Building Societies Act 1997

(45) (1) If it appears to the Commission that there has been or is, on the part of a building society or its directors, a failure to satisfy any one or more of the following criteria of prudent management, it shall be entitled to assume for the purposes of its relevant prudential powers that the failure is such as to prejudice the security of the investments of shareholders or depositors. (2) The prudential powers relevant for the purposes of this section are the Commission’s powers— (a) under section 42, to impose conditions on a society’s authorisation, (b) under section 42B, to direct a society to transfer all its engagements or its business, and (c) under section 43, to revoke a society’s authorisation, by reference to the expedience of the imposition, direction or revocation for the protection of the investments of shareholders or depositors. (3) For the purposes of this Act, the criteria of prudent management are— (1) Compliance with the requirements imposed by sections 5(1), 6(1) and 7(1), and the restrictions on powers imposed by section 9A(1). (2) Maintenance of— (a) adequate reserves and other capital resources; and (b) own funds which amount to not less than the sum which, for the purposes of section 9, is the prescribed minimum in relation to qualifying capital. (3) Maintenance of adequate assets in liquid form. (4) Maintenance of a system for managing and containing risks to the net worth of the business, and risks to its net income, whether arising from fluctuations in interest or exchange rates or from other factors. (5) Maintenance of the requisite arrangements— (a) for assessing the adequacy of securities for loans which are to be made or acquired by the society or subsidiary undertakings of the society, and are to be substantially secured on land; and (b) for assessing the willingness and ability of borrowers to repay such loans. (6) Maintenance of the requisite accounting records and systems of control of business and of inspection and report. (7) Direction and management— (a) by a sufficient number of persons who are fit and proper to be directors or, as the case may be, officers, in their respective positions, (b) conducted by them with prudence and integrity. (8) Conduct of the business with adequate professional skills. (4) Nothing in this section implies that it is improper for a determination for any purpose of the Commission’s relevant prudential powers to take account of other factors than the criteria in subsection (3) above. (5) A failure to satisfy any of the first six criteria in subsection (3) above shall be treated, for the purposes of this section, as a failure on the part of a society’s directors prudently to conduct the affairs of the society. (6) A failure on the part of the society to comply with the conditions to which its authorisation is subject shall be treated, for the purposes of this section, as a failure on the part of the society’s directors prudently to conduct the affairs of the society. (7) The following provisions apply for the interpretation of the list of criteria in subsection (3) above in their application to a building society, that is to say— - “adequate”, except with reference to liquidity, means adequate having regard to the range and scale of the society’s business; - “adequate”, with reference to liquidity, means of such proportion and composition as will at all times enable the society to meet its liabilities as they arise and “liquid form”, in relation to assets, shall be construed accordingly; - “business” includes business the society proposes to carry on and references to the business of the society include, where it has connected undertakings, references to the business of those undertakings; - “requisite”, with reference to the arrangements for assessing the adequacy of securities, means such as may reasonably be expected to ensure— that any person who assesses the adequacy of any security for a loan to be secured on land will have furnished to him a written report on the value of the land; and that any person who assesses the adequacy of any security, or reports on the value of any land, will be competent to perform that task, and will not be subject to any conflict of interest or potential conflict of interest; - “requisite”, with reference to the arrangements for assessing the ability of borrowers to repay loans, means such as may reasonably be expected to ensure that any person who assesses the ability of any borrower to repay a loan— will be competent to perform that task; and will not be subject to any conflict of interest or potential conflict of interest; - “requisite”, with reference to accounting records and systems of control, means such as are required by section 71; - “sufficient”, with reference to the number of directors and officers, means sufficient having regard to the range and scale of the society’s business. (8) In determining for the purposes of the seventh criterion in subsection (3) above whether a person is a fit and proper person to hold any particular position, regard shall be had, in particular— (a) to his probity; (b) to his competence and soundness of judgement for fulfilling the responsibilities of that position; (c) to the diligence with which he is fulfilling or likely to fulfil those responsibilities; and (d) to whether the interests of shareholders or depositors of the society are, or are likely to be, in any way threatened by his holding that position. (9) The Treasury may by order vary subsections (3) to (8) above by adding to or deleting from them any provision or by varying any provision contained in them; and an order under this subsection may make— (a) different provisions for different descriptions of building societies; and (b) such incidental, supplementary and transitional provision as appears to the Treasury to be necessary or expedient. (10) The power to make an order under subsection (9) above is exercisable by statutory instrument; but no order shall be made under that subsection unless a draft of the order has been laid before and approved by a resolution of each House of Parliament. (11) Nothing in this section shall give rise to any claim against a building society or its directors, or afford a defence to any claim made by a building society.

Statements of principles etc. by Commission

22

After section 45 of the 1986 Act there shall be inserted the following section—

(45AA) (1) The Commission shall, as soon as practicable after the coming into force of this section, publish in such manner and in such detail as it thinks appropriate a statement of the principles in accordance with which it is acting or proposing to act— (a) in exercising its powers of control; and (b) in interpreting the criteria of prudent management. (2) If in the course of a financial year the Commission makes a material change in the principles in accordance with which it is acting or proposing to act as mentioned in subsection (1) above, the Commission shall include in the report made by it for that year under section 4 a statement of the change in such detail as it thinks appropriate. (3) The Commission may, at any time, publish in such manner and in such detail as it thinks appropriate, either or both of the following, namely— (a) a statement of the principles in accordance with which it is acting or proposing to act as mentioned in subsection (1) above; and (b) a statement containing additional guidance as to the exercise of its powers of control and its interpretation of the criteria of prudent management. (4) In this section “powers of control”, in relation to the Commission, means— (a) the powers conferred on it by sections 36, 36A and 37; and (b) its powers to grant or revoke an authorisation, to impose conditions on an authorisation or to direct the making of an application under section 41.

