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In dealing with R&D, our relationship with key scientific partners, such as key research councils, is very important. I say to the noble Baroness, Lady Byford, that we are in discussion with the BBSRC about how we can better co-ordinate our efforts. I assure her that we will continue to consider that very carefully.

The noble Earl, Lord Selborne, the noble Lord, Lord Livsey, and other noble Lords referred to the issue of research institutes and the closures that have taken place. I understand those concerns. Some of those have been driven by the need for more multidisciplinary institutes. I know that the BBSRC has sought to maintain the ongoing sustainability of the UK agriculture research base by developing alliances through closer relationships between centres and between individual centres and universities. I know, however, that we need to keep a careful eye on that. As the noble Lord, Lord Cameron, said, we must ensure that the science base and skills base in this country is not undermined, so that we do not lose some of the key skills we have now.

The noble Baroness, Lady Byford, talked about scientists retiring and whether they will be replaced. We have to keep that under very careful review, and we will do so.

The noble Lord, Lord Cameron, made a very important point about extension services. I am told that one of the successes following the privatisation of ADAS has been the development of independent consultants and consultancy businesses. Consultants do not get much of a mention or many plaudits in your Lordships’ House, but that seems to have been one of the positive outputs.

The noble Lord, Lord Haskins, made some very important points about the industry contributing more. Of course the industry is a very important player. Private companies, such as large food companies and the agrochemical sector, have their own research activities. Funding from farming businesses is largely through the activities of the levy organisation, the Agriculture and Horticulture Development Board, which has a spend of around £20 million. I recognise the point that noble Lords have made about the small scale of many individual interests in the farming sector and the difficulty there of raising resources for research. That gives rise to the question whether other interests in the food chain, such as the food retail industry, contribute more at the applied end.

The noble Earl, Lord Selborne, asked about the role of producers, the link programmes and the discussions in government at the moment with the Technology Strategy Board to see whether we can have better,

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more co-ordinated research in the sustainable food chain and whether we can attract more private sector investment. We certainly agree that partnership funding, which we currently support through the link programmes, is very important, but we are looking at how that could be developed and improved.

I could respond to so many points, but I have only a minute left and will pick up other points in writing to noble Lords. Most of my ministerial experience has been in the Department of Health, where I had responsibility for research and development. I understand the critical importance of research and development. It is important not only to the farming and agricultural sector, even in the organic field, but to our relationship with the critical science base in this country. Defra’s budget has been challenging, and I am afraid that I cannot bring good news of expected increases, but I can say that we recognise the important role of farming and the role of research and development. Noble Lords have cited many important challenges that we recognise we must face up to in research and development. We will continue our efforts to co-ordinate with other funders and the private sector to ensure that we produce as much resource as possible, that the value that is obtained from it is as effective as possible and that we continue to support farming in this way because of its importance to our nation.

Banking Bill

Bill Main Page
Copy of the Bill
Expanatory Notes
DPCommittee: 1st Report

Committee (4th Day) (Continued)

8.28 pm

Clause 93 : Grounds for applying

Amendment 129

Moved by Baroness Noakes

129: Clause 93, page 46, line 37, leave out “or” and insert “and”

Baroness Noakes: In moving Amendment 129, I will also speak to Amendments 130 and 131. These are probing amendments.

We have at last progressed to Part 2 of the Bill, but I cannot yet say that the end is in sight. The amendments seek to alter Clauses 93 and 94, which set out the grounds for applying for and making a bank insolvency order. There are three grounds for applying for an order. They are set out in Clause 93(1): ground A, the inability to pay debts; ground B, the public interest; and ground C, fairness. They operate in a rather strange way, which is why I have tabled these probing amendments.

If the Bank of England or the FSA applies for a bank insolvency order under Clause 93, it has to be satisfied that either ground A or ground C applies—that is, that there is an inability to pay or unfairness. Under Clause 94, the court has the same task of being satisfied on either ground. My amendments would change that so that both grounds must be applicable. I cannot see that the Bank or the FSA should go to the court simply on grounds of fairness or that the sole

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criterion for the court making an order should be fairness. That implies that, if the bank were able to pay its debts, some notion of fairness could still trigger a bank insolvency. I would be obliged if the Minister would explain that and, in particular—if this is not a mistake in the Bill—what the word “fairness” means in this context.

In relation to Secretary of State applications under Clause 93(4), why does the Secretary of State have to satisfy himself only about ground B, on public interest? However, when that application gets to court, the court has to be satisfied about ground B, public interest, and ground C, fairness. Why are the Government not given the requirement to satisfy themselves on fairness before applying for an order? Doubtless, the Minister will see why I have been confused about how the grounds for applying for a bank insolvency order work. I beg to move.

Lord Davies of Oldham: I am grateful to the noble Baroness for welcoming the fact that we have moved on to the next part of the Bill. At one stage, I began to think that we might not make that this evening. I am pleased to reply to her amendment. Clause 94 sets out the powers of the court in relation to the submission of such an application, including the grounds on which the court may make a bank insolvency order.

