The Investment Bank Special Administration Regulations 2011

Made: 7th February 2011

Coming into force in accordance with regulation 1

The Treasury make the following Regulations in exercise of the powers conferred by sections 233, 234 and 259(1) of the Banking Act 2009 (the power in section 233 having not yet lapsed under section 235(4)).

Before laying these Regulations before Parliament in draft, the Treasury consulted in accordance with section 235(3) of that Act.

A draft of these Regulations has been laid before and approved by resolution of each House of Parliament in accordance with section 235(2) of that Act.

Citation and commencement

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These Regulations may be cited as the Investment Bank Special Administration Regulations 2011 and shall come into force on the day after the day on which they are made.

Interpretation

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• (1) In these Regulations, except where the context otherwise requires—

• “the Act” means the Banking Act 2009;

• “administrator” has the meaning set out in regulation 4;

• “Authorities” means the Bank of England, the Treasury , the FCA and the PRA;

• “business day” has the meaning set out in section 251 of the Insolvency Act;

• “client” means a person for whom the investment bank has undertaken to receive or hold client assets (whether or not on trust and whether or not that undertaking has been complied with);

• “client money account” means an account which the investment bank maintains in accordance with client money rules, including an account with any person which the investment bank maintains for the purpose of—any transaction with or by that person for a client’s benefit; ormeeting a client’s obligation to provide collateral for a transaction;

• “client money” means client assets which are money received or held by an investment bank for, or on behalf of, clients;

• “client money pool” means the pool of client money which is held on trust by the investment bank in accordance with client money rules and has been pooled in accordance with those rules for the purpose of distribution;

• “client money rules” means rules made under Part 9A of FSMA (rules and guidance) which make provision relating to the handling and distribution of money held by a person who is authorised for the purposes of FSMA;

• “contributory” has the meaning set out in section 79 of the Insolvency Act ;

• “court” means—in England and Wales, the High Court,in Scotland, the Court of Session, andin Northern Ireland, the High Court;

• “deposit-taking bank” means an investment bank to which the definition set out either in section 2 or in section 91 of the Act applies;

• “the Disqualification Act” means the Company Directors Disqualification Act 1986 ;

• ...

• ...

• “enactment” includes—an enactment comprised in or in an instrument made under an Act of the Scottish Parliament;Acts and Measures of the National Assembly for Wales and instruments made such an Act or Measure;Northern Ireland legislation;and any EU Instrument (as defined in Part 2 of Schedule 1 of the European Communities Act 1972 );

• “fair” is to be construed in accordance with section 93(8) of the Act;

• “FCA” means the Financial Conduct Authority;

• “foreign property” has the meaning given by section 39(2) of the Act;

• “FSCS” means the scheme manager of the Financial Services Compensation Scheme (established under Part 15 of FSMA);

• “FSMA” means the Financial Services and Markets Act 2000 ;

• “the Insolvency Act” means the Insolvency Act 1986 ;

• “insolvency rules” means rules made under section 411 of the Insolvency Act as applied and modified by regulation 15;

• “market charge” means a charge to which Part 7 of the Companies Act 1989 applies as a result of the operation of section 173 of that Act ;

• “market contract” means a contract to which Part 7 of the Companies Act 1989 applies as a result of the operation of section 155 of that Act ;

• “market infrastructure body” means a recognised clearing house, recognised CSD, recognised investment exchange ..., third country central counterparty, recognised overseas clearing house ..., third country CSD or recognised overseas investment exchange in relation to which the investment bank is a counterparty in a market contract or to a market charge or is a member or participant;

• “Objective 1”, “Objective 2” and “Objective 3” have the meanings set out in regulation 10;

• “PRA” means the Prudential Regulation Authority;

• “PRA-authorised person” has the meaning given by FSMA;

• “prescribed” means prescribed by insolvency rules;

• “recognised clearing house” has the meaning set out in section 285 of FSMA;

• “recognised CSD” has the meaning set out in section 285 of FSMA;

• “recognised investment exchange” has the meaning set out in section 285 of FSMA;

• “recognised overseas clearing house” means an overseas person in respect of whom a recognition order has been made under section 292 of FSMA declaring them to be a recognised clearing house;

• “recognised overseas investment exchange” means an overseas person in respect of whom a recognition order has been made under section 292 of FSMA declaring them to be a recognised investment exchange;

• “the regulators” means the FCA and the PRA, and references to a regulator are to be read accordingly;

• “Schedule B1” means Schedule B1 to the Insolvency Act ;

• “Schedule B1 administration” means the administration procedure set out in Schedule B1;

• “securities” means financial instruments as defined in regulation 3 of the Financial Collateral Arrangements (No.2) Regulations 2003 ;