Rights of appeal

23

For section 46 of the 1986 Act there shall be substituted the following section—

(46) (1) A building society which is aggrieved by a decision of the Commission— (a) to refuse to grant authorisation; (b) to revoke authorisation; (c) to impose or vary conditions or as to the conditions imposed or varied; or (d) to give a direction, may appeal against the decision to a tribunal constituted in accordance with section 47. (2) Any person in relation to whom the Commission, in deciding to refuse to grant or to revoke authorisation, to impose or vary conditions or to give a direction, makes a determination that a person is not a fit and proper person to hold, or as the case may be, to remain in an office in the society or imposes a requirement that he be removed from an office in the society, may appeal against the decision so far as it relates to that determination or requirement. (3) The revocation of a society’s authorisation, or a direction under section 36(3), (5), (6), (7) or (10), shall not have effect until— (a) the end of the period within which an appeal can be brought against the Commission’s decision to revoke the authorisation or give the direction; and (b) if such an appeal is brought, until it is determined or withdrawn. (4) Subsection (3) above applies in relation to the expiry of a society’s authorisation on a refusal to grant authorisation under section 41 as it applies to the revocation of a society’s authorisation. (5) Subject to subsection (3) above and any order of the tribunal made under section 47(5), an appeal under subsection (1)(c) or (d) or (2) above shall not affect the operation, pending the determination of the appeal, of any condition or direction which is the subject of the appeal; and no determination of an appeal by any person under subsection (2) above shall affect the revocation or direction for the purposes of which the Commission made its determination or requirement in relation to that person. (6) In this section and section 47— - “conditions” means conditions to be complied with by a building society and imposed on the grant of authorisation under section 9, on the renewal of authorisation under section 41, on reauthorisation under section 44, or under section 42, or imposed or varied under section 42A; - “direction” means a direction under section 36(3), (5), (6), (7) or (10), section 42B(1) or section 43A; - “grant” includes renew; - “revoke” means revoke under section 43(1).

Determination of appeals

24

• (1) For subsections (5) to (8) of section 47 of the 1986 Act (determination of appeals) there shall be substituted the following subsections—

(5) The tribunal may, on the application of the building society concerned, order that the operation of— (a) any condition or variation of a condition; or (b) any direction under section 36(3), (5), (6), (7) or (10), section 42B(1) or section 43A, which is the subject of an appeal by the society be suspended pending the determination of the appeal. (6) The tribunal may confirm or reverse the decision which is the subject of the appeal but shall not have power to vary it except by directing the Commission— (a) in the case of an appeal against a decision to refuse to grant authorisation, to determine the conditions to which the grant of authorisation is to be subject; (b) in the case of an appeal against a decision to revoke authorisation, to determine the conditions or different conditions subject to which the authorisation is to continue in force, as the case may be; (c) in the case of an appeal against the imposition of conditions or as to the conditions imposed by the decision, to determine different conditions subject to which the authorisation is to be granted or is to continue, as the case may be; (d) in the case of an appeal against the variation of conditions or as to the variation imposed by the decision, to determine different variations of the conditions subject to which the authorisation is to continue; (e) in the case of an appeal against the giving of a direction under section 36(3), to give a direction under section 36(5) or (6); (f) in the case of an appeal against the giving of a direction under section 36(5), to give a direction under section 36(3) or (6); (g) in the case of an appeal against the giving of a direction under section 36(7), section 42B(1) or section 43A, to give a direction imposing different requirements. (7) Where by virtue of subsection (6) above the tribunal directs the Commission to determine conditions or different conditions or to determine different variations of conditions— (a) the Commission shall by notice to the society concerned impose such conditions, or such variations of conditions, to be complied with by the society as it considers expedient in order to protect the investments of shareholders or depositors; (b) Part III of Schedule 3 to this Act shall apply subject to the modifications made by paragraph 9 of that Schedule; and (c) the society concerned may appeal to the tribunal against any of those conditions or variations; and on any such appeal the tribunal may confirm or reverse the Commission’s decision with respect to the conditions or variations which are the subject of the appeal or may direct the Commission to determine different conditions or variations. (7A) Where by virtue of subsection (6) above the tribunal directs the Commission to give a different direction under section 36— (a) the Commission shall by notice to the society concerned give such direction as it considers expedient in order to ensure compliance with the relevant statutory requirements within the meaning of that section; (b) paragraphs 2 and 3 of Schedule 7A to this Act shall apply subject to the modifications made by paragraph 4 of that Schedule; and (c) the society concerned may appeal to the tribunal against that direction; and on any such appeal the tribunal may confirm or reverse the Commission’s decision with respect to the direction which is the subject of the appeal or may direct the Commission to give a different direction. (7B) Where by virtue of subsection (6) above the tribunal directs the Commission to give a different direction under section 43A— (a) the Commission shall by notice to the society concerned give such direction as it considers desirable in the interests of shareholders or depositors; and (b) the society concerned may appeal to the tribunal against that direction; and on any such appeal the tribunal may confirm or reverse the Commission’s decision with respect to the direction which is the subject of the appeal or may direct the Commission to give a different direction. (8) Where by virtue of subsection (7), (7A) or (7B) above the tribunal, on an appeal against any conditions or variations of conditions or any direction, directs the Commission— (a) to determine different conditions or variations; or (b) to give a different direction, the other provisions of that subsection shall apply as they apply where the tribunal gives such a direction by virtue of subsection (6) above.

• (2) In subsection (10) of that section, for the word “conditions” there shall be substituted the words “conditions, variations or directions”.

Part III — Accountability to members

Special meeting on members' requisition

25

After paragraph 20 of Schedule 2 to the 1986 Act there shall be inserted the following paragraph—

