The Banks and Building Societies (Priorities on Insolvency) Order 2018
| Jurisdiction | UK Non-devolved |
| Citation | SI 2018/1244 |
2018 No. 1244
Financial Services
Banks And Banking
Building Societies
The Banks and Building Societies (Priorities on Insolvency) Order 2018
Made 27th November 2018
Laid before Parliament 28th November 2018
Coming into force 19th December 2018
The Treasury are designated1for the purposes of section 2(2) of the European Communities Act 19722in relation to financial services.
The Treasury make the following Order in exercise of the powers conferred by section 2(2) of the European Communities Act 1972.
PART 1
Introductory Provisions
Citation and commencement
1.—(1) This Order may be cited as the Banks and Building Societies (Priorities on Insolvency) Order 2018.
(2) This Order comes into force on 19th December 2018.
Extent
2. The amendments made by this Order have the same extent as the enactments amended.
Transitional provision
3.—(1) This Order has no effect in relation to insolvency proceedings which are commenced before the date on which this Order comes into force.
(2) For this purpose—
(a)
(a) “insolvency proceedings” means—
(i) proceedings under the Insolvency Act 19863;
(ii) proceedings under the Insolvency (Northern Ireland) Order 19894;
(iii) proceedings under the Insolvent Partnerships Order 19945;
(iv) proceedings under the Insolvent Partnerships Order (Northern Ireland) 19956;
(v) proceedings under Part 2 or 3 of the Banking Act 20097(including proceedings under either of those Parts as applied to building societies by section 90C of the Building Societies Act 19868);
(vi) proceedings under the Investment Bank Special Administration Regulations 20119; or
(vii) proceedings under the Bankruptcy (Scotland) Act 201610;
(b)
(b) insolvency proceedings commence on—
(i) the date of presentation of a petition for a winding-up order, bank insolvency order, special administration (bank insolvency) order, building society insolvency order, bankruptcy order or award of sequestration;
(ii) the date on which an application is made for an administration order, bank administration order, investment bank special administration order, special administration (bank administration) order or building society special administration order;
(iii) the date on which notice of appointment of an administrator is given under paragraph 18 or 29 of Schedule B1 to the Insolvency Act 198611or paragraph 19 or 30 of Schedule B1 to the Insolvency (Northern Ireland) Order 198912;
(iv) the date on which a proposal is made by the directors of a company for a company voluntary arrangement under Part 1 of the Insolvency Act 1986 or Part 2 of the Insolvency (Northern Ireland) Order 1989 or by an individual debtor for an individual voluntary arrangement under Part 8 of the Insolvency Act 1986 or Part 8 of the Insolvency (Northern Ireland) Order 1989;
(v) the date on which a resolution for voluntary winding-up is passed.
PART 2
Amendments of the Insolvency Act 1986
Introduction
4. The Insolvency Act 1986 is amended in accordance with this Part.
Non-preferential debts in company voluntary arrangements
5. In section 4 (decisions of the company and its creditors)13, in subsection (4)—
(a) in paragraph (b), omit the final “or”;
(b) after paragraph (c) insert—
“or
(d)
(d) in the case of a company which is a relevant financial institution (see section 387A), any non-preferential debt is to be paid otherwise than in accordance with the rules in section 176AZA(2) or (3).”;
(c) in the words after paragraph (c), omit “preferential”.
Non-preferential debts in winding up of companies
6. After section 176 insert—
“Non-preferential debts(176AZA) Non-preferential debts of financial institutions(1) This section applies in the winding up of a company which is a relevant financial institution.(2) The company’s ordinary non-preferential debts shall be paid in priority to its secondary non-preferential debts.(3) The company’s secondary non-preferential debts—(a) shall be paid in priority to its tertiary non-preferential debts, and(b) rank equally among themselves after the ordinary non-preferential debts and shall be paid in full, unless the assets are insufficient to meet them, in which case they abate in equal proportions.(4) See section 387A for definitions relevant to this section.”.
Non-preferential debts in individual voluntary arrangements
7. In section 258 (approval of debtors’ proposal)14, in subsection (5)—
(a) in paragraph (b), omit the final “or”;
(b) after paragraph (c) insert—
“or
(d)
(d) if the debtor is a relevant financial institution (see section 387A), any non-preferential debt is to be paid otherwise than in accordance with the rules in section 328(3A) (reading references to the bankrupt as references to the debtor),”;
(c) in the words after paragraph (c), omit “preferential”.