• “security interest” means any legal or equitable interest or any other right in security (other than a title transfer financial collateral arrangement) created or otherwise arising by way of security including—a pledge,a mortgage,a fixed charge,a charge created as a floating charge, ora lien;

• “special administration” has the meaning set out in regulation 3;

• “special administration (bank insolvency)” has the meaning set out in paragraph 1 of Schedule 1;

• “special administration (bank administration)” has the meaning set out in paragraph 1 of Schedule 2;

• “special administration objectives” has the meaning set out in regulation 10;

• “special administration order” has the meaning set out in regulation 4;

• “statement of proposals” means the statement of proposals drawn up by the administrator in accordance with—paragraph 49 of Schedule B1 (as applied by regulation 15);where the FCA or, where relevant, the PRA has given a direction, regulation 17; orin relation to Schedule 2, paragraph 7 of that schedule; and

• “third country central counterparty” has the meaning set out in section 285 of FSMA;

• “third country CSD” has the meaning set out in section 285 of FSMA;

• “title transfer financial collateral arrangement” has the meaning set out in regulation 3 of the Financial Collateral Arrangements (No.2) Regulations 2003.

• (2) In the definition of “security interest”, in sub-paragraph (c), in its application to Scotland, “fixed charge” means a fixed security within the meaning given by section 47(1) of the Bankruptcy and Diligence etc. (Scotland) Act 2007 .

• (2A) In these Regulations a reference to the investment bank’s own bank accounts includes a reference to any account, other than a client money account, opened by the administrator for the purposes of the special administration.

• (3) References in these Regulations to a regulated activity must be read with—

• (a) section 22 of FSMA (classes of regulated activity and categories of investment);

• (b) any relevant order under that section; and

• (c) Schedule 2 to that Act (regulated activities).

• (4) For the purposes of a reference in these Regulations to inability to pay debts—

• (a) an investment bank that is in default on an obligation to pay a sum due and payable under an agreement is to be treated as unable to pay its debts; and

• (b) section 123 of the Insolvency Act (inability to pay debts) also applies,

and for the purposes of sub-paragraph (a), “agreement” means an agreement the making or performance of which constitutes or is part of a regulated activity carried on by the investment bank.

• (5) Expressions used in these Regulations and in the Insolvency Act have the same meaning as in that Act, and the provision made by paragraphs 100 and 101 of Schedule B1 (as applied by regulation 15) in respect of the effect of the references in that Schedule also apply in respect of the same references where used in these Regulations.

• (6) Expressions used in these Regulations and in the Companies Act 2006 have the same meaning as in that Act.

• (7) Regulation 26 applies with respect to the application of these Regulations to Northern Ireland.

Overview

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• (1) These Regulations provide for a procedure to be known as investment bank special administration (“special administration”).

• (2) The main features of special administration are that—

• (a) an investment bank enters the procedure by court order;

• (b) the order appoints an administrator;

• (c) the administrator is to pursue the special administration objectives in accordance with the statement of proposals approved by the meeting of creditors and clients and, in certain circumstances, the FCA or, where relevant, the PRA; and

• (d) in other respects the procedure is the same as for Schedule B1 administration under the Insolvency Act, subject to specific modifications, and the inclusion of certain liquidation provisions of the Insolvency Act.

• (3) Where the investment bank is a deposit-taking bank with eligible depositors (within the meaning of section 93(3) of the Act)—

• (a) regulations 4 to 8 do not apply; and

• (b) in addition to the insolvency procedures established under Parts 2 and 3 of the Act, the Bank of England , the FCA or, in certain cases, the PRA, may apply for an order to put the bank into—

• (i) special administration (bank insolvency) as set out in Schedule 1 (as applied by regulation 9); or

• (ii) special administration (bank administration) as set out in Schedule 2 (as applied by regulation 9).

• (4) Where the investment bank is a deposit-taking bank but has no eligible depositors, the investment bank must not be put into special administration (bank insolvency); instead the investment bank may be put into either—

• (a) special administration (bank administration), (in which case regulations 4 to 8 do not apply); or

• (b) special administration.

Special administration order

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• (1) An investment bank special administration order (“special administration order”) is an order appointing a person as the investment bank administrator (“administrator”) of an investment bank.

• (2) A person is eligible for appointment as administrator under a special administration order if qualified to act as an insolvency practitioner in relation to the investment bank.

• (3) An appointment may be made only if the person has consented to act.

• (4) For the purpose of these Regulations—

• (a) an investment bank is “in special administration” while the appointment of the administrator has effect;

• (b) an investment bank “enters special administration” when the appointment of the administrator takes effect;

• (c) an investment bank ceases to be in special administration when the appointment of the administrator ceases to have effect in accordance with these Regulations; and

• (d) an investment bank does not cease to be in special administration merely because an administrator vacates office (by reason of resignation, death or otherwise) or is removed from office.

