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The Minister alluded to the liquidation committee, and it is interesting that in the first instance it will consist of three individuals, one each nominated by the Bank of England, the FSA and the FSCS. Given that from the outset, the liquidator is supposed to work towards achieving both objectives 1 and 2, why are creditors not represented on the committee at that stage, and why is it that only when a full payment resolution has been made, creditors may be represented on the committee?
If the liquidator is working towards both goals, surely a representative of the creditors should be on the committee to represent their interests. The Minister said in response to clause 86 that the FSCS would not stand in the stead of depositors when their money has been paid out. That reinforces the point that the creditors rank second to, and not alongside, other depositors.
No, they do not. Creditors are excluded only from the initial liquidation committee, because of the need for quick action to ensure that depositors receive their compensation or have their accounts transferred as quickly as possible. The initial liquidation committee will be formed by the Bank of England, the FSA and the FSCS, who will work with the banks liquidator to ensure that appropriate arrangements are in place for a transfer of accounts, or to ensure that eligible depositors are paid quickly.
It is right that the FSCS should be part of that initial liquidation committee, because it will be a large creditor. However, when a bulk transfer of accounts has taken place, or payments have been made to eligible depositorswe want that to happen within seven days for at least a proportion of their funds, with the balance following in the subsequent few daysthe liquidation will then proceed in much the same way as normal, and creditors will be able to form a liquidation committee if they wish.
In a normal insolvency, a meeting of creditors may decide on formal liquidation, but it would be a month or two before any meeting of creditors is held, so the timing in the Bill should not delay things. We are saying only that creditors other than the FSCS would be excluded from the initial liquidation committee. However, very quickly, once a bulk transfer and the arrangements that I have outlined are made, we would move towards a normal liquidation situation. In those circumstances, creditors would be expected to be part of the liquidation committee.
It is very unusual to have a liquidation committee with no creditor representation. I can understand that the Minister does not want that representation initially, but he cannot argue that it is a matter of speed. If there was a formal committee with the Bank of England, the FSA and the FSCS, it could certainly include a creditor. I would have thought that general creditors would be happier to have some representation right at the beginning. I cannot see a problem with that, unless the Government have a principled objection.
Let us compare this to the process for a normal liquidation. We are talking about an initial fast front-end process and a committee consisting of the FSCS, the Bank of England and the FSA, working with the liquidator to ensureprobably in most circumstancesa quick bulk transfer of accounts or fast payout. After that, the rump of the liquidation would go through the normal process, with creditors involved on the liquidation committee. That is how I envisage the process operating.
If it is a fast front-end process, does the Minister envisage the initial liquidation committee lasting for only one or two weeks, rather than for several months? After all, we have talked about payments made within seven days and we saw the transfer of deposits from Bradford & Bingley to Abbey Santander literally overnight. Subsection (6)(d) suggests that the FSCS may resign from the liquidation committee. Presumably, if it was still a creditor of a bank and did not choose to resign, it would remain part of the liquidation committee and other creditors could join.
As I have been trying to explain, we are talking about a two-stage process. I likened it to an initial fast front-end process. Normally, a month or two into the winding-up proceedings, a liquidation committee would be formed at the request of creditors following a meeting of those creditors. The arrangements we are discussing are not the normal way of doing things; we have proposed them to try to speed up the process. That is the purpose of subsections (1) and (2), which provide that following the making of a bank insolvency order, a liquidation committee must be formed made up of representatives from the Bank, the FSA and the FSCS. Those are the appropriate bodies to be included in the initial liquidation proceedings.
In a normal situation, the Minister would be correct, but the situation is abnormal. Huge assets are being removed from the enterprise, which desperately affects the remaining creditors. Unless he has a particular objection, I cannot see why there cannot be provision for a creditor to be on that committee, just to represent the interests of all the other creditors. I do not see what harm there is. It can only be of benefit, can it not?
A key point in response to the hon. Gentleman is that the assets are not being removed from the liquidation. The FSCS pays out when it comes to depositors and will become an ordinary, unsecured creditor as part of the liquidation. Once we have moved from stage one of the process, we move to stage two. Once eligible depositors have been paid by the FSCS, or their accounts have been transferred, the liquidation committee will pass a full payment resolution. Following that, if the creditors elect to continue with a liquidation committee they will take the place of the authorities on that committee, so we move into a normal liquidation phase. Many of the formalities concerning membership and the role of an ordinary liquidation committee are set out in secondary legislation and subsection (7) preserves that position for the bank insolvency procedure.
The clause is important. It provides the authorities with a key role in the early stages of the proceedings. It enables the FSCS to make a fast payout and then to stand in the shoes of depositors by being an ordinary unsecured creditor. Then we move to the second stage of the liquidation, where the creditors would take the place of the authorities on the liquidation committee and events would proceed as with the normal liquidation process with which people are familiar. In our view, that is a sensible measure, which combines procedures that will be familiar to companies and their professional advisers with the short, first phase that we believe is important if we are to achieve the objectives of the bank insolvency procedureto ensure a fast payout through the FSCS.