(20A) (1) On a members' requisition, a building society shall— (a) duly call a special meeting, and specify the meeting as such in the notice calling it; and (b) if so required by the requisition, send to each member entitled to receive notice of the meeting a copy of a statement of not more than 500 words with respect to the matters to be dealt with at the meeting; and where a meeting is so called no business shall be conducted at the meeting other than that stated in the notice calling it or (where applicable) that mentioned in sub-paragraph (8)(b) below. (2) A members' requisition is a requisition of not less than the requisite number of members of the society; and that number is 100 or such lesser number as may be specified in the rules of the society. (3) The requisition— (a) must state the objects of the meeting, be signed by the requisitionists and be deposited at the society’s principal office; and (b) may consist of several documents in like form each signed by one or more requisitionists and each after the first deposited within three months of the date on which the first was deposited. (4) Where the requisition consists of several documents, the date of its deposit shall be taken to be the date on which the document signed by the requisitionist making up the requisite number is deposited at the society’s principal office. (5) The rules of the society may require a requisitionist— (a) to state his full name and address; (b) to fulfil one or other of the following conditions, namely— (i) to have been a shareholding member for a specified period and to hold, or to have held at any time during that period, shares in the society to such value (not greater than the prescribed amount) as is specified in the rules; and (ii) to have been a borrowing member for a specified period and to owe to the society, or to have owed to the society at any time during that period, a mortgage debt of such amount (not greater than the prescribed amount) as is so specified; and (c) to identify a share or mortgage account with the society which will evidence the fact that he fulfils one or other of those conditions; and in this sub-paragraph “specified period” means such period (not more than two years) before the date of the requisition as is specified in the rules. (6) No objection may be made by virtue of such rules to the requisition or, where the requisition consists of several documents, to any of those documents unless it is made within 14 days of the requisition or document being deposited at the society’s principal office. (7) The rules of the society may also require a sum of money, not exceeding £25 per requisitionist, to be deposited with the requisition; and, where any money is so deposited, it shall be forfeited to the society, or returned to the persons who deposited it, as provided by the rules. (8) The rules shall not provide for any deposited money to be forfeited to the society except— (a) where a quorum is not present within half an hour after the time appointed for the meeting; or (b) where and to the extent that those eligible to vote at the meeting decide by ordinary resolution that the money should be applied to defray the whole or any part of the expenses of holding the meeting. (9) If the rules of a building society so provide, sub-paragraph (1) above does not require the society— (a) to call a special meeting if the only or main object of the meeting is to move a resolution in substantially the same terms as any resolution which has been defeated at a meeting or on a postal ballot during the period beginning with the third annual general meeting before the date on which the requisition is deposited at the society’s principal office; or (b) to call a special meeting to be held during the period of four months beginning one month after the end of its financial year. (10) Sub-paragraph (1)(b) above does not require the society to send copies of a statement to members entitled to receive notice of a meeting in any case where— (a) publicity for the statement would be likely to diminish substantially the confidence in the society of investing members of the public; or (b) the rights conferred by sub-paragraph (1)(b) above are being abused to seek needless publicity for defamatory matter or for frivolous or vexatious purposes; and that provision shall not be taken to confer any rights on members, or to impose any duties on a building society, in respect of a statement which does not relate directly to the affairs of the society. (11) Where sub-paragraph (1)(b) above requires copies of a statement to be sent to members entitled to receive notice of a meeting, the proceedings at the meeting are not invalidated by— (a) the accidental omission to send a copy of the statement to a member entitled to receive one, or (b) the non-receipt of such a copy by such a member. (12) The Commission shall hear and determine any dispute arising under sub-paragraph (10)(a) above, whether on the application of the society or of any other person who claims to be aggrieved. (13) The Commission may, with the consent of the Treasury, by order substitute— (a) for the number specified in sub-paragraph (2) above; or (b) for the sum specified in sub-paragraph (7) above, such other number or sum as appears to it to be appropriate; and an order under this subsection may make such supplementary, transitional and saving provision as appears to the Commission to be necessary or expedient. (14) The power to make an order under sub-paragraph (13) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

Failure to comply with members' requisition

26

After paragraph 20A of Schedule 2 to the 1986 Act there shall be inserted the following paragraph—

(20B) (1) This paragraph applies where a members' requisition is deposited at a building society’s principal office and the society is not relieved of the obligation to call a special meeting by paragraph 20A(9)(a) above. (2) Subject to sub-paragraph (5) below, if the society does not within 28 days from the date of the deposit of the requisition duly call a meeting to be held within 63 days from that date— (a) the requisitionists, or any proportion of them exceeding one half, may themselves call a meeting to be held within five months from that date; and (b) no business shall be conducted at a meeting so called other than that stated in the notice calling it or (where applicable) that mentioned in paragraph 20A(8)(b) above. (3) A meeting called under sub-paragraph (2) above by requisitionists shall be called in the same manner, as nearly as may be, as that in which meetings are to be called by the society. (4) If— (a) paragraph 20A(1)(b) above requires the society to send to each member entitled to receive notice of the meeting a copy of a statement of not more than 500 words with respect to the matters to be dealt with at the meeting; and (b) subject to sub-paragraph (5) below, that requirement is not complied with within 28 days from the date of the deposit of the requisition, the requisitionists, or any proportion of them exceeding one half, may themselves send a copy of the statement to each such member. (5) If the rules of the society make such provision as is mentioned in paragraph 20A(9)(b) above, any days falling within the period there mentioned shall be disregarded in determining any period for the purposes of sub-paragraph (2) or (4)(b) above. (6) Any reasonable expenses incurred by the requisitionists by reason of the failure of the society to call a meeting, or to comply with such a requirement as is mentioned in sub-paragraph (4) above, shall be repaid to the requisitionists by the society. (7) Any sum so repaid shall be recoverable by the society from such of the directors of the society as were responsible for the failure (whether by the retention of fees or other remuneration in respect of services or otherwise).

Election of directors: general

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• (1) In subsection (1) of section 60 of the 1986 Act (directors: elections and retirements), for paragraph (a) there shall be substituted the following paragraph—

(a) on a poll taken at the annual general meeting of the society, or

.

• (2) After that subsection there shall be inserted the following subsection—

(1A) Where directors of a building society are to be elected to office on a poll taken at the annual general meeting of the society, a form for the appointment of a proxy shall be sent to each person entitled to notice of the meeting.

• (3) For subsection (3) of that section there shall be substituted the following subsections—

(3) Where, in the case of an election of directors of a building society, there are more candidates than vacancies to be filled by the election, a person entitled to vote in the election— (a) shall have one vote in respect of every vacancy, but (b) cannot be required to cast all or any of his votes. (3A) Where, in the case of an election of directors of a building society, there are not more candidates than vacancies to be filled by the election— (a) a person entitled to vote in the election shall have one vote in respect of every candidate, but cannot be required to cast all or any of his votes; (b) each vote shall be capable of being cast either for or against the candidate concerned; and (c) a candidate shall be elected if, and only if, more votes are cast for him than against him.

• (4) In subsection (4) of that section, for the words “any person” there shall be substituted the words “any natural person”.

• (5) In subsection (10) of that section, for paragraph (b) there shall be substituted the following paragraph—

(b) their qualifications as respects length of membership and the value of their shares or the amount of their mortgage debt;

.

