Banking Bill

House of Commons

Session 2008 - 09
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Banking Bill

Banking Bill
Part 2 — Bank Insolvency
48

Process of bank liquidation
96
Objectives
(1)
A bank liquidator has two objectives.
(2)
Objective 1 is to work with the FSCS so as to ensure that as soon as is
reasonably practicable each eligible depositor—
5
(a)
has the relevant account transferred to another financial institution, or
(b)
receives payment from (or on behalf of) the FSCS.
(3)
Objective 2 is to wind up the affairs of the bank so as to achieve the best result
for the bank’s creditors as a whole.
(4)
Objective 1 takes precedence over Objective 2 (but the bank liquidator is
10
obliged to begin working towards both objectives immediately upon
appointment).
97
Liquidation committee
(1)
Following a bank insolvency order a liquidation committee must be
established, for the purpose of ensuring that the bank liquidator properly
15
exercises the functions under this Part.
(2)
The liquidation committee shall consist initially of 3 individuals, one
nominated by each of—
(a)
the Bank of England,
(b)
the FSA, and
20
(c)
the FSCS.
(3)
The bank liquidator must report to the liquidation committee about any
matter—
(a)
on request, or
(b)
which the bank liquidator thinks is likely to be of interest to the
25
liquidation committee.
(4)
In particular, the bank liquidator—
(a)
must keep the liquidation committee informed of progress towards
Objective 1 in section 96, and
(b)
must notify the liquidation committee when in the bank liquidator’s
30
opinion Objective 1 in section 96 has been achieved entirely or so far as
is reasonably practicable.
(5)
As soon as is reasonably practicable after receiving notice under subsection
(4)(b) the liquidation committee must either—
(a)
resolve that Objective 1 in section 96 has been achieved entirely or so
35
far as is reasonably practicable (a “full payment resolution”), or
(b)
apply to the court under section 168(5) of the Insolvency Act 1986 (as
applied by section 100 below).
(6)
Where a liquidation committee passes a full payment resolution—
(a)
the bank liquidator must summon a meeting of creditors,
40
(b)
the meeting may elect 2 or 4 individuals as new members of the
liquidation committee,

Banking Bill
Part 2 — Bank Insolvency
49

(c)
those individuals replace the members nominated by the Bank of
England and the FSA,
(d)
the FSCS may resign from the liquidation committee (in which case 3 or
5 new members may be elected under paragraph (b)), and
(e)
if no individuals are elected under paragraph (b), or the resulting
5
committee would have fewer than 3 members or an even number of
members, the liquidation committee ceases to exist at the end of the
meeting.
(7)
Subject to provisions of this section, rules under section 411 of the Insolvency
Act 1986 (as amended by section 122 below) may make provision about—
10
(a)
the establishment of liquidation committees,
(b)
the membership of liquidation committees,
(c)
the functions of liquidation committees, and
(d)
the proceedings of liquidation committees.
98
Liquidation committee: supplemental
15
(1)
A meeting of the liquidation committee may be summoned—
(a)
by any of the members, or
(b)
by the bank liquidator.
(2)
While the liquidation committee consists of the initial members (or their
nominated replacements) a meeting is quorate only if all the members are
20
present.
(3)
A person aggrieved by any action of the liquidation committee before it has
passed a full payment resolution may apply to the court, which may make any
order (including an order for the repayment of money).
(4)
The court may (whether on an application under subsection (3), on the
25
application of a bank liquidator or otherwise) make an order that the
liquidation committee is to be treated as having passed a full payment
resolution.
(5)
If a liquidation committee fails to comply with section 97(5) the bank liquidator
must apply to the court—
30
(a)
for an order under subsection (4) above, or
(b)
for directions under or by virtue of section 168(3) or 169(2) of the
Insolvency Act 1986 as applied by section 100 below.
(6)
A nominating body under section 97(2) may replace its nominee at any time.
(7)
After the removal of the nominated members under section 97(6)(c) the FSA
35
and the Bank of England—
(a)
may attend meetings of the liquidation committee,
(b)
are entitled to copies of documents relating to the liquidation
committee’s business,
(c)
may make representations to the liquidation committee, and
40
(d)
may participate in legal proceedings relating to the bank insolvency.
(8)
Where a liquidation committee ceases to exist by virtue of section 97(6)(e)—
(a)
it may be re-formed by a creditors’ meeting summoned by the bank
liquidator for the purpose, and

