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Clause 54

Banking Bill – in a Public Bill Committee at 6:30 pm on 11th November 2008.

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third party compensation: discretionary provision

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I beg to move amendment No. 117, in clause 54, page 25, line 35, leave out

‘persons other than a transferor’ and insert

‘pre-transfer creditors and shareholders’.

Subsection (1) of the clause refers to persons “other than a transferor”. My understanding—the Minister may correct me—is that such persons will be pre-transfer creditors and shareholders. I tabled the amendment partly as an attempt to seek clarification as to whether that is correct, or whether there is another form of third party that might be paid compensation. If my understanding is correct, it raises the question of whether we should be slightly more specific in the legislation, and I should therefore be grateful for the Minister’s views.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary (Economic and Business), Department for Business, Enterprise & Regulatory Reform, Economic Secretary (Economic and Business), HM Treasury

The clause allows the Treasury to make third party compensation orders for all transfers under the SRR powers. Third parties can be creditors or other contractors with the bank. The third party compensation order can either be part of a compensation scheme order or bank resolution fund, or be a separate order. The order may also include provision for an independent valuer and valuation principles, as discussed under the other compensation clauses.

The aim of the clause is to ensure that all relevant third parties in both initial and onwards transfers can be compensated for compensatable interferences in their property rights, arising from an exercise of the stabilisation power. The hon. Gentleman has proposed a probing amendment to specify that third party compensation orders should apply only to pre-transfer shareholders and creditors.

The amendment is not appropriate, as its effect would be to make the clause too restrictive on the question of who should be counted as a third party for the purposes of compensation. In particular, it would exclude third  parties that have contracted with a bank once it is a bridge bank or in temporary public ownership, and have their rights disrupted as part of an onward transfer. To comply with the ECHR provisions, compensation provisions need to be made for all persons who suffer a compensatory interference in their property rights arising from the transfer. I have explained the background to the clause and its purpose, and I think I have answered the hon. Gentleman’s question about its scope and the need not to exclude third parties that have contracted with a bank once it is a bridge bank or in temporary public ownership, so I hope he will withdraw the amendment.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

That was a helpful explanation. I am grateful for that clarification. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 111, in clause 54, page 25, line 40, leave out ‘and 50’ and insert ‘to 51’.—[Ian Pearson.]

Clause 54, as amended, ordered to stand part of the Bill.