Clause
2
Power
to amend etc, to alter priorities on dissolution and winding up of
building
societies
Question
proposed, That the clause stand part of the
Bill.
The
Chairman:
With this it will be convenient to discuss the
following: Government amendment No.
6.
Government new
clause 2—Power to alter priorities on dissolution and winding
up.
Ed
Balls:
New clause 2 will give the Treasury the power to
amend the Building Societies Act 1986 to ensure that, in the event of a
building society insolvency, any assets available are distributed
equally between creditors and members. That will change the current
position, in which creditors have priority over members. The power may
also be used to make transitional provisions to cover, for example,
debts entered into before the changes take effect. The power will be
exercised under the affirmative procedure—again, for the reasons
that I outlined when I introduced clause 1 to the
Committee.
The
current position puts members at a disadvantage. In the event of
insolvency, they are entitled to their deposits in savings accounts
only when all creditors have been paid in full. That contrasts with
bank customers, who, because they are creditors of the bank, rank
equally with other creditors. The power to exclude categories of
special liabilities will enable the Treasury to deal with them
individually, which it was not practical to do in the Bill.
It is important that
transitional provisions ensure that the rights of creditors in respect
of debts entered into before the commencement of the order are
unaffected by the change. The power is also exercisable under the
affirmative procedure. As the use of the power would be a significant
change to insolvency law, as applied to building societies, the views
of the Insolvency Service and others will be sought before exercising
the
power.
Sir
John Butterfill:
I very much support the proposal, but it
is important to put it in context. No building society has failed for
at least 40 years—it is therefore an extremely unlikely
event—but the new clause addresses a moral issue: is it right on
an insolvency that small retail depositors who are unsophisticated in
financial matters should be subordinated to the wholesale capital
markets who are extremely sophisticated players? Redressing that is
quite long
overdue.
Question
put and
negatived.
Clause
2 disagreed to.
Clause
3
Transfers
between
mutuals
Question
proposed, That the clause stand part of the
Bill.
The
Chairman:
With this it will be convenient to discuss the
following: Government amendment No.
9.
Government new
clause 3—Transfers to subsidiaries of other
mutuals.
Government
new clause 4—Transfers to subsidiaries: distribution of
funds.
Ed
Balls:
I pay particular tribute to the hon. Member for
Bournemouth, West, not simply because of his leadership on matters of
mutual policy, but because of his wide experience in the House,
including as an excellent Chairman of the Standing Committee that
considered the Finance Bill last year. His knowledge of procedure is
second to none, and the fact that he ensured that we voted correctly
was appreciated by hon. Members on both sides of the House, myself
included.
New clause 3 will give the Treasury the
power to modify legislation relating to the transfer of the business of
building societies, friendly societies and industrial and provident
societies, to make those transfers easier. The modifications will apply
where the transfer is from one mutual society to a company that is a
subsidiary of another mutual society. The Treasury may also use the
power to ensure that members of the transferring mutual society, and
new customers after the transfer, are given certain membership rights
in the owning mutual society.
The Treasury
may also make other changes that relate to the transfer—for
example, to prevent a change in ownership of the new subsidiary company
for a specified period. Where the power is used to modify primary
legislation, or to modify the rules on subsidiaries, it will be subject
to the affirmative procedure. But it may also be used to modify
secondary legislation—for example, transfer regulations made
under section 102 of the Building Societies Act 1986—in which
case the negative procedure will apply.
These amendments are intended
to lighten the burden on financial mutual societies where they transfer
ownership from one type of mutual to another. The wider opportunities
for a more diverse range of ownership in the sector will help it to
compete both internally and in the wider financial sector. The Treasury
will also consult on the appropriate means of restricting further
transfers of ownership outside the mutual sector, so that the procedure
does not become a back-door means of demutualisation. That is likely to
be achieved by placing a time bar on future transfers of
ownership.
Sir
John Butterfill:
Again, I very much support the clause. It
goes to the heart of the Bill. It has been anomalous that mutual
financial organisations can merge with one another only by one of them
first losing its mutuality, which rather defeats the whole object of
mutuality. It is a key part of the Bill that these arrangements will
enable those transfers to take place, without the loss of the important
principle of mutuality.
As I indicated earlier, there
is one area where I am disappointed and that is the position of mutual
insurers. I understand that their omission is due to possible concerns
about European Union law relating to companies. I think that only seven
companies are affected by that, and it may yet be possible, with the
wit and ingenuity that is available to us, to table a further amendment
on Report, so that they could be included. If that were possible, I
would welcome it, but I do not want to hold up the progress of the Bill
in its entirety on that
issue.
10
am
Ed
Balls:
Just to reply to the point made by the hon.
Gentleman, we have considered carefully whether mutual insurers could
be included in this part of the Bill. As I explained on Second Reading,
this is an area that has raised more substantial difficulties for us
than other aspects of the original proposed legislation. Mutual
insurers are difficult to define as a category. Many of them are
friendly societies, which are already covered by the Bill; others are
governed by private Acts of Parliament,
and so could not be covered in a public Bill. Changes in that regard
would have to be made in those private Acts under the private Bills
procedure. The remaining mutual insurers are companies limited by
guarantee. We have considered whether the Bill could be extended to
companies limited by guarantee that are also insurers. However, as
insurance is regulated on a Europe-wide basis, we would have to allow
the same procedures to apply whether transfer is through a subsidiary
of a body corporate in another member state, which is similar to a
company limited by guarantee.
