Banking Bill

House of Commons

Session 2008 - 09
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Banking Bill

Banking Bill
Part 2 — Bank Insolvency
64

Miscellaneous
120
Role of FSCS
(1)
For the purpose of co-operating in the pursuit of Objective 1 in section 96 the
FSCS—
(a)
may make or arrange for payments to or in respect of eligible
5
depositors of the bank, and
(b)
may make money available to facilitate the transfer of accounts of
eligible depositors of the bank.
(2)
The FSCS may include provision about expenditure under this section; and, in
particular—
10
(a)
money may be raised through the imposition of a levy under Part 15 of
the Financial Services and Markets Act in respect of expenditure or
possible expenditure under this section, and
(b)
sums raised in connection with the scheme (whether or not under
paragraph (a)) may be expended under this section.
15
(3)
In section 220(3)(a) of the Financial Services and Markets Act 2000
(Compensation Scheme: information) after “liquidator” insert “, bank
liquidator”.
(4)
The FSCS is entitled to participate in proceedings for or in respect of a bank
insolvency order.
20
(5)
A bank liquidator must—
(a)
comply with a request of the FSCS for the provision of information, and
(b)
provide the FSCS with any other information which the bank liquidator
thinks might be useful for the purpose of co-operating in the pursuit of
Objective 1.
25
(6)
A bank liquidator may enter into an agreement under section 221A of the
Financial Services and Markets Act 2000 (Compensation Scheme: delegation of
functions) for the bank liquidator to exercise functions of the scheme manager
for the purpose of facilitating the pursuit of Objective 1.
(7)
Where a bank insolvency order is made in respect of a bank, the fact that it later
30
ceases to be an authorised person does not prevent the operation of the
compensation scheme in respect of it; and for that purpose the bank is a
relevant person within the meaning of section 213(9) of the Financial Services
and Markets Act 2000 despite the lapse of authorisation.
121
Transfer of accounts
35
(1)
This section applies where a bank liquidator arranges, in pursuit of Objective
1 in section 96, for the transfer of eligible depositors’ accounts from the bank to
another financial institution.
(2)
The arrangements may disapply, or provide that they shall have effect despite,
any restriction arising by virtue of contract or legislation or in any other way.
40
(3)
In subsection (2) “restriction” includes—
(a)
any restriction, inability or incapacity affecting what can and cannot be
assigned or transferred (whether generally or by a particular person),
and

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Part 2 — Bank Insolvency
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(b)
a requirement for consent (by any name).
(4)
In making the arrangements mentioned in subsection (1) the bank liquidator
must ensure that eligible depositors will be able to remove money from
transferred accounts as soon as is reasonably practicable after transfer.
122
Rules
5
(1)
Section 411 of the Insolvency Act 1986 (company insolvency rules) is amended
as follows.
(2)
After subsection (1) insert—
“(1A)
Rules may also be made for the purpose of giving effect to Part 2 of the
Banking Act 2008 (bank insolvency orders); and rules for that purpose
10
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
15
Chief Justice, or
(b)
in relation to Scotland, by the Treasury.”
(3)
In subsection (2)—
(a)
after “subsection (1),” insert “(1A)”;
(b)
in paragraph (b), after “Secretary of State” insert “or the Treasury”.
20
(4)
After subsection (2B) insert—
“(2C)
For the purposes of subsection (2), a reference in Schedule 8 to this Act
to doing anything under or for the purposes of a provision of this Act
includes a reference to doing anything under or for the purposes of Part
2 of the Banking Act 2008.”
25
(5)
In subsection (3)—
(a)
after “provisional liquidator” insert “or bank liquidator”, and
(b)
after “Parts I to VII of this Act” insert “or Part 2 of the Banking Act
2008”.
(6)
In subsection (5), after “the Secretary of State” insert “or the Treasury”.
30
(7)
In paragraph 27 of Schedule 8 to the Insolvency Act 1986 (provisions capable
of inclusion in company insolvency rules), after “Secretary of State” insert “or
the Treasury”.
(8)
Section 413(2) of the Insolvency Act 1986 (rules: duty to consult Insolvency
Rules Committee) shall not apply to the first set of rules which is made in
35
reliance on this section.
123
Fees
After section 414(8) of the Insolvency Act 1986 (fees orders) insert—
“(8A)
This section applies in relation to Part 2 of the Banking Act 2008 (bank
insolvency) as in relation to Parts I to VII of this Act.”
40