In keeping with the UK’s existing insolvency legislation, an application for a bank insolvency order may be made where a bank is insolvent or where winding up its affairs would be in the public interest or fair. The noble Baroness asked me about the meaning of the word “fair” in this context. We assume that it has the same legal meaning as the phrase “just and equitable”, which is used in insolvency legislation. In all the circumstances, it will then fall to the court to decide whether it is appropriate to make a bank insolvency order.

Under Section 367 of the Financial Services and Markets Act 2000, the FSA may present a petition to wind up a bank and the court may make such an order if it is satisfied that either the bank is insolvent or winding up would be just and equitable. It should also be noted that, under Section 359 of that Act, the FSA may apply to the court for the making of an administration order on the grounds that a company is or is likely to become unable to pay its debts. In many respects, Clauses 93 and 94 therefore preserve the current insolvency framework, with the addition that, given the important role of the Bank of England in the special resolution regime, the Bank may apply for winding up on the same grounds as the FSA.

As I see it, the noble Baroness’s amendments would diverge from the current position under insolvency legislation and the Financial Services and Markets Act and would mean that a bank could not be wound up on just and equitable grounds unless it was also insolvent. Similarly, the court would be able to make a bank insolvency order only where a bank was insolvent if it also considered that winding up would be fair. A key intention behind the bank insolvency procedure, which has received wide support among stakeholders, is to adhere as far as possible to existing insolvency legislation. We seek to maintain the existing grounds

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on which a bank may be put into insolvency; that is, an order may be sought and made on the grounds of insolvency or on the grounds that winding up would be just and equitable.

I am sure that the Committee will agree that it would not be desirable to have an insolvency regime for banks that was more restrictive than that for companies generally, given the important public policy interest in protecting depositors and preserving financial stability. The only real change is the addition of the Bank of England into the framework. Otherwise, we are preserving the existing insolvency regime. That is the basis on which we hope the noble Baroness will feel able confidently to withdraw her amendment.

Baroness Noakes: I thank the Minister for that response. Perhaps I may check one point. Is he saying that the Government have decided not to use the phrase “just and equitable”, which is used in insolvency powers generally—the Minister mentioned the Financial Services and Markets Act 2000, but it is used in the Insolvency Act 1986 as well—and to replace it with the word “fair”? Have they considered whether that is the right approach if they are trying to mirror what is in place in other legislation? The word may have the same meaning but, given that the phrase “just and equitable” has been considered by the courts in relation to regular insolvency, this may not be the right way forward. Whenever different language is used, lawyers generally think that something different is intended. That aspect is confusing. Is there anything that the Minister can say to help me on this?

Lord Davies of Oldham: As the noble Baroness will see, Clause 90(8) states:

“The expression ‘fair’ is used in this Part as a shorter modern equivalent of the expression ‘just and equitable’”.

We are not making a change of any significance and our use of the term “fair” is the same as the use of “just and equitable” in other legislation.

Baroness Noakes: Where did the Minister take that quotation from?

Lord Davies of Oldham: I quoted from subsection (8) of Clause 90.

Baroness Noakes: Where did the Minister take the quotation of the phrase “just and equitable” from? Where does it state in the Bill that “fair” equals “just and equitable”?

Lord Davies of Oldham: Clause 90(8) makes it clear that the use of the word “fair” in this part of the Bill is justified,

We do not intend to exclude the application of any judicial or other practice related to the construction or application of the expression.

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Baroness Noakes: I beg the Minister’s pardon; I had not seen subsection (8) of Clause 90. I shall consider the point carefully. I beg leave to withdraw the amendment.

Amendment 129 withdrawn.

Amendment 130 not moved.

Clause 93 agreed.

Clause 94 : Grounds for making

Amendment 131 not moved.

Clause 94 agreed.

Clauses 95 and 96 agreed.

Clause 97 : Liquidation committee

Amendment 132

Moved by Baroness Noakes

132: Clause 97, page 48, leave out line 39 and insert “As soon as practical—”

Baroness Noakes: I shall speak also to Amendments 133 and 134, which all concern the liquidation committee provisions set out in Clause 97. In a conventional insolvency, the liquidator has to call a meeting of the creditors as soon as possible and set up a creditors committee. That is the right thing to do because the actions of the liquidator can have a bearing on the amounts ultimately yielded for creditors. However, this process is not followed in the Bill.

Under Clause 97, the liquidation committee, comprising the Bank of England, the Financial Services Authority and the Financial Services Compensation Scheme, is set up immediately. I do not challenge that point because it is clear that the payment of depositors could well be a priority in terms of timing, although I would add that I argued earlier in Committee that the transfer of banking facilities is of equal importance. However, the priority of giving depositors the ability to access their money should not be allowed to mask the fact that other creditors also have a real need to be involved in the liquidation process as early as possible. Under Clause 97, creditors do not show up on the scene until there has been a full payment resolution confirming that depositors have been substantially or fully paid out. My amendment would allow creditors to assume their natural place on the liquidation committee as early as possible, notwithstanding that the committee would initially be set up without them.