The work that
we have done in consultation with the hon. Member for Bournemouth, West
and his advisers has continued to throw up a range of problems. For
example, it would be difficult to specify in UK legislation what rights
members of the transferring mutual society should enjoy in the holding
company established in another member state. That is one example of a
range of difficult definition issues that we have not been able to
solve. So far, that has meant that we have been unable to come forward
with proposals in new clause 3 covering mutual
insurers.
However,
I take on board the hon. Gentleman’s plea that we should keep
trying. I am happy to go back today and take a further look at these
matters, and to see what more can be done. I will write to members of
the Committee in a day or two to inform them whether we can continue
those discussions. If it were possible to come back with an amendment
in Report, we would do so, although I fear that simply to investigate
the matter further and see whether that was possible would take some
days. I do not know whether the timetable will give us the space to do
so, but we have no principled reason for excluding mutual insurers. If
we could table an amendment on Report, we would. We would need some
time to do the work to see whether that was possible.
I shall keep in touch with
Committee members, but if we are unable to make progress, we will
continue to need to discuss the issue beyond the life of this Committee
and this Bill. It is not off the table; if we can make progress, we
will. It will take some days to look at the matter, but I do not rule
out an amendment on Report.
Question put and
negatived.
Clause
3 disagreed
to.
Clause
4
Short
title, commencement and extent
Ed
Balls:
I beg to move amendment No. 4, in
clause 4, page 5, line 4, leave
out ‘Financial Mutuals Arrangements’ and insert
‘Building Societies (Funding) and
Mutual Societies
(Transfers)’.
The
Chairman:
With this it will be convenient to discuss
Government amendment No.
5.
Ed
Balls:
New clause 4 applies if the terms of a transfer
from a mutual society to a subsidiary of another mutual society
includes a distribution of funds
or bonus. Any such distribution must be approved by a resolution of the
society that approves the transfer, whose terms will be set out in
secondary legislation. If the distribution exceeds certain limits, it
must be approved by resolution of each society concerned. Those limits
will be set by the Treasury in an order.
The aim of the amendments is to
ensure that similar procedures for approving distribution of funds
apply where the new procedure is used as currently apply in the case of
mergers between building societies. The mutuals sector will be
consulted on whether to adopt that approach in the implementing order,
and amendment No. 9 would make an appropriate change in the long title
to reflect new clauses 3 and 4.
Amendment agreed
to.
Amendments
made: No. 5, in clause 4, page 5, line 7, leave out
‘different provisions
or’.
No. 6, in
clause 4, page 5, line 9, leave
out subsection (3).—[Ed
Balls.]
Question
proposed, That the clause, as amended, stand part of the
Bill.
Ed
Balls:
I should have said in my earlier remarks that
Government amendment No. 5 makes a technical change to clause 4 on
commencement powers. Amendment No. 4 gives a new short title to the
Bill—the Building Societies (Funding) and Mutual
Societies (Transfers)
Bill.
Question put
and agreed
to.
Clause 4,
as amended, ordered to stand part of the
Bill.
New
Clause
1
Funding
limit for building
societies
‘(1) In section 7
of the Building Societies Act 1986 (c. 53) (funding
limit)—
(a) after
subsection (6)
insert—
“(6A) The
Treasury may, by
order—
(a) provide for
subsection (1) to have effect as if the reference to 50 per cent
were a reference to such greater percentage (not exceeding 75) as they
think appropriate;
(b)
prohibit a society from applying the increased
percentage unless a resolution of the society of such description as
the Treasury think appropriate is passed in favour of applying the
increased percentage.
(6B) An
order under subsection (6A) is of no effect at any time unless, at the
same time, there is also in force an order under section 90B (power to
alter priorities on dissolution and winding
up).
(6C) An order under
subsection (6A)(a)—
(a)
may not be amended so as to reduce the percentage specified in the
order;
(b) may not be revoked,
unless it is replaced by another such order specifying the same or a
greater
percentage.”;
(b) in
subsection (8), after “subsection” insert “(6A)
or”;
(c) after
subsection (8)
insert—
“(8A) The
power to make an order under subsection (6A) is exercisable by
statutory instrument but no such order may be made unless a draft of it
has been laid before and approved by a resolution of each House of
Parliament.”.
(2) In
section 5 of that Act (establishment, constitution and powers), after
subsection (10) insert—
“(11) The Treasury may by
order amend subsection (1)(a) so as to alter the extent to which the
making of loans is required to be funded by a society’s
members.
(12) An order under
this section may make such consequential, saving, supplementary or
transitional provision as the Treasury think necessary or
expedient.
(13) The
consequential provision that may be made by virtue of subsection (12)
includes, in particular, provision amending any the following so far as
relating to funding by the members of a
society—
(a) section
1(1)(a) (functions of the Financial Services Authority in relation to
building societies);
(b)
section 93(2)(a)
(amalgamations);
(c)
paragraph 2 of Schedule 2 to this Act
(memorandum).
(14) The power to
make an order under this section is exercisable by statutory
instrument, but no such order may be made unless a draft of it has been
laid before and approved by a resolution of each House of
Parliament.”.’.—[Ed
Balls.]
Brought
up, read the First and Second time, and added to the
Bill.
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