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14 Jan 2009 : Column 1310

Amendment 60

Moved by Baroness Noakes

60: After Clause 31, insert the following new Clause—

“Additional procedures: supplemental instruments, &c.

(1) As soon as is reasonably practicable after making a supplemental transfer under section 26, a bridge band share transfer instrument under section 30 or a bridge bank reverse share transfer instrument under section 31, the Bank of England shall send a copy to—

(a) the bank,

(b) the Treasury,

(c) the FSA,

(d) any other person specified in the code of practice under section 5.

(2) As soon as is reasonably practicable after making a supplemental share transfer order under section 27, an onward share transfer order under section 28 or a reverse share transfer order under section 28, the Treasury shall send a copy to—

(a) the bank,

(b) the Bank of Englnd,

(c) the FSA, and

(d) any other person specified in the code of practice under section 5.”

Baroness Noakes: I was hoping for a little rest. Amendment 60 proposes a new clause after Clause 31. Like the previous group of amendments, it relates to the exhausting group of clauses—Clauses 26 to 31—that alter, reverse, onward and so on in relation to the original share transfers. I could have proposed a similar new clause for the equally exhausting supplementary property transfer clauses—Clauses 42 to 46—but I hope that the Minister will take this amendment as representing both groups of clauses for the purposes of debate.

Under Clauses 24 and 25 there are well defined procedures to ensure proper notification of an initial share transfer order or instrument. When we get to Clauses 26 to 31 there is absolutely no information procedure. My probing amendment asks why. I have drafted Amendment 60 to mirror the requirements for information set out in subsections (1) of Clauses 24 and 25. It requires information to be passed between the relevant authorities and anyone else specified in the code of practice. I should have gone further and mirrored subsections (2) of the clauses so that the facts would be made public by way of websites and newspapers.

These supplementary clauses give wide powers, and it is possible for transactions to be carried out under them that are at least as significant as the initial transfers. There is no restriction of these clauses to small or de minimis transactions, and I am sure that would be resisted. For that reason, information and publicity is as important for the subsequent transactions as it is for the initial transactions. I am sure that the Minister will see the logic of this.

Lord Myners: The noble Baroness said that she was hoping for a break while my noble friend Lord Eatwell moved Amendment 57. I am also disappointed that he did not move it because I had rather a good answer.

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When we had an open meeting before we went into formal session and I met Peers to talk about the Bill and how we proposed to assist the House, the noble Baroness warned me that I should expect a high degree of energy and enthusiasm from her and long sessions if necessary. She is certainly evidencing everything she led me to believe and doing it admirably.

Amendment 60 proposes a new clause to provide for the procedure for supplemental, reverse and onward share transfer instruments and orders. When we debated other amendments to these clauses, I noted that the effect of the noble Baroness’s amendments was to remove the existing procedural provisions. This amendment reinstates some aspects. As I made clear previously, the Government’s position is that the original wording of the clause is preferable. As a consequence, I hope that the noble Baroness and the noble Lord will feel able not to press Amendment 60.

The procedural requirements of, for example, Clause 24 apply to supplemental, onward and reverse transfers, in each case by the provisions exemplified by Clause 27(4). With that, I hope that I have gone some way towards answering the noble Baroness’s question and that she will either say more to explain her perplexed expression or be inclined to withdraw the amendment.

9.30 pm

Baroness Noakes: I am completely perplexed. My previous amendments were not about the procedure of information flows, which Amendment 60 is about, but were probing why the framework of objectives in Clauses 7, 8 and 9 were not referenced into these various supplemental, onward and reverse transfers. That procedure is not of the same ilk as the information flow procedure; it is addressed by Amendment 60.

I am completely perplexed by the Minister’s response, as I was when he referred to this on the previous group of amendments. Amendment 60 would try to get information about these transactions that are undertaken, supplemental and so on, and nothing to do with the framework of conditions that apply to them. It is not on all fours. Leaving subsection (4) in there does nothing at all about creating an information flow. I do not understand what the Minister is saying and why there should not be an information flow. Help may be at hand for the Minister if he looks to his left.

Lord Myners: I am much clearer about the noble Baroness’s intention, having listened carefully to her second contribution. I shall take that away and consider it. She makes a good case, but I would like to consult colleagues and reflect on that as we prepare for Report. In those circumstances I hope she will be kind enough to consider withdrawing her amendment.

Baroness Noakes: I cannot refuse an offer of that nature. I beg leave to withdraw the amendment.

Amendment 60 withdrawn.

Clauses 32 and 33 agreed.



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Clause 34: Effect

Amendment 61 not moved.

Clause 34 agreed.

Clause 35 agreed.

Clause 36: Continuity

Amendment 62

Moved by Baroness Noakes

62: Clause 36, page 16, line 39, leave out subsection (4)

Baroness Noakes: I shall speak also to Amendment 63. These are both probing amendments that would delete subsections of Clause 36 that deal with continuity provisions with regard to property transfer instruments, in order to ascertain the meaning and extent. These subsections do not exist in Clause 18, which applies to share transfers, so I seek to understand what the differences might be.

