Banking Act 2009 (Bank Administration) (Modification for Application to Banks in Temporary Public Ownership) Regulations 2009

I cannot say that this is a terribly exciting statutory instrument but I will seek to bring it to life as best I can. In moving this Motion, I shall speak to two other statutory instruments: the Banking Act 2009 (Bank Administration) (Modification for Application to Multiple Transfers) Regulations 2009 and the Banking Act 2009 (Parts 2 and 3 Consequential Amendments) Order 2009. The two sets of regulations apply the bank administration procedure that is set out in Part 3 of the Banking Act 2009 to various scenarios. Although we have recently debated this Act, let me set out a brief background to the bank administration procedure to provide the context to the first two regulations. The bank administration procedure supports the use of the property transfer resolution tools under the new special resolution regime. This 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. Where a partial transfer takes place, the "residual bank", which is the part left behind, may be insolvent and, crucially, some essential services and facilities that are required by the transferee to conduct any business transferred to it may be non-transferable. In such circumstances, in order to ensure the business transferred from the bank can continue to be operated effectively, under the provisions of Part 3 of the 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 facilities to a commercial purchaser or bridge bank and would be required to take actions in the best interests of creditors. This could include taking immediate steps to wind up the affairs of the company, selling its assets and distributing the proceeds to creditors. Such action could threaten the successful resolution of a failing bank through a partial transfer since it may render a bridge bank unworkable or deter any private-sector purchaser from making an acquisition. Private-sector purchasers are likely to have a low appetite for risk and, if they are not sufficiently assured that services will continue to be provided to the transferred business, they may refuse to take part in the transaction. Clearly, the bank administration procedure places a duty on the court-appointed bank administrator of an insolvent residual bank to provide essential services and facilities to the transferee. To this end, the bank administrator will have unique statutory objectives: first, to provide support to a commercial purchaser or bridge bank and, secondly, to 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. 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 in to the procedure. The Banking Act 2009 (Bank Administration) (Modification for Application to Banks in Temporary Public Ownership) Regulations apply the bank administration procedure to situations when a bank or bank holding company has been taken into temporary public ownership and then later the Treasury transfers some of the business of a bank in temporary public ownership to another person such as a private sector purchaser. In such circumstances the Government believe that it is appropriate for the Treasury to apply to the court for a bank administration order. This will be done where, in the opinion of the Treasury, the bank from which 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 Transfers) Regulations modify the provisions of Part 3 of the Act to apply in circumstances where the Bank of England or the Treasury transfers the property, rights and liabilities of a bank to more than one transferee. This ensures that the provisions made for bank administration accommodate effectively situations where multiple property transfers are made in respect of the business of a bank. An example could be a 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 of the Act will work in the same way in relation to multiple transfers as it does where a transfer is effected by a single property transfer instrument. However, these 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. Both these statutory instruments 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 (Part 2 and 3 Consequential Amendments) Order 2009 makes consequential amendments to existing legislation. Part 2 of that 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. The bank administration procedures that I described earlier and the bank insolvency procedure—the modified insolvency procedure under Part 2 of the Act—are designed to facilitate the FSCS 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 Banking 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. This part also sets up textual amendments to statutory instruments to provide for bank insolvency and bank administration to be included alongside the references to general insolvency proceedings within these 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 different resolution options provided for in the Act. The order makes consequential amendments to other legislation to ensure that, as is supported by stakeholders, the new bank insolvency and bank administration procedures apply to relevant legislation in a similar way to normal insolvency and administration procedures. I commend the draft orders to the Committee.