Application

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• (1) An application to the court for a special administration order may be made to the court by—

• (a) the investment bank;

• (b) the directors of the investment bank;

• (c) one or more creditors of the investment bank;

• (d) the designated officer for a magistrates' court in the exercise of the power conferred by section 87A of the Magistrates' Courts Act 1980 (fines imposed on companies);

• (e) (subject to paragraph (7)), a contributory of the investment bank;

• (f) a combination of persons listed in sub-paragraphs (a) to (e);

• (g) the Secretary of State; ...

• (h) the FCA; or

• (i) if the investment bank is a PRA-authorised person, the PRA.

• (2) Where an application is made by a person other than the FCA, the FCA is entitled to be heard at—

• (a) the hearing of the application for special administration; and

• (b) any other hearing of the court in relation to the investment bank under these Regulations.

• (2A) Where an application is made by a person other than the PRA in relation to an investment bank which is a PRA-authorised person, the PRA is entitled to be heard at—

• (a) the hearing of the application for special administration; and

• (b) any other hearing of the court in relation to the investment bank under these Regulations.

• (3) An application must nominate a person to be appointed as the administrator.

• (4) As soon as is reasonably practicable after making the application, the applicant shall notify—

• (a) a person who gave notice to the appropriate regulator in accordance with Condition 1 of regulation 8; and

• (b) such other persons as may be prescribed.

• (5) An application may not be withdrawn without the permission of the court.

• (6) In sub-paragraph (1)(c), “creditor” includes a contingent creditor and a prospective creditor.

• (7) A contributory (“C”) is not entitled to make an application for special administration unless either—

• (a) the number of members is reduced below 2; or

• (b) the shares in respect of which C is a contributory, or some of them, either were originally allotted to C, or have been held by C and registered in C's name, for at least 6 months during the 18 months before the commencement of the special administration, or have devolved on C through the death of a former holder.

Grounds for applying

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• (1) In this regulation—

• (a) Ground A is that the investment bank is, or is likely to become, unable to pay its debts;

• (b) Ground B is that it would be fair to put the investment bank into special administration; and

• (c) Ground C is that it is expedient in the public interest to put the investment bank into special administration.

• (2) The FCA or, where relevant, the PRA or the persons listed in regulation 5(1)(a) to (e) may apply for a special administration order only if they consider that Ground A or Ground B is met.

• (3) The Secretary of State may apply for a special administration order only if it appears to the Secretary of State that Grounds B and C are met.

• (4) The sources of information on the basis of which the Secretary of State may reach a decision on Ground C include those listed in section 124A(1) of the Insolvency Act (petition for winding up on grounds of public interest).

Powers of the court

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• (1) On an application for a special administration order the court may—

• (a) grant the application in accordance with paragraph (2);

• (b) dismiss the application;

• (c) adjourn the hearing (generally or to a specified date);

• (d) make an interim order;

• (e) on the application of the FCA, treat the application as an administration application by the FCA under Schedule B1 in accordance with section 359(1) of FSMA ; or

• (ea) on the application of the PRA, treat the application as an administration application by the PRA under Schedule B1 in accordance with section 359(1A) of FSMA;

• (f) make any other order which the court thinks appropriate.

• (2) The court may make a special administration order if it is satisfied that the company is an investment bank and—

• (a) (on the application of persons listed in regulation 5(1)(a) to (e) , the FCA or PRA) that Ground A or Ground B in regulation 6 is satisfied;

• (b) (on the application of the Secretary of State) if satisfied that Grounds B and C in regulation 6 are satisfied.

• (3) Where the application for a special administration order is made by members of the investment bank as contributories on the basis that Ground B in regulation 6 is satisfied, the court, if it is of the opinion that—

• (a) the applicants are entitled to relief either by a special administration order being made in respect of the investment bank or by some other means; and

• (b) in the absence of any other remedy it would be fair that the special administration order be made in respect of the investment bank,

shall make a special administration order; but this does not apply if the court is also of the opinion that an alternative remedy is available to the applicants and that they are acting unreasonably in applying for a special administration order instead of pursuing that other remedy.

• (4) A special administration order takes effect in accordance with its terms.

Notice to FSA of preliminary steps to other insolvency proceedings

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• (1) An application for an administration order in respect of an investment bank may not be made unless the conditions in paragraph (5) are satisfied.

• (1A) An application for an order under regulation 8 of the Payment and Electronic Money Institution Insolvency Regulations 2021 in respect of an investment bank may not be made unless the conditions in paragraph (5) are satisfied.