• (6) After that subsection there shall be inserted the following subsection—

(10A) A nomination of a candidate for election as a director of a building society— (a) may be made at any time; but (b) if made after the closing date for the nomination of candidates for the next election of directors, shall be carried forward (unless the candidate otherwise requires) as a nomination for the next election of directors after that; and in this subsection and section 61 “the closing date for the nomination of candidates”, in relation to an election of directors, means the last day of the last financial year to end before the voting date.

• (7) In subsection (17) of that section, the definition of “ordinary resolution” shall cease to have effect.

Election of directors: supplementary

28

• (1) For subsections (1) and (2) of section 61 of the 1986 Act (directors: supplementary provisions as to elections etc.) there shall be substituted the following subsections—

(1) Rules made under section 60(10)(a), in order to comply with this section, must not require— (a) in the case of a society whose total commercial assets do not exceed £100 million, more than 10 members; (b) in the case of a society whose total commercial assets exceed £100 million but do not exceed £250 million, more than 20 members; (c) in the case of a society whose total commercial assets exceed £250 million but do not exceed £1,000 million, more than 30 members; (d) in the case of a society whose total commercial assets exceed £1,000 million but do not exceed £5,000 million, more than 40 members; and (e) in the case of a society whose total commercial assets exceed £5,000 million, more than 50 members, to join in nominating a person for election as a director. (2) Rules under section 60(10)(b), in order to comply with this section, must not require a nominating member— (a) to have been a member for more than two years before the date of the nomination; or (b) if he claims eligibility as a shareholding member, to hold, or to have held at any time during that period, shares in the society to a value greater than £100; or (c) if he claims eligibility as a borrowing member, to owe to the society, or to have owed to the society at any time during that period, a mortgage debt of an amount greater than £100.

• (2) For subsection (4) of that section there shall be substituted the following subsections—

(3A) In subsection (1) above “total commercial assets”, in relation to a building society, means the difference between the total assets of the society as shown in the relevant accounts and the aggregate of— (a) the liquid assets of the society as shown in those accounts in pursuance of regulations under section 73(7); and (b) the fixed assets of the society as so shown; and in this subsection “the relevant accounts” means the accounts which, immediately before the closing date for the nomination of candidates, were the accounts last prepared by the society under section 72. (4) The Commission may, by order, substitute— (a) for any amount or number specified in subsection (1) above; (b) for any amount specified in subsection (2) above; or (c) for any amount or percentage specified in subsection (3) above, such other amount, number or percentage as it thinks appropriate; and the Commission may, with the consent of the Treasury, by order vary subsection (3A) above by adding to or deleting from it any provision or by varying any provision contained in it.

• (3) In subsection (7) of that section—

• (a) for the words from “If” to “nominations” there shall be substituted the words “If, before the closing date for the nomination of candidates, a duly nominated candidate for election as a director of a building society furnishes the society with an election address, or a revised election address, of not more than 500 words”; and

• (b) in paragraph (a), after the words “the address” there shall be inserted the words “or, as the case may require, the revised address”.

• (4) In subsection (8) of that section—

• (a) after the words “an address”, in both places where they occur, there shall be inserted the words “or a revised address”; and

• (b) after the words “the address” there shall be inserted the words “or revised address”.

Acquisition or establishment of a business

29

After section 92 of the 1986 Act there shall be inserted the following section—

(92A) (1) A building society— (a) in order to acquire, or allow a subsidiary undertaking to acquire, a business to which subsections (3) and (4) below apply; or (b) in order to establish, or allow such an undertaking to establish, a business to which subsections (3) and (5) below apply, must resolve so to do by an ordinary resolution; but a failure to comply with this subsection shall not invalidate any transaction or other act. (2) In order to be effective for the purposes of subsection (1) above, an ordinary resolution of a building society must be passed by a majority of the members of the society entitled to vote on such a resolution and voting either— (a) in person or by proxy on a poll on the resolution at a meeting of the society; or (b) in a postal ballot on the resolution; and in a case falling within paragraph (a) above, a form for the appointment of a proxy shall be sent to each person entitled to notice of the meeting. (3) This subsection applies to a business which is proposed to be acquired or established if, in the opinion of the board of directors of the society— (a) the greater part of the income of the business is or will be derived from activities having no connection with loans secured on residential property; (b) the greater part of the resources of the business are or will be devoted to such activities; or (c) the greater part of the business consists or will consist of such activities. (4) This subsection applies to a business which is proposed to be acquired if X is not less than 15 per cent of Y where— - X = the amount or value of the consideration to be given for the shares, voting rights or assets proposed to be acquired; - Y = the amount of the society’s own funds as at the relevant date. (5) This subsection applies to a business which is proposed to be established if X is not less than 15 per cent of Y where— X = the aggregate of the following as estimated by the society, namely— (a) the cost of acquiring, developing, adapting or repairing any premises required for the purposes of the business; (b) the initial cost of acquiring any plant or equipment, or any intellectual property, so required; (c) the initial cost of employing or training staff so required; (d) the cost of obtaining any professional advice required in connection with the establishment of the business; (e) any other non-recurring items of expenditure to be incurred in that connection; and (f) in the case of a business proposed to be established by a subsidiary undertaking, the amount of any capital to be provided by the society which will not be used for defraying items of expenditure falling within the foregoing paragraphs; Y = the amount of the society’s own funds as at the relevant date. (6) Where a business is proposed to be acquired or established by a syndicate whose members include a building society or subsidiary undertaking— (a) subsection (1) above shall have effect as if the business were proposed to be acquired or (as the case may be) established by the society; and (b) whichever of subsections (4) and (5) above is applicable shall have effect as if X were only so much of X as is referable to participation in the syndicate by the society or undertaking. (7) For the purposes of subsections (1)(a) and (4) above, two or more proposed acquisitions by a building society or subsidiary undertaking which will form part of a larger acquisition or series of acquisitions shall be treated as a single acquisition. (8) Nothing in this section shall apply in relation to a building society in so far as it undertakes, in accordance with section 94 and Schedule 16 to this Act, to fulfil engagements transferred to it in accordance with that section and that Schedule. (9) In this section— - “initial”, in relation to any cost, means incurred, or likely in the directors' opinion to be incurred, not later than 12 months after the establishment of the business; - “intellectual property” includes— any patent, know-how, trade mark, service mark, registered design, copyright or design right; and any licence under or in respect of any such right; - “the relevant date”, in relation to a building society, means— the date of the end of its last financial year or, failing that, the date of its establishment; or where it has been involved in a transfer of engagements, the date of that transfer, whichever is the later. (10) The Commission may, with the consent of the Treasury, by order substitute for the percentage specified in subsection (4) or (5) above such other percentage as appears to it to be appropriate; and an order under this subsection may make such supplementary, transitional and saving provision as appears to the Commission to be necessary or expedient. (11) The Commission may, with the consent of the Treasury, by order vary subsections (5) and (9) above by adding to or deleting from them any provision or by varying any provision contained in them; and an order under this subsection may make— (a) different provisions for different cases or purposes; and (b) such supplementary, transitional and saving provision as appears to the Commission to be necessary or expedient. (12) The power to make an order under subsection (10) or (11) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