Banking Bill
Part 2 — Bank Insolvency
50

(b)
the bank liquidator must summon a meeting for the purpose if
requested to do so by one-tenth in value of the bank’s creditors.
(9)
Where a liquidation committee ceases to exist by virtue of section 97(6)(e) and
has not been re-formed under subsection (8) above—
(a)
ignore a reference in this Part to the liquidation committee,
5
(b)
for section 110(2) to (4) substitute requirements for the bank liquidator,
before making a proposal—
(i)
to produce a final report,
(ii)
to send copies in accordance with section 110(2)(b),
(iii)
to make it available in accordance with section 110(2)(c), and
10
(iv)
to be satisfied as specified in section 110(4)(b),
(c)
ignore Condition 2 in section 111, and
(d)
for section 112(1) to (5) substitute a power for the bank liquidator to
apply to the Secretary of State or Accountant of Court for release and
requirements that before making an application the bank liquidator
15
must—
(i)
produce a final report,
(ii)
send copies in accordance with section 112(2)(b),
(iii)
make it available in accordance with section 112(2)(c), and
(iv)
notify the court and the registrar of companies of the intention
20
to vacate office and to apply for release.
99
Objective 1: (a) or (b)?
(1)
As soon as is reasonably practicable, a liquidation committee must recommend
the bank liquidator to pursue—
(a)
Objective 1(a) in section 96,
25
(b)
Objective 1(b) in section 96, or
(c)
Objective 1(a) for one specified class of case and Objective 1(b) for
another.
(2)
In making a recommendation the liquidation committee must consider—
(a)
the desirability of achieving Objective 1 as quickly as possible, and
30
(b)
Objective 2 in section 96.
(3)
If the liquidation committee thinks that the bank liquidator is failing to comply
with their recommendation, they must apply to the court for directions under
section 168(5) of the Insolvency Act 1986 (as applied by section 100 below).
(4)
Where the liquidation committee has not made a recommendation the bank
35
liquidator may apply to the court under section 98(3); and the court may, in
particular, make a direction in lieu of a recommendation if the liquidation
committee fail to make one within a period set by the court.
100
General powers, duties and effect
(1)
A bank liquidator may do anything necessary or expedient for the pursuit of
40
the Objectives in section 96.
(2)
The following provisions of this section provide for—
(a)
general powers and duties of bank liquidators (by application of
provisions about liquidators), and

Banking Bill
Part 2 — Bank Insolvency
51

(b)
the general process and effects of bank insolvency (by application of
provisions about winding up).
(3)
The provisions set out in the Table apply in relation to bank insolvency as in
relation to winding up, with—
(a)
the modifications set out in subsection (4),
5
(b)
any other modification specified in the Table, and
(c)
any other necessary modification.
(4)
The modifications are that—
(a)
a reference to the liquidator is a reference to the bank liquidator,
(b)
a reference to winding up is a reference to bank insolvency,
10
(c)
a reference to winding up by the court is a reference to the imposition
of bank insolvency by order of the court,
(d)
a reference to being wound up under Part IV or V of the Insolvency Act
1986 is a reference to being made the subject of a bank insolvency order,
(e)
a reference to the commencement of winding up is a reference to the
15
commencement of bank insolvency,
(f)
a reference to going into liquidation is a reference to entering bank
insolvency,
(g)
a reference to a winding-up order is a reference to a bank insolvency
order, and
20
(h)
a reference to a company is a reference to the bank.
(5)
Powers conferred by this Act, by the Insolvency Act 1986 (as applied) and the
Companies Acts are in addition to, and not in restriction of, any existing
powers of instituting proceedings against a contributory or debtor of a bank,
or the estate of any contributory or debtor, for the recovery of any call or other
25
sum.
(6)
A reference in an enactment or other document to anything done under a
provision applied by this Part includes a reference to the provision as applied.
TABLE OF APPLIED PROVISIONS

Provision of
Subject
Modification or comment

30

Insolvency

Act 1986

Section 127
Avoidance of property
Ignore section 127(2).

dispositions

Section 128
Avoidance of attachment, &c.

35

Section 130
Consequences of winding-up
Ignore section 130(4).

order

Section 131
Company’s statement of affairs
(a)
Treat references to the official

receiver as references to the bank

liquidator.

40

(b)
A creditor or contributory of the

bank is entitled to receive a copy of a

statement under section 131 on

request to the bank liquidator.

Banking Bill
Part 2 — Bank Insolvency
52

Provision of
Subject
Modification or comment

Insolvency

Act 1986

Section 135
Provisional appointment
(a)
Treat the reference to the

presentation of a winding-up

5

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

10

(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

15

who consents to act may be

appointed.

(e)
A provisional bank liquidator may

not pay dividends to creditors.

(f)
The appointment of a provisional

20

bank liquidator lapses on the

appointment of a bank liquidator.

