The Economic Secretary to the Treasury (Ian Pearson): I beg to move,

The Chairman: With this it will be convenient to discuss the Banking Act 2009 (Bank Administration) (Modification for Application to Banks in Temporary Public Ownership) Regulations 2009 (S.I. 2009, No. 312), and the Banking Act 2009 (Parts 2 and 3 Consequential Amendments) Order 2009 (S.I. 2009, No. 317).

Ian Pearson: It is a pleasure to serve under your chairmanship, Mr. Atkinson, to discuss the two sets of regulations and the consequential amendments order.

The regulations apply the bank administration procedure set out in part 3 of the Banking Act 2009 to various scenarios. The procedure supports the use of the property transfer resolution tools under the new special resolution regime. That procedure may be required in the event of a partial transfer of a bank’s business to a new publicly owned company, such as a bridge bank, or to a private sector purchaser. When a partial transfer takes place, the residual bank—by definition, it is the part left behind—may be insolvent. However, some essential services and facilities required by the transferee to conduct any business transferred to it may be non-transferable.

In such circumstances, in order to ensure that the businesses transferred from the bank can continue to be operated effectively under the provisions of part 3 of the 2009 Act, the Bank of England may make an application to the court for a bank administration order. Under a normal administration, the administrator would have no obligation to provide support services to a commercial purchaser or bridge bank, but would be required to take actions that were in the best interests of creditors. That could include taking immediate steps to wind up the affairs of the company, selling its assets and distributing the proceeds to creditors. Such actions could threaten the successful resolution of a failing bank through a partial transfer, as it may render a bridge bank unworkable or deter a private sector purchaser from making an acquisition.

Crucially, the bank administration procedure places a duty on the court-appointed bank or the administrator of an insolvent residual bank to provide essential services and facilities to the transferee. To that end, the bank administrator will have unique statutory objectives, which we discussed when the Banking Act was making its way through the House. First, he must provide support to the commercial purchaser or bridge bank. Secondly, he must rescue the residual bank as a going concern or wind up its affairs in the best interests of creditors. Once it is no longer necessary for the residual bank to continue to provide support services, the procedure would continue in a similar way to an ordinary administration.

The procedure is largely based on existing insolvency provisions, specifically the procedure of administration as set out in schedule B1 to the Insolvency Act 1986. However, to keep down costs, maximise returns to creditors and protect the interests of creditors by providing for a full range of outcomes, some of the existing powers of a liquidator have been built into the procedure.

The Banking Act 2009 (Bank Administration) (Modification for Application to Banks in Temporary Public Ownership) Regulations apply the bank administration procedure—the BAP—to situations in which a bank or a bank holding company has been taken into temporary public ownership and the Treasury later transfers some of the business to another person, such as a private sector purchaser. In such circumstances, the Government believe it appropriate that the Treasury should be able to apply to the court for a bank administration order. That will be done if, in the opinion of the Treasury, the bank from whom the business has been transferred is, or is likely to become, unable to pay its debts, and the residual company is required to provide services or facilities to the transferee.

The Banking Act 2009 (Bank Administration) (Modification for Application to Multiple Transfer) Regulations modify the provisions of part 3 of the 2009 Act to apply in circumstances where the Bank of England or the Treasury transfer the property, rights and liabilities of a bank to more than one transferee, ensuring that the provisions made for bank administration will effectively accommodate situations where multiple property transfers are made in respect of the business of a bank. One example could be the transfer of a failing bank’s business to different private sector purchasers, all of whom require the use of some of the services or facilities of the residual bank.

The general process of bank administration set out in part 3 will work in relation to multiple transfers in the same way as it works where a transfer is effected by a single property transfer instrument. However, the regulations make necessary modifications, primarily to the bank administrator’s objectives and the duration of the objectives, so that it is clear that the bank administrator is under a duty to ensure the provision of services and facilities from the residual bank to each of the transferees. I believe that the regulations support the Government’s policy of having a flexible special resolution regime in place to deal effectively with the varying circumstances in which intervention might be required to resolve a failing bank.

Finally, the Banking Act 2009 (Parts 2 and 3 Consequential Amendments) Order 2009 makes consequential amendments to existing legislation. Part 2 of the order is drafted to ensure that references within certain pieces of legislation to the insolvency of companies also refer, where applicable, to the new insolvency procedures created by the Banking Act 2009: the bank administration procedure, which I have described, and the bank insolvency procedure—the modified insolvency procedure under part 2 of the Act designed to facilitate the Financial Services Compensation Scheme’s making a fast payout to depositors in the event of a bank’s insolvency. The schedule to the order contains a list of enactments so modified.

Part 3 of the order provides that as a consequence of bank insolvency or bank administration, certain pieces of primary legislation are to be read with specific modifications. For example, the order modifies the Companies Act 2006 to allow disclosure of information by or to the authorities under parts 2 and 3 of the 2009 Act to be treated in the same way as disclosure in an insolvency to the authorities under the Financial Services and Markets Act 2000 or the Insolvency Act 1986. Part 3 also sets out textual amendments to statutory instruments to provide for bank insolvency and bank administration to be included alongside the references to general insolvency proceedings within those instruments.