The current clause has the Bank and FSA members stepping down to be replaced by creditors. Under my amendments, they would still step down once the full payment resolution had been passed, but until that point the committee would comprise a mixture of outside creditors, the Financial Services Compensation Scheme, which may be a large creditor, the FSA and the Bank. I see nothing wrong with that, but I wonder whether the Minister does. I do not understand why the regime has to be set up to exclude creditors until the Bank, the FSA and the Financial Services Compensation Scheme have decided that they have

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finished their task. Depending on the kind of bank involved, the outside creditors could be even larger in value terms than those dealt with under the need to pay out depositors.

When the Minister replies, will he deal with a technical point in relation to subsection (6)(d), which provides that the FSCS may resign from the liquidation committee? Under subsection (2), the FSCS has never been a member—the member is only a person nominated by the FSCS. I have tidied that up in Amendment 134 but the Minister may like to reflect on whether the clause as it stands is correctly drafted. I beg to move.

Lord Davies of Oldham: An important part of this revolves around the crucial importance to the Bill of objective 1, as defined in the clause. At present the bank insolvency procedure sets out a two-stage liquidation committee process. Following the making of a bank insolvency order, representatives from the Bank of England, the FSA and the FSCS must form an initial liquidation committee. This committee will oversee the bank liquidator and assist in achieving objective 1 in Clause 96(2), which is to ensure either that the accounts of eligible depositors are transferred to another financial institution or that prompt compensation payments are made to those depositors.

A key feature of the insolvency procedure is the emphasis that we are placing on dealing with eligible depositors quickly, allowing an initial liquidation committee to be formed immediately without the need for a creditors’ meeting. This is crucial in achieving an early realisation of objective 1. Once objective 1 has been achieved, it is appropriate that, as in ordinary liquidation, it should fall to creditors to decide whether to form a liquidation committee. That is why Clause 97, in effect, provides for the initial liquidation committee to be disbanded once a full payment resolution has been passed.

We move on to a second phase after objective 1 has been achieved. We consider that it would be inappropriate for a meeting of creditors to be called at an earlier stage to form a liquidation committee as the amendments suggest. This would cause procedural delays when the whole emphasis is on speed; it would take time to identify and notify creditors and to make appropriate meeting arrangements. We fear that this might undermine the achievement of objective 1, on which we place, as I have emphasised, such significance.

Amendment 133 would work with Amendments 132 and 134 to allow for a liquidation committee to be made up of between three and five members, whereas the current wording of the clause refers to three or five. We are worried about four members in case there is an equal split in opinion. We have drafted the Bill deliberately to provide for an odd number of creditors on the liquidation committee—not in order to disadvantage creditors but to facilitate decision-making, as an odd number will avoid a 50:50 split and is more likely to avoid deadlock. That is the thinking behind that part of the clause.

We are satisfied that Clause 97 as it stands strikes the right balance between protecting the interests of eligible depositors and those of creditors generally. It also provides for the necessary transition at an appropriate

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time between the initial liquidation committee and any subsequent committee formed by creditors. The clause may appear complicated in parts—it certainly does to me, although it is probably less complicated for the noble Baroness, who is so well versed in these matters—but it is necessary for us to prescribe exactly what should happen at an appropriate time in the unique circumstances of creditors forming a liquidation committee in a bank insolvency. That is why the clause is drafted as it is and why I hope that the noble Baroness will withdraw her amendment.

The noble Baroness asked me about the FSCS resigning. The FSCS member may not be the original person nominated under Clause 97(2). Clause 98(6) is the relevant provision:

“A nominating body ... may replace its nominee at any time”.

It is therefore proper for Clause 97(6)(d) to refer to the FSCS, which might be doing just that. I hope that the noble Baroness feels reassured by that response.

8.45 pm

Baroness Noakes: I thank the Minister for the latter point; I shall look at it carefully. He described the liquidation as sequential, so that first the liquidator comes along, overseen by the Bank, the FSA and the FSCS, to achieve objective 1; and once that is done, objective 2 can be done. However, Clause 96(4) states:

“Objective 1 takes precedence over Objective 2”—

nobody is arguing about that—

That must be right, but the creditors are not allowed in until objective 1 has substantially been dealt with. That seems potentially to disadvantage creditors. My amendments seek not to delay dealing with objective 1, which can be started immediately with a committee that is just the inner group, but to allow objective 2 to be set in motion. Everybody knows that you have to find out who are the creditors, write to them and call a meeting, and that takes a bit of time. The process could go on some time and the creditors could join at the first natural opportunity. The creditors are put to one side under the Bill’s arrangements as if they have no interest in the early stages of the liquidation. But they clearly do, because objective 2 runs from day one of the liquidation. Can the Minister explain why the creditors have to be excluded, rather than admitting them into the process a little later once the formalities have been dealt with?

Lord Davies of Oldham: We do not want to inhibit the information flow to creditors or the setting up of a position whereby they will in due course play their part. However, the achievement of objective 1 is of prime importance. We think that that can best be realised by the limited participation identified in the clause. The basis of the thinking is the primacy of objective 1.

Baroness Noakes: I draw the Minister’s attention to Clause 97(6). Although it states that,

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