Subsection (4) is deleted by Amendment 62. It says that a property transfer instrument that transfers or enables the transfer of a contract of employment may include provision about continuity of employment. Why is this provision necessary? The Transfer of Undertakings (Protection of Employment) Regulations already provide for continuity of employment when employees are transferred with an undertaking. That term has been tested many times in the courts and in tribunals, and it has been established that an undertaking applies at a fairly granular level within a business. Are the Government saying that they need this clause to provide for rights which exceed those in TUPE? If that is the case, why are they doing it for bank property transfers and not more widely?

In addition, subsection (4) is permissive and does not require the instrument to contain continuity provisions. Do the Government expect continuity provisions to be made in every case or do they expect the general law to operate in most cases—the general law being TUPE and any other provisions?

Subsection (7), which is deleted by Amendment 63, provides that a transfer instrument may apportion liability to tax between transferor and transferee. Will the Minister explain at what this subsection is aimed? Are particular taxes expected to cause a problem? Will the Minister say what limitations there are, if any, on the term “liability to tax”? Does there have to be a liability in existence at the date of the transfer or can it extend to liabilities which may arise in future? Is it intended to cover only taxes which arise as a consequence of the transfer, or can it cover other tax liabilities? Can the Minister say how this subsection is to be read alongside tax law? There are many pages of tax law on how taxes are to be paid and by whom as well as on the consequences of non-payment. Does this subsection bind HMRC, or is it intended to operate only as between the transferor and transferee?



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These amendments were prompted by the disparity between Clauses 36 and 18, but the Minister will see that I also have some substantive probing questions to ask in relation to their operation.

Lord Myners: This group of amendments relates to Clause 36, which makes provision for continuity in a property transfer.

Clause 36 makes provision to preserve the continuity of a failing bank’s arrangements, and hence is essential to ensure that a business can continue operating after the transfer. This is particularly important in the case of property transfers, when banking business is transferred from one company to another. An example of why this sort of provision is needed can be given. A transfer of banking business from bank X to bank Y may involve the transfer of mortgages. The mortgage documentation will refer to bank X, and not to bank Y. This power can be exercised to ensure continuity. For example, in the example I have given, under subsection (1) of the clause, bank Y can be treated as the same person in law as bank X or, under subsection (5), references to bank X can be modified so as to refer to bank Y. In particular, it may be important under a property transfer to ensure the transfer of employees to the transferee.

Amendment 62 seeks to remove subsection (4) of the clause, which provides that a property transfer instrument may make provision about the continuity of employment. The purpose of this subsection is to ensure that the authorities can make relevant provision in order to provide, by instrument or order, that employees can be transferred with the business so that it can continue to operate effectively. The expertise and corporate knowledge of the employees may be of great importance to the continued operation of the business. This provision would allow, for example, employment service at the transferor failing bank to be treated as an employment service at the transferee, to preserve employment rights which arise after a stipulated period of service. But let me be clear: this is not the same power, or even a similar power, to that which we debated earlier in the context of the directors of failing banks. In particular, the power does not allow general variations to be made to the contracts of employees; for example, to change their salary or to alter such entitlements as they may have in the event of redundancy. So noble Lords need have no concern that these powers will be used adversely to affect the interests of employees in a failing bank. Provision in relation to employment is likely to be important to the effectiveness of any property transfer. Therefore, I hope the noble Baroness will feel able to withdraw her amendment.

The noble Baroness asked a specific question on why employer requirements were not applied to share transfers. The provisions on continuity of employment are not relevant to share transfers. The employer, the legal person who is the bank, remains the same on the share transfer.

I shall now turn to Amendment 63. The noble Baroness explained when introducing these amendments that they were probing, but she was withering in her analysis of this clause and the questions she raised about it. So much so that I have been reconsidering the

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case for keeping subsection (7), particularly in view of Clause 74, which provides that the Treasury may make provision in regulations,

I very much appreciate the points she made. I have also reached the conclusion that subsection (7) is no longer needed and that provision for tax should be made through the detailed powers in Clause 74. Accordingly, I am delighted to accept the amendment.

I am, of course, very grateful to the Opposition Front Bench and the Liberal Democrat leadership in their constructive approach to the work of the Committee. I hope that this small gesture might be taken as recognition of their sterling service in making their case.

Baroness Noakes: The Minister makes it sound like a long service award, which perhaps it is. On Amendment 62, I think I heard the Minister say that this was in order to transfer contracts of employment over, whereas I was coming at it from a different direction in asking why this is needed in order to protect employment rights. The noble Lord said that he wanted to transfer the benefit of the contracts of employment. I understand that point. I am grateful to the Minister for accepting my Amendment 63, to which we will come in a moment. We shall return to probing those issues later on the general clause on tax, on which I have some points to raise. In the mean time, I beg leave to withdraw Amendment 62.

Amendment 62 withdrawn.

Amendment 63

Moved by Baroness Noakes

63: Clause 36, page 17, line 5, leave out subsection (7)

Amendment 63 agreed.

