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that does not start until there has been a full payment resolution. The process of getting creditors involved does not start even on the day when the full payment resolution is passed. They are kept out of the room

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not only until that is achieved; they are probably kept out for at least another couple of months. That does not seem the right approach to creditors in a bank liquidation. I remind the Minister that the creditors could have more money at stake than the depositors, who might be dealt with relatively straightforwardly.

Lord Davies of Oldham: We can all envisage that they might have more at stake; but the noble Baroness will accept the Government’s reasoning behind the legislation and the primacy of the protection of depositors. We are hoping to deliver to depositors within a matter of days of the procedure being set up. It is fast because we want to deliver to depositors immediately. That is of the greatest importance. We all know how confidence ebbs away when depositors do not have access to their money. We expect that objective 1 will be reached within seven days. I am sure, therefore, that the noble Baroness will recognise that the next phase will not take months. It can be coterminous in terms of preparation. The creditors will be on the scene not in some months’ time but beyond the seven-day period when objective 1 is to be realised.

Lord Higgins: I hesitate to intervene but one does not like passing legislation when one simply does not understand what it means. Paragraph (e) of subsection (6) reads,

I am having trouble working out what combination of members would result in the committee not ceasing to exist at the end of the meeting. Why should it cease to exist with some combination of members and not with others, since presumably business has either finished or it has not?

Lord Stewartby: On the point raised by my noble friend, I am trying to work out what happens if the liquidation committee ceases to exist. Does the bank liquidator ignore this part of the clause about the liquidation committee and carry on regardless on his own?

Lord Davies of Oldham: I understand paragraph (e) of subsection (6) as being fairly clear. It refers to the criteria on the basis of the effective committee. We are saying that it should be three to five members, and that at least three or five members must be able to participate in order for it to have validity. We are insistent upon the odd numbers so that there should not be a point of irresolution when we are discussing a position of some urgency.

Lord Higgins: So if the committee has five members it continues, but with any other combination it ceases to exist. Is that right?

Lord Davies of Oldham: I am awfully sorry, but I did not quite catch that.

Lord Higgins: Is it the case that if there are five members, the committee continues to operate, but under any of the combinations mentioned in paragraph (e),

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it ceases to exist at the end of the meeting? I am not clear why sometimes the meeting continues and sometimes it does not.

Lord Davies of Oldham: We have views on the size of the committee and are indicating that we need either three members or five. I have explained the problem with four. If there are five members, but only three are available, that is the minimum number.

Baroness Noakes: Is this provision normal practice in liquidation committees under ordinary insolvency law?

Lord Davies of Oldham: We believe that it is, but if I am incorrect, I shall correct myself very rapidly.

Baroness Noakes: I thank the Minister for that. I continue to be mystified about why the Government want to keep the creditors out until they have achieved payment. The Minister said that it would take seven days—if it does, the creditors would not even have been notified and the meeting held, so that would not be a problem. My proposal was to involve the creditors simultaneously so that they could be involved once meetings had been held and they had been nominated, rather than excluded because the bank, the FSA and the Financial Services Compensation Scheme think that this is their toy and nobody else can play with it until they have finished. If this does not happen in seven days, and it takes a long time, for some reason, objective 2 cannot be properly overseen, and I am not sure that that is right. I will consider this between now and Report, and look forward to hearing from the Minister about normal insolvency liquidation committee practice. I beg leave to withdraw the amendment.

Amendment 132 withdrawn.

Amendments 133 and 134 not moved.

Clause 97 agreed.

Clause 98 : Liquidation committee: supplemental

Amendment 135

Moved by Baroness Noakes

135: Clause 98, page 49, line 35, leave out subsection (7)

Baroness Noakes: I can be brief with this amendment. Under subsection (7) of Clause 98, the FSA and the Bank of England retain attendance rights at the liquidation committee and other rights, even after their main task of paying out the depositors has been achieved. Since at that point the objective of the liquidation becomes the winding-up of the bank to achieve the best result for creditors, as set out in Clause 96, I cannot see what possible locus the FSA or the Bank of England could have. I do not like legislation which creates unnecessary or non-value-adding activities for public servants, so I look to the Minister to explain why the provision is

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necessary and/or value-adding to the process of liquidation and the achievement of objective 2 in Clause 96. I beg to move.

Lord Davies of Oldham: The provision which the noble Baroness questions gives the FSA and the Bank of England rights to take part in certain matters concerning a bank insolvency after they cease to be members of a liquidation committee; for example, to participate in legal proceedings and to attend and be heard at meetings of a liquidation committee formed by the bank’s creditors.

Clause 98(7) has been included to give the Financial Services Authority the same rights in a bank insolvency as it would have in ordinary insolvency proceedings, such as liquidation or administration involving firms authorised by the FSA. The subsection therefore mirrors existing provisions of the Financial Services and Markets Act 2000. They entitle the FSA, where an authorised person enters administration or liquidation on the application of a third party, to participate in court proceedings relating to the insolvency as well as certain other rights. These include, for example, an entitlement to receive copy documents or attend meetings of a liquidation or creditors committee.