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Part 2 — Bank Insolvency
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124
Insolvency Services Account
A bank liquidator who obtains money by realising assets in the course of the
bank insolvency must pay it into the Insolvency Services Account (kept by the
Secretary of State).
125
Evidence
5
In section 433(1) of the Insolvency Act 1986 (admissibility of statements of
affairs) after paragraph (a) insert (before the “and”)—
“(aa)
a statement made in pursuance of a requirement imposed by or
under Part 2 of the Banking Act 2008 (bank insolvency),”.
126
Co-operation between courts
10
(1)
Provisions of or by virtue of this Part are “insolvency law” for the purposes of
section 426 of the Insolvency Act 1986 (co-operation between courts).
(2)
At the end of that section add—
“(13)
Section 126 of the Banking Act 2008 provides for provisions of that Act
about bank insolvency to be “insolvency law” for the purposes of this
15
section.”
127
Building societies
(1)
The Treasury may by order provide for this Part to apply to building societies
(within the meaning of section 119 of the Building Societies Act 1986) as it
applies to banks, subject to modifications set out in the order.
20
(2)
An order may—
(a)
amend the Building Societies Act 1986 or any other enactment which
relates, or in so far as it relates, to building societies;
(b)
amend an enactment amended by this Part;
(c)
replicate, with or without modifications, any provision of this Part;
25
(d)
apply a provision made under or by virtue of this Part, with or without
modifications, to this Part as it applies to building societies.
(3)
An order—
(a)
shall be made by statutory instrument, and
(b)
may not be made unless a draft has been laid before and approved by
30
resolution of each House of Parliament.
(4)
Provision made under or by virtue of this Part may make special provision in
relation to the application of this Part to building societies.
128
Credit unions
(1)
The Treasury may by order provide for this Part to apply to credit unions
35
(within the meaning of section 31 of the Credit Unions Act 1979) as it applies
to banks, subject to modifications set out in the order.
(2)
An order may—

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(a)
amend the Credit Unions Act 1979, the Industrial and Providential
Societies Act 1965 or any other enactment which relates, or in so far as
it relates, to credit unions;
(b)
amend an enactment amended by this Part;
(c)
replicate, with or without modifications, any provision of this Part;
5
(d)
apply a provision made under or by virtue of this Part, with or without
modifications, to this Part as it applies to credit unions.
(3)
An order—
(a)
shall be made by statutory instrument, and
(b)
may not be made unless a draft has been laid before and approved by
10
resolution of each House of Parliament.
(4)
Provision made under or by virtue of this Part may make special provision in
relation to the application of this Part to credit unions.
129
Partnerships
(1)
The Lord Chancellor may, by order made with the concurrence of the Secretary
15
of State and the Lord Chief Justice, modify provisions of this Part in their
application to partnerships.
(2)
For procedural purposes an order under subsection (1) shall be treated in the
same way as an order under section 420 of the Insolvency Act 1986
(partnerships).
20
(3)
This section does not apply in relation to partnerships constituted under the
law of Scotland.
130
Scottish partnerships
(1)
The Secretary of State may by order modify provisions of this Part in their
application to partnerships constituted under the law of Scotland.
25
(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.
131
Northern Ireland
30
In the application of this Part to Northern Ireland—
(a)
a reference to an enactment is to be treated as a reference to the
equivalent enactment having effect in relation to Northern Ireland,
(b)
where this Part amends an enactment an equivalent amendment
(incorporating any necessary modification) is made to the equivalent
35
enactment having effect in relation to Northern Ireland,
(c)
references to the Secretary of State, except in section 119, are to be
treated as references to the Department of Enterprise, Trade and
Investment,
(d)
a reference to the Insolvency Services Account is to be treated as a
40
reference to the Insolvency Account,

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Part 3 — Bank Administration
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(e)
a reference to section 31 of the Credit Unions Act 1979 is to be treated
as a reference to Article 2 of the Credit Unions (Northern Ireland) Order
1985,
(f)
the Judgments Enforcement (Northern Ireland) Order 1981 has effect in
place of sections 183 and 184 of the Insolvency Act 1986 (applied by
5
section 100 above), and
(g)
the reference in section 129 to the Lord Chief Justice is a reference to the
Lord Chief Justice in Northern Ireland.
132
Consequential provision
(1)
The Treasury may by order make provision in consequence of this Part.
10
(2)
An order may, in particular, amend or modify the effect of an enactment
(including a fiscal enactment) passed before the commencement of this Part.
(3)
An order—
(a)
shall be made by statutory instrument, and
(b)
may not be made unless a draft has been laid before and approved by
15
resolution of each House of Parliament.
Part 3
Bank Administration
Introduction
133
Overview
20
(1)
This Part provides for a procedure to be known as bank administration.
(2)
The main features of bank administration are that—
(a)
it is used where part of the business of a bank is sold to a commercial
purchaser in accordance with section 11 or transferred to a bridge bank
in accordance with section 12 (and it can also be used in certain cases of
25
multiple transfers under Part 1),
(b)
the court appoints a bank administrator on the application of the Bank
of England,
(c)
the bank administrator is able and required to ensure that the non-sold
or non-transferred part of the bank (“the residual bank”) provides
30
services or facilities required to enable the commercial purchaser (“the
private sector purchaser”) or the transferee (“the bridge bank”) to
operate effectively, and
(d)
in other respects the process is the same as for normal administration
under the Insolvency Act 1986, subject to specified modifications.
35
(3)
The Table describes the provisions of this Part.