Information about transfers or proposed transfers of business

30

• (1) In subsection (1) of section 98 of the 1986 Act (transfers of business: supplementary provisions), after the word “statements” there shall be inserted the words “or summaries”.

• (2) After that subsection there shall be inserted the following subsection—

(1A) Part IA of that Schedule shall have effect for imposing requirements for notification by a building society, to its members and to the central office, of the receipt by the society of a proposal for the transfer of the whole of its business to a company.

• (3) For Part I of Schedule 17 to the 1986 Act there shall be substituted, as Parts I and IA, the provisions set out in Parts I and II respectively of Schedule 5 to this Act (information about transfers or proposed transfers of business).

Transfers of business: increased remuneration etc

31

After section 99 of the 1986 Act there shall be inserted the following section—

(99A) (1) Subject to subsection (2) below, the terms of a transfer of business by a building society to the company which is to be its successor may include provision for any director or other officer of the society to receive increased emoluments in consequence of the transfer, whether by way of increased remuneration or the grant of share options or otherwise. (2) An ordinary resolution approving any such provision must be put before a meeting of the society.

Part IV — Protection of investors and investigation of complaints

Amalgamation of building society and banking protection schemes

32

• (1) The Treasury, after consultation with the Commission, the Bank, the Building Societies Investor Protection Board and the Deposit Protection Board, may by order—

• (a) amalgamate those Boards into a single board to be known as the Deposit Protection Board; and

• (b) amalgamate the Deposit Protection Fund and the Building Societies Investor Protection Fund into a single fund to be known as the Deposit Protection Fund.

• (2) An order under this section shall make, in relation to the amalgamated board and the amalgamated fund, provisions corresponding to those of sections 50 to 57 and 63 to 66 of and Schedule 4 to the 1987 Act but—

• (a) with the modifications mentioned in subsection (3) below; and

• (b) with or without the modifications mentioned in subsection (4) below.

• (3) The modifications referred to in subsection (2)(a) above are modifications—

• (a) providing for the chairman of the Commission to be an ex officio member of the amalgamated board and to be consulted by the Governor of the Bank on the appointment of ordinary members of that board;

• (b) enabling officers or employees of the Commission to be appointed as ordinary members of that board;

• (c) providing for building societies, and for institutions which, but for the order, would be or would be entitled to become participating EEA institutions within the meaning of section 24 of the 1986 Act, to be or to be entitled to become participating institutions within the meaning of the corresponding provisions;

• (d) providing for authorised building societies, and for institutions which, but for the order, would be or would be liable to become contributory institutions within the meaning of the protective scheme provisions of Part IV of the 1986 Act, to be or to be liable to become contributory institutions within the meaning of the corresponding provisions; and

• (e) providing for the deposit base of any such society or institution as is mentioned in paragraph (d) above to include an amount determined by the amalgamated board as representing the average value, over the period mentioned in section 52(4) of the 1987 Act, of shareholdings in the society or institution.

• (4) The modifications referred to in subsection (2)(b) above are modifications—

• (a) increasing the number of ordinary members of the joint board that may be appointed; and

• (b) providing for contributions to be levied on contributory institutions of different descriptions at different rates and at different times.

• (5) An order under this section—

• (a) shall repeal sections 50 to 57 and 63 to 66 of and Schedule 4 to the 1987 Act, and sections 24, 25, 26 and 29 to 31 of and Schedule 5 to the 1986 Act;

• (b) shall provide for—

• (i) any reference in sections 58 to 62 of the 1987 Act to the Deposit Protection Board or to the Deposit Protection Fund; and

• (ii) any reference in section 27 or 28 of, or Schedule 6 to, the 1986 Act to the Building Societies Investor Protection Board or to the Building Societies Investor Protection Fund,

to have effect as a reference to the amalgamated board or to the amalgamated fund, as the case may require; and

• (c) may make such other consequential amendments of those Acts and of other enactments and instruments, and such incidental, supplemental and transitional provisions, as may appear to the Treasury to be necessary or expedient.

• (6) The power to make an order under this section shall be exercisable by statutory instrument; but no such order shall be made unless a draft of the order has been laid before and approved by a resolution of each House of Parliament.

• (7) In this section—

• “the 1987 Act” means the Banking Act 1987;

• “the Bank” means the Bank of England.

Liability of insolvent society in respect of payments made by Board

33

• (1) In subsection (2) of section 28 of the 1986 Act (liability of insolvent society in respect of payments made by Board), in paragraph (a) the words “as in respect of a contractual debt incurred immediately before the institution began to be wound up” shall cease to have effect.

• (2) After that subsection there shall be inserted the following subsection—

(2A) The liability imposed by subsection (2)(a) above shall have effect— (a) where the liability of the institution to the investor is referable to deposits, as a liability in respect of deposits received immediately before the time when the institution began to be wound up; (b) where that liability is referable to shares, as a liability in respect of shares issued immediately before that time.

• (3) In subsections (4)(b) and (5)(b) of that section, for the words “apart from this section” there shall be substituted the words “apart from this paragraph”.

