Banking Bill

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Clause 143

Application of Other Law
Amendment made: No. 15, in clause 143, page 77, line 11, leave out subsection (2).—[Ian Pearson.]
Question proposed, That the clause, as amended, stand part of the Bill.
Mr. Gauke: With regard to my previous question as to whether clause 65 might be used to amend the Company Directors Disqualification Act 1986, I was half expecting the Minister to say no because it would be done under clause 143, which appears to be another Henry VIII clause that enables the Treasury to change primary legislation by order. I have no intention of repeating all the arguments of a constitutional nature that we used about clause 65. I think clause 65 is much more important in that respect as it raises issues of uncertainty in important areas.
Clause 143 is more tightly drawn, but it is worth asking what the Government have in mind. What sorts of orders can be made under these powers? Why are we not trying to address them specifically in the course of the Bill’s proceedings? Do the Government have concerns about using statutory instruments to amend Acts, given that the level of scrutiny is much lower? I acknowledge that the affirmative resolution procedure applies but do the Government have no concerns in this area? Why is the clause necessary and where may it apply?
Ian Pearson: The clause provides a power for amendments to insolvency legislation to be applied to the bank insolvency procedure and provides a power to apply or amend insolvency provisions. We need that power because the bank administration procedure is complex and the existing UK insolvency regime is very sophisticated. Having the power to make such amendments ensures that the Government have a suitably limited power to ensure bank administration can continue to function effectively. Any changes needed will of course, as the hon. Gentleman notes, be subject to full parliamentary scrutiny through the affirmative resolution procedure.
11.30 am
Mr. Bone: The Minister has been very generous in giving way throughout the Committee. I understand the thrust of what he wants. We are talking about uncharted waters so things may need to be changed, but the problem with an affirmative statutory instrument is that it cannot be amended—the whole thing is either accepted or rejected. That is a problem for scrutiny. If an important issue is raised and we want to change the primary legislation, no one can amend it.
Ian Pearson: I understand the hon. Gentleman’s point and I want to reassure the Committee that a lot of work has gone into producing part 3 of the Bill, including extensive consultation. We believe that we have an effective piece of legislation. This is a complex area and things change. There may need to be some minor adjustments to ensure that the bank administration procedure continues to be effective. In such cases, a statutory instrument is normally appropriate. The approach for the bank administration procedure is the same as for the bank insolvency procedure in part 2, where clause 109 provides the same powers in relation to bank insolvency procedure.
The hon. Member for South-West Hertfordshire talked about the powers under clause 65. Without going back to that debate, I remind him that the power to modify legislation in clause 65 is only when it can make the SRR powers more effective. It is a limited power and the powers in clause 143 are certainly very limited.
Dr. John Pugh (Southport) (LD): The Minister has mentioned amending, modifying, altering and tweaking, but clause 143 specifically says, “provide for an enactment”, which means that, in a sense, novel legislation will be produced, as well as tweaking and altering existing legislation. What does the Treasury have it in mind to provide in the fullness of time?
Ian Pearson: As I said, the legislation in part 3 is effective as it stands. I do not have specific examples of where we want to improve the legislation at the moment; if I did, I would have included them in the Bill. When we make legislation, it is right that we have the opportunity to amend it in the future, if circumstances require it, without having completely new primary legislation. That is really what clauses 143 and 109 do for bank insolvency procedures. They provide for specific amendments to insolvency law, and the Secretary of State for Business, Enterprise and Regulatory Reform shares the powers because of his insolvency responsibilities. It would not be appropriate to use clause 65 for that purpose, which is why we need the powers in clause 143, as well as those in clause 109.
Question put and agreed to.
Clause 143, as amended, ordered to stand part of the Bill.
Clause 144 ordered to stand part of the Bill.

Clause 145

Building societies
Question proposed, That the clause stand part of the Bill.
Mr. Gauke: The clause states:
“The Treasury may by order provide for this Part to apply to building societies . . . as it applies to banks”.
In what circumstances would the Government consider it necessary to do so? Why, as a precautionary matter, do the Government not seek to set up a building society administrative procedure? Why not grasp the nettle?
Ian Pearson: The approach to building societies set out in the clause is consistent with that taken in clause 117 for applying the bank insolvency procedure to building societies.
Detailed procedures for applying the provisions of the bank administration procedure to building societies have not been put in the Bill, principally because insolvency legislation is complex, and building societies have unique legal and commercial features that differ from those of banks. It will therefore be necessary to spend time ensuring that procedures are introduced that work for building societies and are fit for purpose.
However, it is envisaged that the new procedures for building societies will in practice be similar to the provision of the bank administration procedure, and a building society administration procedure would be used only in connection with a partial transfer of a failing building society’s business. The Government will consult on the necessary regulations, which will be laid before the House in due course. The legislation will be subject to the affirmative resolution procedure, allowing full parliamentary scrutiny.
Building on the strength and effectiveness of the existing insolvency regime, the procedures for building societies will also closely follow existing UK insolvency law and practice, and will be familiar to building societies and their professional advisers. I do not think that I need say more. I have explained why the procedures are not in the Bill, and have indicated the Government’s strong willingness to work with building societies and to consult on the regulations that will be presented to the House in due course.
Question put and agreed to.
Clause 145 ordered to stand part of the Bill.
Clause146 ordered to stand part of the Bill.