Since the bank insolvency procedure is part of the special resolution regime, and given the important role of the Bank of England in it, it is considered appropriate to give the Bank of England the same rights of participation as the FSA. Although the FSA and the Bank of England are obliged in a bank insolvency to stand down from the liquidation committee once objective 1 has been achieved, it seems sensible that, in keeping with the Financial Services and Markets Act 2000, the relevant authorities should be able to attend and be heard at future meetings. Of course, at that stage in the proceedings they will be able only to make representations, as any decisions will ultimately be made by the creditors sitting on the liquidation committee. They are not part of the decision-making process; it is a matter of copy documents and the right to attend. Similarly, Clause 98(7) gives the FSA and the Bank of England the right to participate in legal proceedings concerning a bank insolvency, but any judgments would of course lie with the court.

It is not possible to set out all the circumstances in which the authorities might wish to exercise their rights under Clause 98(7), but the provision offers flexibility which is in keeping with existing legislation. That is why I hope that we can retain it and that the noble Baroness will withdraw her amendment.

Baroness Noakes: The Minister did not explain why the provision is necessary and he certainly did not explain what value-added was brought about by it, but he has trumped me with precedent in the Financial Services and Markets Act. I arrived in your Lordships' House just after that epic Bill had finished its progress here, so I am not quite word-perfect on the sections it contains. That sometimes comes back to haunt me. However, I accept what the Minister said and beg leave to withdraw the amendment.

Amendment 135 withdrawn.



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Amendment 136

Moved by Lord Davies of Oldham

136: Clause 98, page 50, line 4, at end insert “or under section 141(2) or 142(2) of the Insolvency Act 1986 (as applied by section 100 below)”

Lord Davies of Oldham: I shall speak also to government Amendment 137. The amendments add further detail to the Bill concerning the formation of a liquidation committee in a bank insolvency after the achievement of objective 1 as set out in Clause 96(2). They are minor technical amendments applying Sections 141 and 142 of the Insolvency Act 1986 to the Bill with necessary modifications. I beg to move.

Amendment 136 agreed.

Clause 98, as amended, agreed.

Clause 99 agreed.

9 pm

Clause 100 : General powers, duties and effect

Amendment 137

Moved by Lord Davies of Oldham

137: Clause 100, page 52, line 22, at end insert—

“Section 141

Liquidation Committee (England and Wales)

The application of section 141 is subject to— (a) sections 97, 98 and 106 of this Act, (b) rules under section 411 (as applied by section 122 of this Act) which may, in particular, adapt section 141 to reflect (i) the fact that the bank liquidator is appointed by the court and (ii) the possibility of calling creditors’ meetings under other provisions, and (c) the omission of references to the official receiver.

Section 142

Liquidation Committee (Scotland)

The application of section 142 is subject to— (a) sections 97, 98 and 106 of this Act, (b) rules under section 411 (as applied by section 122 of this Act) which may, in particular, adapt section 142 to reflect (i) the fact that the bank liquidator is appointed by the court and (ii) the possibility of calling creditors’ meetings under other provisions, and (c) the omission of references to the official receiver.”

Amendment 137 agreed.

Amendment 138

Moved by Lord Myners

138: Clause 100, page 54, line 6, after “applied” insert “to a bank liquidator”

The Financial Services Secretary to the Treasury (Lord Myners): Government amendments 138 and 139 work together and add further detail to the removal from office of a provisional bank liquidator. These amendments do not change the ways in which a bank liquidator can be removed, which are set out in the Bill. The table of applied provisions in Clause 100

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details the provisions of the Insolvency Act 1986 applied to bank insolvency, with or without modification. This includes provision for the appointment of a provisional bank liquidator through the application, with modifications, of Section 135 of the 1986 Act.

At present, provision is made for the appointment of a provisional bank liquidator to lapse on the appointment of a bank liquidator. These technical amendments apply further existing provisions of the Insolvency Act 1986 concerning the removal of a provisional bank liquidator. They provide that a provisional bank liquidator may be removed by an order of the court and also ensure that a provisional bank liquidator must vacate office if he or she is no longer qualified to act as an insolvency practitioner. These are tidying-up provisions which are consistent with existing insolvency legislation.

Amendment 138 agreed.

Amendment 139

Moved by Lord Myners

139: Clause 100, page 54, line 7, at end insert—

“Section 172(1), (2) and (5) are applied to a provisional bank liquidator.”

Amendment 139 agreed.

Clause 100, as amended, agreed.

Clauses 101 to 128 agreed.

Clause 129 : Partnerships

Debate on whether Clause 129 should stand part of the Bill.

Baroness Noakes: I have given notice that I oppose the clause standing part of the Bill, on a probing basis. For the convenience of the Committee I have grouped the debate with one on whether Clause 160 should stand part, as it is in similar terms.

