions of the Company Directors Disqualification Act are of long standing and will therefore be familiar to companies and their professional advisers. The provisions of the clause are straightforward and consistent with the Governments overall approach that the bank administration procedure should be generally consistent with existing insolvency law and practice. That is an approach strongly supported by stakeholders.
Clause 65 could in theory amend the 1986 Act but it is not necessary in the bank administration procedure, due to the application in clause 142. The hon. Gentleman is right: we would want to look at whether the Company Directors Disqualification Act powers should be used with regard to a failing company. It would be abnormal to say that because a bank had failed we did not want to consider whether the conduct of the directors of the failed company had been appropriate. I hope that gives the hon. Gentleman the reassurances he seeks.
Question put and agreed to.
Clause142 ordered to stand part of the Bill.
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