Recognised schemes for investigation of complaints

34

• (1) For section 83 of the 1986 Act there shall be substituted the following section—

(83) (1) A person to whom section 83A applies shall, by virtue of and in accordance with a scheme under this section, have the right, as against a building society, to have investigated under the scheme any complaint of his about action— (a) which has been taken by the society in relation to a relevant service provided by it; and (b) which affects him in prescribed respects. (2) A person to whom section 83A applies shall also, by virtue of and in accordance with a scheme under this section, have the right, as against any connected undertaking of a building society, to have investigated under the scheme any complaint of his about action— (a) which has been taken by the undertaking in relation to a relevant service provided by it; and (b) which affects him in prescribed respects. (3) Every authorised building society shall be a member (or the sole member) of one or more recognised schemes which or which between them confer the rights required to be conferred by subsection (1) above in relation to every relevant service provided by the society. (4) Every authorised building society shall secure that each of its connected undertakings is a member (or the sole member) of one or more recognised schemes which or which between them confer the rights required to be conferred by subsection (2) above in relation to every relevant service provided by the undertaking. (5) Schedule 12 to this Act has effect for the purposes of this section and, in that Schedule— (a) Part I prescribes the matters for which provision must be made by a scheme if it is to be a scheme which qualifies for recognition for the purposes of this section; and (b) Part III contains other requirements to which a scheme must conform if it is to be so recognised. (6) The Commission, with the consent of the Treasury, may by order vary Part I or Part III of Schedule 12 by adding to or deleting from it any provision or by varying any provision contained in it; and an order under this subsection may make such incidental, supplementary and transitional provision as appears to the Commission to be necessary or expedient. (7) The Commission shall have the function, in accordance with Schedule 13 to this Act, of granting recognition of schemes and of withdrawing any recognition it has granted; but recognition does not extend to, and is not required for, provisions in a scheme which are not required to be made in pursuance of Schedule 12. (8) The Commission shall have power to do anything which is calculated to facilitate the discharge of its functions under subsection (7) above, or is incidental or conducive to their discharge, but this does not extend to expenditure for the purpose of operating a scheme. (9) The central office shall have the function, in accordance with Schedule 13, of recording accessions to schemes and of confirming any withdrawal from a scheme. (10) A building society’s withdrawal from membership of a recognised scheme shall not be effective except in accordance with the applicable provisions of Schedule 13. (11) The power to make an order under subsection (6) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament. (12) In this section, section 84 and Schedules 12 and 13— - “accede”, in relation to a scheme, means assume the obligations and rights of membership and “accession” has a corresponding meaning; - “action” includes any failure to act, and so as regards “exercise” in relation to any power; and “action”, in relation to a society, includes action on its behalf by any person; - “prescribed”, in relation to the respects in which a complainant is affected by any action, means prescribed for the time being in Part III of Schedule 12 as grounds for making action subject to investigation under the scheme; - “recognition” means recognition of a scheme by the Commission for the purposes of this section; - “relevant service” means a service of a kind which is provided by building societies for individuals in the ordinary course of business.

• (2) For paragraph 1 (grounds of complaint) of Part III of Schedule 12 to the 1986 Act there shall be substituted the following paragraph—

(1) (1) The grounds for making action by a building society or connected undertaking subject to investigation under the scheme must be that the action constitutes— (a) in the case of a building society, a breach of the society’s obligations under this Act, its rules or any contract, or (b) in the case of a connected undertaking, a breach of the undertaking’s obligations under its rules (if any) or any contract, or (c) unfair treatment, or (d) maladministration, or (e) a decision to which sub-paragraph (2) below applies, or action consequential on such a decision, in relation to the complainant and has caused him pecuniary loss or expense or inconvenience. (2) This sub-paragraph applies to any decision in connection with the provision of a relevant service which is made otherwise than in the legitimate exercise of commercial judgment.

• (3) In paragraph 2 (permissible exclusions from investigation) of that Part of that Schedule—

• (a) in paragraph (d), after the word “scheme” there shall be inserted the words “, or in furnishing evidence in support of the complaint”; and

• (b) after the second Note there shall be inserted the following Note—

Delay in furnishing evidence in support of the complaint is not “undue delay” unless at least six months have elapsed since the adjudicator acknowledged receipt of the complaint.

Persons entitled to have complaints investigated

35

After section 83 of the 1986 Act there shall be inserted the following section—

(83A) (1) This section applies to any individual. (2) This section applies to any partnership, club or other unincorporated body if the amount of the body’s turnover for its last financial year does not exceed £1 million. (3) This section applies to any body corporate if— (a) where it is not a member of a group, the amount of its turnover for its last financial year; or (b) where it is such a member, the amount of the group’s turnover for its last financial year, does not exceed £1 million. (4) The Commission may, with the consent of the Treasury, by order substitute for the amount specified in subsection (2) or (3) above such other amount as it thinks appropriate. (5) The power to make an order under subsection (4) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament. (6) The amount of a body’s or group’s turnover for a financial year— (a) shall be the amount shown as such in its accounts for that year; or (b) where it has not prepared accounts for that year, shall be determined in such manner as may be provided by the scheme in accordance with which the complaint is made. (7) Where the amount of a body’s or group’s turnover for a financial year is expressed otherwise than in sterling, it shall be converted into sterling at the rate of exchange prevailing at the end of that year. (8) For a period which is a body’s or group’s financial year but is not in fact a year the amount specified in subsection (2) or, as the case may be, subsection (3) above shall be proportionately adjusted. (9) In this section— - “body corporate” does not include a Scottish firm; - “group” means a parent undertaking and its subsidiary undertakings; - “last financial year”, in relation to a body or group, means its last financial year to end before the complaint is made; - “parent undertaking” shall be construed in accordance with the relevant provisions; - “the relevant provisions” means the provisions of section 258 of the Companies Act 1985, read in conjunction with sections 259 and 260 of, and Schedule 10A to, that Act. (10) Any person who, if he were an undertaking within the meaning given by section 259(1) of the Companies Act 1985, would be a parent undertaking shall be treated as if he were such an undertaking for purposes of— (a) the definition of “group” in subsection (9) above; and (b) the relevant provisions as they apply for the purposes of the definition of “subsidiary undertaking” in section 119(1).