Clause 147

Amendments made: No. 175, in clause 147, page 78, line 28, leave out subsection (2) and insert—
‘(2) After subsection (1A) (inserted by section 112 above) insert—
“(1B) Rules may also be made for the purpose of giving effect to Part 3 of the Banking Act 2008 (bank administration); and rules for that purpose shall be made—
(a) in relation to England and Wales, by the Lord Chancellor with the concurrence of—
(i) the Treasury, and
(ii) in the case of rules that affect court procedure, the Lord Chief Justice, or
(b) in relation to Scotland, by the Treasury.”’.
No. 176, in clause 147, page 78, line 30, at end insert—
‘(2A) In subsection (2), after “(1A)” (inserted by section 112 above) insert “or (1B)”.’—[Ian Pearson.]
Clause 147, as amended, ordered to stand part of the Bill.
Clauses 148 to 153 ordered to stand part of the Bill.

Clause 154

Consequential provision
Amendment made: No. 16, in clause 154, page 80, line 25, leave out
‘and an Act of the Scottish Parliament’.—[Ian Pearson.]
Clause 154, as amended, ordered to stand part of the Bill.

Clause 234

Statutory instruments
Question proposed, That the clause stand part of the Bill.
Mr. Gauke: I do not stand up merely to give you a rest, Mr. Gale. I wish to ask the Minister a brief question. I noticed the wording of subsection (2) only just before coming into the Committee. This question may be more for you, Mr. Gale. Is it possible for an Act to specify that a statutory instrument is not a hybrid matter? I understand that it is for the authorities of the House, with regard to a Bill, to determine whether it is hybrid. Is it possible for a Bill of this sort to determine that an order made under it is not hybrid and therefore does not involve the more complicated and perhaps cumbersome proceedings that apply in the case of hybrid instruments?
The Chairman: That is probably a point of order. I am advised that that procedure is common in the House of Commons. In the House of Lords there is a separate procedure. I do not know if that helps the Minister, and he may comment if he so wishes.
Ian Pearson: Mr. Gale, my briefing states:
“(at present only the House of Lords has such a procedure)”.
I am happy to stand by your ruling on that point of order.
Question put and agreed to.
Clause 234 ordered to stand part of the Bill.
Clauses 235 to 238 ordered to stand part of the Bill.

Clause 239

Ian Pearson: I beg to move amendment No. 33, in clause 239, page 115, line 5, leave out ‘section 231 extends’ and insert
‘sections [Registration of charges: Scotland] and 231 extend’.
The Chairman: With this it will be convenient to discuss Government new clause 6—Registration of charges: Scotland.
Ian Pearson: New clause 6 is technical in nature and will enable clause 230, which relates to the registration of charges, to operate effectively in relation to Scottish floating charges. A recent Act of the Scottish Parliament, the Bankruptcy and Diligence etc. Act (Scotland) 2007, will undermine certain of the intended effects of clause 230 with regard to Scottish floating charges.
Hon. Members will recall that clause 230 provides that charges issued by a company in favour of a central bank shall be exempt from the requirement to register details of the charges that they grant at Companies House and at their own offices. Although that applies generally, in practice it will apply most often to charges granted by banks and building societies in order to secure lending from a central bank.
Part 25 of the Companies Act 2006 means that any company that receives liquidity assistance from the Bank of England and offers the Bank a charge by way of collateral has to register the fact that it has done so. The requirement to register charges at Companies House and on the companies register could provide untimely market visibility of the liquidity support that banks receive, so clause 230 removes the Companies Act requirement in the case of charges to central banks. Charges granted in receipt of normal commercial lending by other institutions will still have to be registered.
The Bankruptcy and Diligence etc. Act (Scotland) 2007 will, when it comes into force, undermine the provisions of clause 230 that relate to the Companies Act. The 2007 Act provides that a Scottish floating charge is not created until it has been registered on the Scottish register of floating charges so that the act of registration itself creates the charge. For companies whose floating charges are subject to Scottish law, therefore, such charges would need to be registered if they are to be regarded in law as having been created. Such registration would undermine the intent of clause 230.
There is also a possibility of legal ambiguity occurring, should the Government not take the steps laid out in the amendment. In particular, the courts could determine that the provisions of clause 230, as it stands, mean that the registration of charges shall not be possible, even where that is legally required in order for them to be created. That could lead to a situation in which Scottish institutions were not able to grant floating charges at all, and the possibility of such a legal interpretation reinforces the need for clarification.
New clause 6 addresses both difficulties and ensures that the provisions of clause 230, which has been scrutinised by the Committee, can operate throughout the United Kingdom. In consequence, Government amendment No. 33 would mean that clause 239 is laid with reference to Scotland only.
Amendment agreed to.
Clause 239, as amended, ordered to stand part of the Bill.
Clause 240 ordered to stand part of the Bill.

New Clause 3

“Financial institution”
‘(1) The Treasury may by order provide that a specified institution, or an institution of a specified class, is or is not to be treated as a financial institution for the purposes of section 214 or 215.
(2) An order—
(a) shall be made by statutory instrument, and
(b) shall be subject to annulment in pursuance of a resolution of either House of Parliament.’.—[Ian Pearson.]
Brought up, read the First and Second time, and added to the Bill.
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Prepared 19 November 2008