Section 143
General functions of liquidator
(a)
Section 143(1) is subject to Objective

1 in section 96 above.

(b)
Ignore section 143(2).

25

Section 144
Custody of property

Section 145
Vesting of property

Section 146
Duty to summon final meeting
Section 146 is not applied - but section 112 below

makes similar provision.

Section 147
Power to stay or sist
An application may be made only by—

30

proceedings
(a)
the bank liquidator,

(b)
the FSA,

(c)
the Bank of England,

(d)
the FSCS, or

(e)
a creditor or contributory (but only

35

if the liquidation committee has

passed a full payment resolution).

Section 148
List of contributories and
By virtue of the Insolvency Rules the functions

application of assets
under this section are largely delegated to the

liquidator - rules by virtue of section 122 may

40

achieve a similar delegation to the bank

liquidator.

Section 149
Debts due from contributories

Section 150
Power to make calls

Section 152
Order on contributory: evidence

45

Section 153
Exclusion of creditors

Section 154
Adjustment of rights of

contributories

Section 155
Inspection of books by creditors
In making or considering whether to make an

order under section 155 the court shall have

50

regard to Objective 1 in section 96 above.

Banking Bill
Part 2 — Bank Insolvency
53

Provision of
Subject
Modification or comment

Insolvency

Act 1986

Section 156
Payment of expenses of winding

up

5

Section 157
Attendance at company

meetings (Scotland)

Section 158
Power to arrest absconding

contributory

Section 159
Powers to be cumulative
Section 159 is not applied - but subsection (5)

10

above makes similar provision.

Section 160
Delegation of powers to

liquidator (England and Wales)

Section 161
Orders for calls on

contributories (Scotland)

15

Section 162
Appeals from orders (Scotland)
An appeal may be brought only if the

liquidation committee has passed a full

payment resolution.

Section 167
General powers of liquidator
(a)
An application to the court may not

and

be made under section 167(3) unless

20

Schedule 4

the liquidation committee has

passed a full payment resolution

(although a creditor or contributory

may apply to the court with respect

to any action (or inaction) of the

25

liquidation committee, under

section 98(3) above).

(b)
In exercising or considering whether

to exercise a power under Schedule

4 the bank liquidator shall have

30

regard to Objective 1 in section 96.

(c)
A reference to the liquidation

committee is to the liquidation

committee established by section 97.

(d)
The power in paragraph 4 of

35

Schedule 4 includes the power to

submit matters to arbitration.

Some additional general powers are conferred by

section 101 below.

Section 168
Supplementary powers of
(a)
A direction or request under section

40

liquidator
168(2) has no effect unless the

liquidation committee has passed a

full payment resolution.

(b)
Section 168(5) also applies in the

case of the imposition of bank

45

insolvency by order of the Court of

Session.

(c)
An application to the court may not

be made under section 168(5) unless

the liquidation committee has

50

passed a full payment resolution

(except as provided in section 97 or

99 above).

Section 169
Supplementary powers
(a)
Ignore section 169(1).

(Scotland)
(b)
Powers of the bank liquidator by

55

virtue of section 169(2) are subject to

Objective 1 in section 96 above.

Banking Bill
Part 2 — Bank Insolvency
54

Provision of
Subject
Modification or comment

Insolvency

Act 1986

Section 170
Liquidator’s duty to make
The liquidation committee is added to the list

returns
of persons able to apply under section 170(2).

5

Section 172
Removal of liquidator
Section 172 is not applied - but section 105 makes

similar provision.

Section 174
Release of liquidator
Section 174 is not applied - but section 112 makes

similar provision.

Section 175
Preferential debts

10

Section 176
Preferential charge on goods

restrained

Section
Expenses of winding up

176ZA

Section
Share of assets for unsecured

15

176A
creditors

Section 177
Appointment of special

manager

Section 178
Power to disclaim onerous

property

20

Section 179
Disclaimer of leaseholds

Section 180
Land subject to rentcharge

Section 181
Disclaimer: powers of court

Section 182
Leaseholds

Section 183
Effect of execution or

25

attachment (England and

Wales)

Section 184
Execution of writs (England and

Wales)

Section 185
Effect of diligence (Scotland)
In the application of section 37(1) of the

30

Bankruptcy (Scotland) Act 1985 the reference

to an order of the court awarding winding up

is a reference to the making of the bank

insolvency order.

Section 186
Rescission of contracts by court

35

Section 187
Transfer of assets to employees

Section 188
Publicity

Section 189
Interest on debts

Section 190
Exemption from stamp duty

Section 191
Company’s books as evidence

40

Section 192
Information about pending

liquidations

Section 193
Unclaimed dividends (Scotland)