Part V — Miscellaneous and supplemental

Miscellaneous

Registered and business names

36

• (1) For sub-paragraph (2) of paragraph 9 of Schedule 2 to the 1986 Act (building society not to use any name or title other than registered name) there shall be substituted the following sub-paragraphs—

(2) Every building society shall paint or affix, and keep painted or affixed, its registered name on the outside of every office or place in which its business is carried on, in a conspicuous position and in letters easily legible. (2A) Every building society shall state its registered name in legible characters in all of the following documents, namely— (a) its business letters; (b) its account statements, including those relating to deposit, share, loan or mortgage accounts; (c) its passbooks; (d) its notices and publications, including all documents sent to members; (e) its invoices and receipts; (f) its letters of credit and any instruments creating or acknowledging its indebtedness; (g) its contracts, agreements, mortgages and deeds; and (h) its bills of exchange, promissory notes, endorsements, cheques and orders for money or goods.

• (2) After sub-paragraph (7) of that paragraph there shall be inserted the following sub-paragraph—

(8) For the purposes of this paragraph and paragraphs 10 to 10C below “registered name”, in relation to a building society, means the name of the society which is for the time being registered with the central office.

• (3) For paragraph 10 of Schedule 2 to the 1986 Act (offences relating to society name) there shall be substituted the following paragraph—

(10) (1) If a building society does not— (a) paint or affix its registered name; or (b) keep its registered name painted or affixed, as required by paragraph 9(2) above, the society shall be liable on summary conviction to a fine not exceeding level 3 on the standard scale. (2) A building society which, without reasonable excuse, does not comply with paragraph 9(2A) above shall be liable on summary conviction to a fine not exceeding level 3 on the standard scale. (3) If an officer of a building society or a person on its behalf issues or authorises the issue of any document mentioned in paragraph 9(2A)(a) to (g) above, in which the society’s registered name is not stated as required by that paragraph, he shall be liable on summary conviction to a fine not exceeding level 3 on the standard scale. (4) If an officer of a building society or a person on its behalf signs or authorises to be signed on behalf of the building society any document mentioned in paragraph 9(2A)(h) above in which the society’s registered name is not stated as required by that paragraph— (a) he shall be liable on summary conviction to a fine not exceeding level 3 on the standard scale; and (b) he shall be further personally liable to the holder of the bill of exchange, promissory note, cheque or order for money or goods for the amount of it (unless it is duly paid by the building society). (5) If a building society fails to send to the central office a notice which it is required to send to it under paragraph 9(4) above, the society shall be liable on summary conviction to a fine not exceeding level 3 on the standard scale and so shall any officer who is also guilty of the offence.

• (4) After that paragraph there shall be inserted the following paragraphs—

(10A) (1) This paragraph and paragraph 10B below apply where a building society carries on business under a name other than the following, namely— (a) its registered name; (b) its registered name with the omission of the words “Building Society”; and (c) its registered name with an addition which merely indicates that the business is carried on in succession to a former building society with which it has merged. (2) The society shall not, without the written approval of the Commission, carry on business under a name which— (a) would be likely to give the impression that the business is connected with Her Majesty’s Government or with any local authority, or (b) includes any word or expression for the time being specified in regulations made under sub-paragraph (3) below. (3) The Commission may, with the consent of the Treasury, by regulations— (a) specify words or expressions for the use of which as or as part of a business name the approval of the Commission is required by sub-paragraph (2) above, and (b) in relation to any such word or expression, specify a Government department or other body for the purposes of sub-paragraph (4) below. (4) Where the society proposes to carry on business under a name which is or includes any such word or expression, and a government department or other body is specified under sub-paragraph (3)(b) above in relation to that word or expression, the society shall— (a) request (in writing) the relevant body to indicate whether (and if so why) it has any objections to the proposal, and (b) submit to the Commission a statement that such a request has been made and a copy of any response received from the relevant body. (5) For the purposes of this paragraph “local authority” means— (a) any local authority within the meaning of the Local Government Act 1972, the Common Council of the City of London or the Council of the Isles of Scilly; (b) any local authority within the meaning of the Local Government etc. (Scotland) Act 1994; (c) any district council within the meaning of the Local Government Act (Northern Ireland) 1972. (10B) (1) Paragraph 9(2A) above shall have effect as if after the words “in legible characters” there were inserted the words “which are reasonably prominent”. (2) The society shall in all documents mentioned in paragraph 9(2A) above state in legible characters an address in the United Kingdom at which service of any document relating in any way to the business will be effective. (3) The society shall also in any premises where the business is carried on and to which the members of the society, the customers of the business or suppliers of any goods or services to the business have access, display in a prominent position so that it may easily be read by such persons a notice containing the society’s registered name and the address mentioned in sub-paragraph (2) above. (4) The society shall secure that the registered name and the address mentioned in sub-paragraph (2) above is immediately given, by written notice, to any person with whom anything is done or discussed in the course of the business and who asks for the registered name or the address. (5) The Commission may, with the consent of the Treasury, by regulations require a notice under sub-paragraph (3) or (4) above to be displayed or given in a specified form. (10C) (1) A building society which contravenes paragraph 10A(2) above shall be liable on summary conviction to a fine not exceeding level 3 on the standard scale. (2) A building society which, without reasonable excuse, does not comply with paragraph 9(2A) or 10B(2), (3) or (4) above, or any regulations made under paragraph 10B(5) above, shall be liable on summary conviction to a fine not exceeding level 3 on the standard scale. (3) Where paragraph 10A above applies any legal proceedings brought by the society to enforce a right arising out of a contract made in the course of the business in respect of which the society was, at the time the contract was made, in breach of paragraph 9(2A) or 10B(2), (3) or (4) above shall be dismissed if the defendant (or, in Scotland, the defender) to the proceedings shows— (a) that he has a claim against the plaintiff (pursuer) arising out of that contract which he has been unable to pursue by reason of the plaintiff’s (pursuer's) breach of paragraph 9(2A) or 10B(2), (3) or (4) above, or (b) that he has suffered some financial loss in connection with the contract by reason of the latter’s breach of paragraph 9(2A) or 10B(2), (3) or (4) above, unless the court before which the proceedings are brought is satisfied that it is just and equitable to let the proceedings continue. (4) Sub-paragraph (3) above is without prejudice to the right of any person to enforce such rights as he may have against another person in any proceedings brought by that person. (5) Regulations made under paragraph 10A(3) or 10B(5) above shall be made by statutory instrument subject to annulment by resolution of either House of Parliament. (6) Such regulations may contain such transitional provisions and savings as the Commission thinks fit, and may make different provision for different cases or classes of case.