Sections
Topic

Sections 133 to 137
Introduction

Sections 138 to 145
Process

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Part 3 — Bank Administration
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Sections
Topic

Sections 146 to 149
Multiple transfers

Sections 150 and 151
Termination

Sections 152 to 165
Miscellaneous

134
Objectives
5
(1)
A bank administrator has two objectives—
(a)
Objective 1: support for commercial purchaser or bridge bank (see
section 135), and
(b)
Objective 2: “normal” administration (see section 137).
(2)
Objective 1 takes priority over Objective 2 (but a bank administrator is obliged
10
to begin working towards both objectives immediately upon appointment).
135
Objective 1: supporting private sector purchaser or bridge bank
(1)
Objective 1 is to ensure the supply to the private sector purchaser or bridge
bank of such services and facilities as are required to enable it, in the opinion
of the Bank of England, to operate effectively.
15
(2)
For the purposes of Objective 1—
(a)
the reference to services and facilities includes a reference to acting as
transferor or transferee under a supplemental property transfer
instrument, and
(b)
the reference to “supply” includes a reference to supply by persons
20
other than the residual bank.
(3)
In the case of bank administration following a private sector purchase the bank
administrator must co-operate with any request of the Bank of England to enter
into an agreement for the residual bank to provide services or facilities to the
private sector purchaser; and—
25
(a)
in pursuing Objective 1 the bank administrator must have regard to the
terms of that or any other agreement entered into between the residual
bank and the private sector purchaser,
(b)
in particular, the bank administrator must avoid action that is likely to
prejudice performance by the residual bank of its obligations in
30
accordance with those terms,
(c)
if in doubt about the effect of those terms the bank administrator may
apply to the court for directions under paragraph 63 of Schedule B1 to
the Insolvency Act 1986 (applied by section 142 below), and
(d)
the private sector purchaser may refer to the court a dispute about any
35
agreement with the residual bank, by applying for directions under
paragraph 63 of Schedule B1.
(4)
In the case of bank administration following transfer to a bridge bank, the bank
administrator must co-operate with any request of the Bank of England to enter
into an agreement for the residual bank to provide services or facilities to the
40
bridge bank; and—
(a)
the bank administrator must avoid action that is likely to prejudice
performance by the residual bank of its obligations in accordance with
an agreement,

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(b)
the bank administrator must ensure that so far as is reasonably
practicable an agreement entered into includes provision for
consideration at market rate,
(c)
paragraph (b) does not prevent the bank administrator from entering
into an agreement on any terms that the bank administrator thinks
5
necessary in pursuit of Objective 1, and
(d)
this subsection does not apply after Objective 1 ceases.
(5)
Where a bank administrator requires the Bank of England’s consent or
approval to any action in accordance with this Part, the Bank may withhold
consent or approval only on the grounds that the action might prejudice the
10
achievement of Objective 1.
136
Objective 1: duration
(1)
Objective 1 ceases if the Bank of England notifies the bank administrator that
the residual bank is no longer required in connection with the private sector
purchaser or bridge bank.
15
(2)
A bank administrator who thinks that Objective 1 is no longer required may
apply to the court for directions under paragraph 63 of Schedule B1 to the
Insolvency Act 1986 (applied by section 142 below); and the court may direct
the Bank of England to consider whether to give notice under subsection (1)
above.
20
(3)
If immediately upon the making of a bank administration order the Bank of
England thinks that the residual bank is not required in connection with the
private sector purchaser or bridge bank, the Bank of England may give a notice
under subsection (1).
(4)
A notice under subsection (1) is referred to in this Part as an “Objective 1
25
Achievement Notice”.
137
Objective 2: “normal” administration
(1)
Objective 2 is to—
(a)
rescue the residual bank as a going concern (“Objective 2(a)”), or
(b)
achieve a better result for the residual bank’s creditors as a whole than
30
would be likely if the residual bank were wound up without first being
in bank administration (“Objective 2(b)”).
(2)
In pursuing Objective 2 a bank administrator must aim to achieve Objective
2(a) unless of the opinion either—
(a)
that it is not reasonably practicable to achieve it, or
35
(b)
that Objective 2(b) would achieve a better result for the residual bank’s
creditors as a whole.
(3)
In pursuing Objective 2(b) in bank administration following transfer to a
bridge bank, the bank administrator may not realise any asset unless—
(a)
the asset is on a list of realisable assets agreed between the bank
40
administrator and the Bank of England, or
(b)
the Bank of England has given an Objective 1 Achievement Notice.