Clause 36, as amended, agreed.

Clause 37 agreed.

Clause 38: Termination rights, &c.

Amendment 64

Moved by Lord Myners

64: Clause 38, page 17, line 29, after “means” insert “a Type 1 or Type 2 default event provision as defined in subsections (1A) and (1B).

(1A) A Type 1 default event provision is”

Amendment 64 agreed.

Amendment 65 not moved.

Amendments 66 to 68

Moved by Lord Myners

66: Clause 38, page 17, line 30, after “that” insert “has the effect that”

67: Clause 38, page 17, line 30, at end insert “or situation arises”



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68: Clause 38, page 17, line 41, at end insert—

“(1B) A Type 2 default event provision is a provision of a contract or other agreement that has the effect that a provision of the contract or agreement—

(a) takes effect only if a specified event occurs or does not occur,

(b) takes effect only if a specified situation arises or does not arise,

(c) has effect only for so long as a specified event does not occur,

(d) has effect only while a specified situation lasts,

(e) applies differently if a specified event occurs,

(f) applies differently if a specified situation arises, or

(g) applies differently while a specified situation lasts.

(1C) For the purposes of subsections (1A) and (1B) it is the effect of a provision that matters, not how it is described (nor, for example, whether it is presented in a positive or a negative form).”

Amendments 66 to 68 agreed.

Amendment 69 not moved.

Amendments 70 to 72

Moved by Lord Myners

70: Clause 38, page 18, line 9, leave out “to be, or that” and insert “done by the instrument or is to be, or”

71: Clause 38, page 18, line 14, after “(4)” insert—

“(a) ”

72: Clause 38, page 18, line 15, at end insert “, cases or circumstances;

(b) differently for different purposes, cases or circumstances.”

Amendments 70 to 72 agreed.

Clause 38, as amended, agreed.

Clause 39 : Foreign property

Amendment 73

Moved by Baroness Noakes

73: Clause 39, page 18, line 31, at end insert—

“( ) If it proves impossible or impractical to make the transfer effective as a matter of foreign law, other than by reason of the actions or omissions of the transferee, the Bank of England shall ensure that the transferee suffers no disadvantage thereby.”

Baroness Noakes: Amendment 73 adds a new subsection to Clause 39, dealing with foreign property, which is the subject of a property transfer instrument. In practice, I am sure that foreign property transfers will throw up many practical problems, and I recognise that Clause 39 tries to deal with them comprehensively. In particular, both the transferor and the transferee are required to do whatever is necessary to complete the transfers by virtue of subsection (2). The costs of completing transfers are for the transferee’s account under subsection (5). But the question posed by my amendment concerns what will happen if, despite the best efforts of all the parties, particularly the transferee, it is not possible to transfer the foreign property. Perhaps the property has been confiscated or transferred under draconian powers existing in a foreign country similar to the powers contained in the Bill. In any event, if the property cannot be transferred to the intended transferee, what will happen then?



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9.45 pm

My amendment says that the transferee should suffer no disadvantage and that the Bank of England should ensure this. The disadvantage could involve incurring legal and other costs in trying to achieve the transfer, or challenging whatever obstacles have been placed in the way of the transfer in the foreign country. The inability to transfer some property might also involve more extensive problems. For example, the non-transfer of intellectual property might render a foreign business non-viable and it would not then be right for staff or any related assets or rights to be transferred to the transferee.

I know that the Minister will not like the suggestion that the Bank should shoulder the responsibility to see the transferee right. I have suggested this because the transferor may be long gone, completely dismembered by the Bank under the bridge bank provisions, and the residue dealt with by insolvency law. There will be no one to turn to unless the Bank had held back some of the proceeds of the transfer against future problems. In a commercial transaction where there is doubt about the ability to give legal effect to some aspects, it would be normal to take a range of warranties and indemnities, often backed by money held in escrow or by other forms of security or guarantee. If the Bank will not stand behind this—my amendment suggests that it should stand behind such measures—I invite the Minister to say how the Government see transfers which involve uncertainty working out in practice. Will the property transfer instruments contain provisions that match warranties and indemnities in commercial deals or will this be dealt with in some other way and, if so, what other way? It seems to me that it cannot be right that the risk of non-completion of a transfer is left wholly on the transferee. I beg to move.

Lord Davies of Oldham: I am grateful to the noble Baroness for moving the amendment but I assure her that normal service on this side of the Committee is being resumed and therefore I cannot accept it. However, there is a congruence of view between us that this is a very difficult area and we need to think about the issues very carefully. In domestic law, the transfer of foreign property will be recognised as effective as it is a transfer authorised by primary legislation. But, as we discussed in the debate on extending the special resolution regime to foreign banks, the critical question is whether the transfer of foreign property will be recognised as valid under foreign legal regimes. If foreign courts will not recognise the transfer, it may not be practically effective as, for example, an overseas service provider could cease to provide services and the transferee would have no means to compel their provision because no claim would be found to exist under the foreign legal system in question.


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