The bank administration and bank insolvency procedures have been consulted upon and were broadly supported by stakeholders. The regulations before us adapt the bank administration procedure to support the differing resolution options provided for in the Act, and the order makes consequential amendments to other legislation to ensure that the new bank insolvency and bank administration procedures apply to relevant legislation in a similar way to normal insolvency and administration procedures, a move supported by stakeholders. I commend the statutory instruments to the Committee.

Mr. Mark Hoban (Fareham) (Con): It is a pleasure to serve under your chairmanship this afternoon, Mr. Atkinson. The Minister has given a full explanation of the three statutory instruments before us, but as he is usually quite open, I am surprised that he did not mention in his speech the fact that the Joint Committee on Statutory Instruments rapped the Treasury over the knuckles for defective drafting in two of them, the Banking Act 2009 (Bank Administration) (Modification for Application to Multiple Transfers) Regulations 2009 and the Banking Act 2009 (Bank Administration) (Modification for Application to Banks in Temporary Public Ownership) Regulations 2009.

The Treasury took the rap on the knuckles with good grace, promising to amend the regulations at the earliest possible opportunity. It would be helpful if the Minister could explain when the amendments will be tabled. It is not good government to pass defective statutory instruments. I wonder whether it is a consequence of the slightly hurried way in which they have been put together. Again, that is one of the justifications used by the Treasury in its defence to the Select Committee.

This morning, when discussing another set of statutory instruments, we touched on the need for consultation to be formal and transparent and for the results to be reported back to Parliament and stakeholders. What sort of consultation process was put in place for the statutory instruments before us? The suggestion is that it was quite hurried among a small number of stakeholders and that, because of the feedback, changes were made quite late on in the process. Perhaps a better thought through process would have identified the defective drafting and other issues that could have been reflected. Will the Minister clarify why the defective drafting happened and what will be done to correct it?

Mr. Jeremy Browne (Taunton) (LD): Thank you, Mr. Atkinson, for giving me an opportunity to contribute briefly to our deliberations this afternoon. I, too, would be interested in the Minister’s response to the telling and highly relevant points made by the hon. Member for Fareham about the Treasury’s deficiencies in introducing legislation. After all, we are in the middle of a banking crisis presided over, at every turn, by our Prime Minister. It is being felt around the world, but in this country more keenly than elsewhere. It seems all the more important, therefore, that the Treasury has a grip on the situation and conducts its business with precision throughout.

On that basis, I am keen to know how durable the Minister considers these arrangements to be, or whether Government policy, in this area, is like a rolling maul in rugby union—constantly going backwards, instead of forward. There is a sense of the Government needing to make up the regulations as events hit and impact on them, rather than taking a more widely considered approach. In particular, I would be interested to know how the arrangements will impact, if at all, on the growing demand in all quarters, including by Lord Lawson, the former Chancellor of the Exchequer, for a greater division between the retail and investment aspects of banks. Does that have any bearing on our deliberations this afternoon?

Ian Pearson: I assure the hon. Member for Taunton that the orders are not like a rolling maul in rugby union. In actual fact, the rolling maul has gone out of fashion with the experimental rule variations introduced this season. I hope that many of those will change, but that our legislation will not, unless it is absolutely necessary. As I explained when debating a related statutory instrument earlier today, we think that it is important to have consistency and durability. We are not seeking to chop and change the regulations all the time. As I indicated this morning, in relation to property transfer safeguards, it is right that the new banking liaison panel look at those regulations in the first instance.

The hon. Member for Fareham made points about drafting errors and the consultation process. He will know that, with the end of the Banking (Special Provisions) Act 2008, there was an urgent need to enact the Banking Act 2009 and the necessary secondary legislation in order to provide assurances to the markets and to ensure that we have in place the necessary range of protections to deal promptly with any failing bank. That is why the regulations have been introduced quickly. He will be aware that the bank administration and insolvency procedures were consulted on extensively within the wider financial community, including with insolvency and banking experts. The regulations make minor modifications to the Act in circumstances that were envisaged as a result of the Act. We therefore believe that an appropriate level of consultation has already taken place.

The hon. Gentleman was right to point out that the Joint Committee on Statutory Instruments indicated that that there were errors in the explanatory memorandum. That was submitted voluntarily. We will amend those at the earliest opportunity. We note that the Joint Committee agreed that those very minor errors do not call into question the interpretation of the instruments. I hope that that provides him with the reassurances that he seeks.

I am not aware that there has been any external comment with regard to any further deficiencies in the regulations or in the order. They are regarded as straightforward and uncontroversial. If there is any defective drafting we will obviously seek to address it.

Mr. Hoban: Far be it from me to be pedantic, but the Minister said that the errors were in the explanatory memorandum, and I do not think they were. I think they were in the wording of the regulations and the order.

Ian Pearson: I accept what the hon. Gentleman says. None the less, the point that I am making is still valid. It does not call into question the interpretation of the instruments that we are discussing. It is a technical issue that we need to put right, which we will do. It says here that

The Government are fessing up to making a mistake. We have made a small technical error for which we apologise and we will ensure that it is sorted out.