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Building Societies (Joint Account Holders) Bill

7.22 p.m.

Lord Hayhoe: My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Hayhoe.)

On Question, Motion agreed to.

House in Committee accordingly.

[The DEPUTY CHAIRMAN OF COMMITTEES (Lord Ampthill) in the Chair.]

Clause 1 [Joint Account holders]:

The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Henley) moved Amendment No. 1:

Leave out Clause 1 and insert the following new clause:

Rights of second-named joint shareholders

(".—(1) After section 102 of the Building Societies Act 1986 there shall be inserted the following section—
"Rights of second-named joint shareholders.

102A.—(1) This section applies where the terms of a transfer of business by a building society to the company which is to be its successor include such provision as is mentioned in section 100(1).
(2) If—
(a) a person ('A') held shares in the society throughout the requisite period;
(b) any shares in the society held by A were jointly held for any period ('the joint ownership period') constituting the whole or part of the requisite period;
(c) A was the second-named holder of the jointly held shares for the whole or part of the joint ownership period; and
(d) no person who has priority over A for the purposes of this section held shares in the society throughout the requisite period,
the jointly held shares shall be treated for the purposes of subsections (8) and (9) of section 100 as having been held by A alone.
(3) The following persons shall have priority over A for the purposes of this section, namely—
(a) where A was not the first-named holder of the jointly held shares for any part of the joint ownership period—
(i) any person who was the first-named holder of those shares for the whole or part of that period; and
(ii) where A was the second-named holder of those shares for part only of that period, any person who was the second-named holder of those shares for a later part of that period; and
(b) where A was the first-named holder of the jointly held shares for part of the joint ownership period, any person who was the first-named holder of those shares for a later part of that period.
(4) In this section—
'the first-named holder', in relation to any shares jointly held, means that one of the joint holders who is named first in the records of the society, that is to say, the person by whom alone, apart from this section, those shares would, by virtue of paragraph 7(5) of Schedule 2, be treated as held for the purposes of section 100;

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'qualifying day' has the same meaning as in subsections (8) and (9) of section 100;
'the requisite period' means the period beginning two years before the end of the qualifying day and ending immediately before the vesting date;
'the second-named holder', in relation to any shares jointly held, means that one of the joint holders who is named second in the records of the society;
'the vesting date' has the same meaning as in section 100."
(2) In paragraph 7 (joint shareholders) of Schedule 2 to that Act (establishment, incorporation and constitution of building societies), after sub-paragraph (5) there shall be inserted the following sub-paragraph—
"(5A) In its application to section 100, sub-paragraph (5) above shall have effect subject to the provisions of section 102A." ").

The noble Lord said: In moving Amendment No. 1, I should like to speak also to Amendment No. 2—in fact, to all the amendments! As my noble friend Lord Hayhoe explained on Second Reading, this measure has a limited purpose. It is to deal with a number of specific inequities in the Building Societies Act 1986 which affect the eligibility to receive a payment of second-named account holders—such as widows and newly married couples—when their society converts to a plc or is taken over by a company from outside the sector. It could not be, and is not intended to be, a comprehensive measure dealing with every possible problem, nor does it seek to address any matters affecting voting rights.

I should advise the Committee that any attempt to widen the scope of the Bill could put its survival at risk when it returns to another place for consideration of your Lordships' amendments. The Government support the Bill but we also accept the bounds within which it is set. In the time available it is much better to achieve a limited degree of success than to strive for much more and end up with nothing.

I appreciate that the two amendments, which stand in the names of my noble friend and myself, appear somewhat draconian, in that they strike out some 90 per cent. of the Bill only to replace it with a new version. If I may, I shall explain—possibly at some length—that the amendments are, in effect, mere drafting amendments. They are designed to ensure that the Bill achieves the stated aims of my noble friend.

I believe that all sides of the Committee would agree that the Bill should permit second-named (or former second-named) holders to participate in distributions following the death of the first-named holder (the so-called "widow's problem"); on the creation of a joint account (for example, on marriage); on the division of a joint account (for example, on divorce or separation); or when there has been a change in the order of names within an account. But it is not the intention of the measure to enable individuals to claim two distributions by manipulating their accounts, for example by splitting them up.

I should like briefly to give an outline of the amendments which stand in my name and that of my noble friend and which are spelt out in full in the wording laid before your Lordships. In brief, we propose

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to insert a new Section 102A into the Building Societies Act 1986, which will replace Clause 1 of the Bill as it came to the House.

Subsection (1) of the new section explains that the measures apply where a transfer or conversion involves a distribution of cash or share rights.

Subsection (2) then looks at someone—called "A" in the text—who is presently disqualified from receiving a distribution by the two-year rule in the current Act. Four conditions have to be satisfied before A can benefit in future. First, A must have held shares for what is called the "requisite period" which must always exceed two years; secondly, the shares must have been held jointly; thirdly, A must have been second-named holder; and, finally, no one who, in the words of the section, "has priority over A", may have held shares for the requisite period. I shall come back to that last requirement, from subsection (2) (d), in a moment.

