Only a few days to go: We’re raising £25,000 to keep TheyWorkForYou running and make sure people across the UK can hold their elected representatives to account.

Donate to our crowdfunder

Clause 90

Banking Bill – in a Public Bill Committee at 2:00 pm on 13th November 2008.

Alert me about debates like this

general powers, duties and effect

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

I beg to move amendment No. 158, in clause 90, page 45, line 44, at end insert—

‘Section 135

Provisional appointment

(a) Treat the reference to the presentation of a winding-up petition as a reference to the making of an application for a bank insolvency order.

(b) Subsection (2) applies in relation to England and Wales and Scotland (and subsection (3) does not apply).

(c) Ignore the reference to the official receiver.

(d) Only a person who is qualified to act as an insolvency practitioner and who consents to act may be appointed.

(e) A provisional bank liquidator may not pay dividends to creditors.

(f) The appointment of a provisional bank liquidator lapses on the appointment of a bank liquidator.’.

The amendment provides for the appointment by a court of a provisional bank liquidator, following an application for a bank insolvency order. Clause 82(3) specifies that a bank must be given notice of an application for such an order. That is important, because to ensure compatibility with human rights legislation, it is necessary for the directors of the bank or other parties to put their case to the court against the making of the order. That is a standard approach in insolvency proceedings.

There will thus be a gap between making the application for an insolvency order, and the court hearing that considers whether it should be made. It is crucial to avoid the possibility of a run on the bank or any other scramble for assets during that period. In an ordinary compulsory liquidation, if it is considered that assets may be at risk in the period between the filing of an insolvency application and the making of a winding-up order, the court may appoint a provisional liquidator, without notice if necessary, to protect the interests of creditors. The amendment applies that provision to the bank insolvency procedure.

Being able to appoint a provisional bank liquidator will protect the interests of all creditors. For example, such a liquidator should be able to take steps to shut down operations, preventing any scramble for assets. In practice, the period between the application for a bank insolvency order and the court hearing is likely to be hours only, but the court’s facility to appoint a provisional bank liquidator will be a useful provision if the court needs to adjourn a hearing.

The possibility of appointing a provisional liquidator is consistent with ordinary compulsory liquidation, in which a provisional liquidator can be appointed under section 135 of the Insolvency Act 1986, after a winding-up petition is filed and before the hearing for the making of the winding-up order. Such an appointment is generally sought only when it is more or less certain that the court will make a winding-up order. A provisional liquidator has powers specified by the court, generally to protect or preserve a company’s assets pending the appointment of a liquidator and the making of the winding-up order. Provisional liquidators are common in high-profile and/or complex cases where assets are perceived to be at risk  following an application for winding up, such as in situations where it is thought that the directors might attempt to dispose of assets prior to the making of a winding-up order.

Provisional liquidation, therefore, exists to protect the interests of creditors. The Committee should note that the provisional bank liquidator’s powers are limited. For example, modification (e) means that a provisional bank liquidator may not pay dividends to creditors. Neither would the provisional bank liquidator be able to facilitate the payout to depositors under objective 1, as they would have to wait for a recommendation from the liquidation committee on what option under objective 1 to pursue. Any ambiguities about the powers of the provisional liquidation would be clarified by the court when the appointment was made. We believe that the amendment is necessary and will help to ensure that we can continue to protect creditors.

Amendment agreed to.

Clause 90, as amended, ordered to stand part of the Bill.

Clauses 91 to 100 ordered to stand part of the Bill.