Non-preferential debts in bankruptcy proceedings
8.—(1) Section 328 (priority of debts)15is amended as follows.
(2) After subsection (3) insert—
“3A If the bankrupt is a relevant financial institution, subsection (3) does not apply but—
(a) the bankrupt’s ordinary non-preferential debts shall be paid in priority to the bankrupt’s secondary non-preferential debts,
(b) the bankrupt’s ordinary non-preferential debts rank equally among themselves after the secondary preferential debts and shall be paid in full, unless the bankrupt’s estate is insufficient to meet them, in which case they abate in equal proportions,
(c) the bankrupt’s secondary non-preferential debts shall be paid in priority to the bankrupt’s tertiary non-preferential debts, and
(d) the bankrupt’s secondary non-preferential debts rank equally among themselves after the ordinary non-preferential debts and shall be paid in full, unless the bankrupt’s estate is insufficient to meet them, in which case they abate in equal proportions.
See section 387A for definitions relevant to this subsection.”.
(3) In subsection (4), for the words from “that” to “subsection (3)” substitute—
“—
(a)
(a) where subsection (3) applies, that are preferential or rank equally under that subsection, or
(b)
(b) where subsection (3A) applies, that are preferential or are referred to in that subsection,”.
9. In section 329 (debts to spouse or civil partner)16, in subsection (2)(a)—
(a) omit “debts and”;
(b) for “328(3) and (4)” substitute “328(4)”.
Interpretation
10. In the heading of Part 1217, after “Preferential” insert “and non-preferential”.
11. After section 387 insert—
“Financial institutions and their non-preferential debts
387A.—(1) In this Act “relevant financial institution” means any of the following—
(a)
(a) a credit institution,
(b)
(b) an investment firm,
(c)
(c) a financial holding company,
(d)
(d) a mixed financial holding company,
(e)
(e) a financial institution which is—
(i) a subsidiary of an entity referred to in sub-paragraphs (a) to (d), and
(ii) covered by the supervision of that entity on a consolidated basis in accordance with Articles 6 to 17 of Regulation (EU) No 575/201318, or
(f)
(f) a mixed-activity holding company.
(2) The definitions in Article 4 of Regulation (EU) No. 575/201319apply for the purposes of subsection (1).
(3) In this Act, in relation to a relevant financial institution—
(a)
(a) “ordinary non-preferential debts” means non-preferential debts which are neither secondary non-preferential debts nor tertiary non-preferential debts;
(b)
(b) “secondary non-preferential debts” means non-preferential debts issued under an instrument where—
(i) the original contractual maturity of the instrument is of at least one year,
(ii) the instrument is not a derivative and contains no embedded derivative, and
(iii) the relevant contractual documentation and where applicable the prospectus related to the issue of the debts explain the priority of the debts under this Act, and
(c)
(c) “tertiary non-preferential debts” means all subordinated debts, including (but not limited to) debts under Common Equity Tier 1 instruments, Additional Tier 1 instruments and Tier 2 instruments (all within the meaning of Part 1 of the Banking Act 2009).
(4) In subsection (3)(b), “derivative” has the same meaning as in Article 2(5) of Regulation (EU) No 648/201220.
(5) For the purposes of subsection (3)(b)(ii) an instrument does not contain an embedded derivative merely because—
(a)
(a) it provides for a variable interest rate derived from a broadly used reference rate, or
(b)
(b) it is not denominated in the domestic currency of the person issuing the debt (provided that the principal, repayment and interest are denominated in the same currency).”.
Moratorium where directors propose voluntary arrangement
12.—(1) Schedule A1 (moratorium where directors propose voluntary arrangement), paragraph 31 (approval of voluntary arrangement)21is amended as follows.
(2) In sub-paragraph (5) —
(a)
(a) in paragraph (b), omit the final “or”;
(b)
(b) after paragraph (c) insert—
“or
(d)
(d) if the company is a relevant financial institution (see section 387A), any non-preferential debt is to be paid otherwise than in accordance with the...
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