If all those conditions are satisfied, then A will be able to qualify for a distribution. So those widows and others who are excluded by the existing legislation from receiving a distribution will, in future, be eligible for one.

In subsection (3), the wording may be complex but the effect is clear. First-named account holders take priority over second-named holders, and a later holder of the same degree takes priority over an earlier one. Let us take the example of a widow. As her husband will not have held shares for the requisite period, the test in subsection (2) (d) will be satisfied, and the widow will be able to benefit.

Let me give some other illustrations. Paragraph (a) of subsection (3) deals with situations where A has never been first-named holder of the jointly held shares. An example —case 1—is where A marries. She closes her sole account and opens a joint one with her husband, "H". If H is the first-named holder, he will be,

    "a person who has priority over A".

If he holds shares throughout the requisite period, then he will get any distribution. But if he does not, then A will.

Let us take a different example. If another couple divorce and split their joint account, A will benefit if H takes his money away from the society, but if H retains a share account with the society for the requisite period, he will benefit from any distribution, not A. So a couple who split their account during the requisite period will not be able to obtain a double benefit. Both those examples are likely to be frequent occurrences.

The second case deals with a much rarer situation, but one example is where a husband, wife and son, named in that order, have a joint account. When the son reaches 18, the order of names is changed and he becomes second-named holder, with his mother becoming third-named. If the father dies and the account is split, the mother and the son will each have been second-named holder for part of the time. The rule then is that the son, as the later second-named holder, will be entitled to any distribution.

Paragraph (b) deals with the situation where A has been the first-named holder for part of the period. That could occur where a husband and wife change round the

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names on their account. Both will at some stage have been second-named holder, but under paragraph (b) the one who is first-named for the later part has priority.

Subsection (4) defines expressions used in the new section. A key definition here is "the requisite period". This runs from two years before the "qualifying day" to immediately before the "vesting date".

Finally, subsection (2) of the new clause amends paragraph 7 of Schedule 2 to the Act to make sub-paragraph (5), which limits rights under Section 100 to representative joint account holders, subject to the new section.

Amendment No. 2 simply adds a provision to Clause 2 stating that the Bill applies in cases where the vesting date falls after it is passed. It will come into force on receiving Royal Assent.

I apologise for that somewhat lengthy explanation of the Bill and for the fact that it might seem somewhat complicated. I commend to noble Lords the opportunity to read it in some detail tomorrow as that might add a certain degree of sense to my explanation and make life somewhat simpler. With that, I beg to move.

7.30 p.m.

Lord Eatwell: I was somewhat taken aback when I saw the amendments, because they effectively rewrite a substantial part of the Bill. I was wondering whether, like the first cuckoo in spring, that was perhaps a record—not that I was referring to the Minister as a cuckoo in spring or any other time.

As was said on Second Reading, we on these Benches support the Bill enthusiastically. We supported the measure introduced by my noble friend Lord Dubs, which the Bill has in many way superseded. I have a number of questions about the amendments which I should like to ask the Minister. He will be aware that on Second Reading a number of other anomalies were identified. We understand that to consider some of those anomalies in the context of this Bill would damage its progress, so it would be inappropriate to do so.

My first general question is to ask the Minister whether, if subsequent short Bills were brought forward to deal with some of the most obvious anomalies which were discussed on Second Reading and are not contained in the Bill, the Government would look favourably upon them or at least co-operate in their drafting and in bringing them before this place and another place.

I shall deal now with some of the complications. The Minister identified a number of specific cases. I wish to ask him about some other cases—this is always a difficult exercise—which seem to create some slight difficulties. First, we must remember that the notion of joint holding does not necessarily mean that there are just two people holding an account. As the Minister said, there could be more. He mentioned the case of a mother, father and son. Under the legislation as currently drafted, what would happen where a mother, father and son hold an account over the two-year period and the mother and father die leaving the son? As he is

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not the second-named, as mentioned in subsection (2) (c), would the son, who had previously been the third-named, qualify under the terms of the Bill?

Using the term "second" to define a particular ordering is unfortunate. It should be "was a later-named holder" or should convey some notion of ordering which does not necessarily apply to the number two.

My second detailed question relates to subsection (3) (a) (i) and issues of priority. That part of the amendment states that,

    "any person who was the first-named holder of those shares for the whole or part of that period",

would have priority. That seems to create a complication in the following case. Let us suppose that Mr. and Mrs. Smith have held the shares for two years. During the period they become divorced, and Mrs. Smith immediately remarries Mr. Brown, and registers the shares in the names of Mr. Brown and herself—Mr. Brown and Mr. Smith in both cases being the first-named holders. If Mr. Smith continues to hold other shares in the company, that seems to me to clash with any divorce settlement which assigned the shares to Mrs. Smith (now Mrs. Brown), and she would be unable to benefit. Her former husband who had happily handed over the shares in the divorce settlement, would benefit instead of her. The problem is the words "any person".

I realise that the questions I have asked may be solved adequately by the drafting, but, after studying the Bill for a few moments on the train coming down from Cambridge, those two cases suggested themselves to me as anomalies which might remain in the current drafting.

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