Access to registers of members

37

• (1) For sub-paragraphs (1) and (2) of paragraph 15 of Schedule 2 to the 1986 Act (right of members to obtain particulars from register) there shall be substituted the following sub-paragraphs—

(1) At any time when a building society— (a) has had its authorisation revoked under section 43; and (b) has not been re-authorised under section 44, a member of the society shall, subject to sub-paragraph (1A) below, have the right to obtain, from the register kept under paragraph 13 above, the names and addresses of members of the society, for the purpose of communicating with them on a subject relating to the affairs of the society. (1A) Sub-paragraph (1) above shall not apply unless the member in question— (a) is qualified under the rules of the society to join in a members' requisition for a special meeting, or to join in nominating a person for election as a director; or (b) would be so qualified if any requirements as to length of time a person must have been a shareholding or borrowing member were omitted. (2) If, at any time not falling within sub-paragraph (1) above, a member of a building society who is qualified under the rules of the society to join in a members' requisition for a special meeting, or to join in nominating a person for election as a director, makes a written application to the Commission for the right to obtain names and addresses from the register, the Commission— (a) if satisfied that the applicant— (i) requires that right for the purpose of communicating with members of the society on a subject relating to its affairs; and (ii) has not, since making the application, voluntarily ceased to be a member of the society; and (b) having regard to the interests of the members as a whole and to all the other circumstances; and (c) on payment by the applicant of a fee of £25 or such other amount as may be prescribed, may direct that the applicant shall have the right to obtain from the register the names and addresses of the members for the purpose of communicating with them on that subject.

• (2) After sub-paragraph (6) of that paragraph there shall be inserted the following sub-paragraphs—

(7) No information obtained under sub-paragraph (1) or (2) above or this sub-paragraph and relating to a member of the society may be disclosed except— (a) with the consent of that member; or (b) in the case of information obtained under sub-paragraph (1) or (2) above, for purposes connected with the purpose mentioned in that paragraph. (8) Any person who discloses information in contravention of sub-paragraph (7) above shall be liable— (a) on conviction on indictment, to imprisonment for a term not exceeding two years or to a fine or both; and (b) on summary conviction, to a fine not exceeding the statutory maximum. (9) The Treasury may, by regulations, prescribe the amount of any fees payable under sub-paragraph (2) above; and regulations under this sub-paragraph may include— (a) provision for any fees so payable to be reduced or for payment of any fees to be waived by the Commission in circumstances determined by or under the regulations; and (b) such incidental, supplementary and transitional provision as appears to the Treasury to be necessary or expedient. (10) The power to make regulations under sub-paragraph (9) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament. (11) The amounts received by the Commission under sub-paragraph (2) above shall be applied as an appropriation in aid of money provided by Parliament for the expenses of the Commission under this Act, and in so far as not so applied, shall be paid into the Consolidated Fund.

Transactions with directors and persons connected with them

38

After section 66 of the 1986 Act there shall be inserted the following section—

(66A) (1) This section applies where a building society enters into a transaction the parties to which include— (a) a director of the society; or (b) a person connected with such a director, and the board of directors, in connection with the transaction, exceed any limitation on their powers by reason of anything included in the society’s constitution, that is to say, its memorandum and rules. (2) The transaction is voidable at the instance of the society. (3) Whether or not it is avoided, any such party to the transaction as is mentioned in subsection (1)(a) or (b) above, and any director of the society who authorised the transaction, is liable— (a) to account to the society for any gain which he has made directly or indirectly by the transaction, and (b) to indemnify the society for any loss or damage resulting from the transaction. (4) Nothing in the above provisions shall be construed as excluding the operation of any other enactment or rule of law by virtue of which the transaction may be called in question or any liability to the society may arise. (5) The transaction ceases to be voidable if— (a) restitution of any money or other asset which was the subject-matter of the transaction is no longer possible, or (b) the society is indemnified for any loss or damage resulting from the transaction, or (c) rights acquired bona fide for value and without actual notice of the directors' exceeding their powers by a person who is not party to the transaction would be affected by the avoidance, or (d) the transaction is ratified by the society in general meeting, by ordinary or special resolution or otherwise as the case may require. (6) A person other than a director of the society is not liable under subsection (3) above if he shows that at the time the transaction was entered into he did not know that the directors were exceeding their powers. (7) This section does not affect the operation of sub-paragraph (1) of paragraph 17 of Schedule 2 in relation to any party to the transaction not within subsection (1)(a) or (b) above. But where a transaction is voidable by virtue of this section and valid by virtue of that sub-paragraph in favour of such a person, the court may, on the application of that person or of the society, make such order affirming, severing or setting aside the transaction, on such terms, as appear to the court to be just. (8) In this section “transaction” includes any act; and the reference in subsection (1) above to limitations under the society’s constitution includes limitations deriving— (a) from a resolution of the society passed at a general or special meeting or on a postal ballot; or (b) from any agreement between the members of the society.

Application of certain insolvency legislation

39

• (1) After section 90 of the 1986 Act there shall be inserted the following section—

(90A) For the purpose of— (a) enabling voluntary arrangements to be approved in relation to building societies, (b) enabling administration orders to be made in relation to building societies, and (c) making provision with respect to persons appointed in England and Wales or Northern Ireland as receivers and managers of building societies' property, the enactments specified in paragraph 1(2) of Schedule 15A to this Act shall apply in relation to building societies with the modifications specified in that Schedule.

• (2) After Schedule 15 to the 1986 Act there shall be inserted, as Schedule 15A, the provisions set out in Schedule 6 to this Act (application of other companies insolvency legislation to building societies).

Abolition of priority liquidation distribution rights

40

In section 100 of the 1986 Act (distribution and share rights), the following provisions (which confer rights to priority liquidation distributions) shall cease to have effect, namely—

• (a) in subsection (2), paragraph (c) and the word “and” immediately before that paragraph; and

• (b) subsections (5) and (6).

Protective provisions for specially formed successors

41

For section 101 of the 1986 Act there shall be substituted the following section—