Clause 129 is an order-making power for the bank insolvency procedure to apply to partnerships. Clause 160 is in identical form for the bank administration procedure. I have one simple question for the Minister. Does this enable an order to cover limited liability partnerships? These are separate legal entities under the Limited Liability Partnerships Act 2000 and, therefore, not within the normal legal meaning of partnership any more.

Lord Myners: Clause 129 allows the Lord Chancellor, with the agreement of the Secretary of State and Lord Chief Justice, to modify the provisions of the bank insolvency procedure for banks that are partnerships rather than limited companies. Clause 160 replicates this provision for the bank administration procedure. I should add that Clauses 129 and 160 do not apply to Scottish partnerships, which have a different legal structure from English and Welsh partnerships and

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are provided for separately under Clauses 130 and 161. These provisions mirror Section 420 of the Insolvency Act 1986, which allow the Lord Chancellor, with the concurrence of the Secretary of State or the Lord Chief Justice, to make orders in relation to the law dealing with insolvent partnerships. Indeed, Clauses 129(2) and 160(2) make it clear that the procedure to be followed in relation to any order is the same as that set out in Section 420 of the 1986 Act. I was rather hoping that if any questions were asked in connection with the Insolvency Act 1986 I would be helped by the noble Lord, Lord James of Blackheath, who I acknowledged yesterday is almost certainly the world’s leading expert on that particular legislation, but I see that he is not in his place, so I will soldier on.

The primary reason for such an approach is that partnerships have different characteristics from limited companies and their own unique insolvency provisions. It may therefore be necessary to amend provisions of the bank insolvency procedure or the bank administration procedure for any banks that are set up as partnerships rather than as companies. In addition, setting out legislation for banks that are insolvent partnerships in a separate order will provide greater transparency for users of the legislation. As these clauses simply replicate the provisions of existing insolvency law in making legislation to deal with insolvent partnerships, Clauses 129 and 160 should stand part of the Bill.

I should like to have the opportunity of writing to the noble Baroness in answer to her question on limited liability partnerships.

Baroness Noakes: I take it that the Minister does not know whether limited liability partnerships are included within Clauses 129 and 160 and I look forward to finding out the answer. They are often forgotten.

Lord Myners: The noble Baroness has established such a formidable reputation in my mind that I would not for one moment wish to give an answer were I not 100 per cent confident that I was correct. I have failed against that standard on several occasions in this Committee, but I aspire at all times to improve.

Clause 129 agreed.

Clauses 130 to 134 agreed

Clause 135: Objective 1: supporting private sector purchaser or bridge bank.

Amendment 140

Moved by Lord Myners

140: Clause 135, page 69, line 18, after “supplemental” insert “or reverse”

Lord Myners: This group of government amendments contains three technical amendments to the provisions for the bank administration procedure. Amendment 140 ensures that objective 1 of the bank administration procedure—to support the private sector purchaser or

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bridge bank—includes a reference to reverse property transfers, as well as to supplemental property transfers. Reverse property transfers were introduced in Committee in the other place, and this amendment is consequential.

Amendment 141 concerns the removal of a provisional bank administrator and is similar in effect to Amendment 139, which we have just debated in relation to the bank insolvency procedure.

Amendment 142 adds some important additional provisions of the Insolvency Act 1986 concerning procedures for disclaiming onerous property and the powers of the court in relation to disclaimed property.

Table 2 in Clause 142 applies to the bank administration procedure a large number of the provisions of the Insolvency Act 1986, including, with modifications, Section 135. This allows for the appointment by the court of an insolvency practitioner as provisional bank liquidator between the submission of a bank administration application and the making of a bank administration order.

To provide consistency with the existing insolvency legislation, the amendment additionally applies certain provisions of Section 172 of the Insolvency Act 1986 which mean that a provisional bank liquidator can be removed by an order of the court and that a provisional bank administrator must vacate office if he or she ceases to be qualified to act as an insolvency practitioner. These are sensible provisions to adopt. Table 2 also applies, with modification, Section 178 of the Insolvency Act 1986 to the bank administration procedure.This gives a bank administrator the power to disclaim onerous property.

To make sure that the power to disclaim onerous property can work in practice in the bank administration procedure and to allow others who may be affected by the issue of disclaimer to claim an interest in such property, Amendment 142 also applies, without modification, Sections 179 to 182 of the Insolvency Act 1986. These sections deal with important aspects relating to the power to disclaim onerous property and should have been applied at an earlier stage in the Bill but were regrettably overlooked. I ask noble Lords to accept these minor and technical amendments.

Amendment 140 agreed.

Clause 135, as amended, agreed.

Clauses 136 to 141 agreed.

Clause 142 : General powers, duties and effect

Amendments 141 and 142

Moved by Lord Myners

141: Clause 142, page 77, line 49, at end insert—

“(h) Section 172(1), (2) and (5) apply to a provisional bank administrator.”


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