Banking Bill

Public Bill Committee, 18 November 2008.

Roger Gale (Conservative, North Thanet)

Good morning. We now move into a selection of stand part debates.

Clause 123

Ian Pearson (Labour, Dudley South)

It is a pleasure to serve under your chairmanship, Mr. Gale, for the penultimate sitting of this Committee.

As clause 123 outlines the main features of the bank administration procedure, it might be helpful if I briefly set out some of these. This procedure may be required in the event of a partial transfer of a bank’s business to a bridge bank or a private sector purchaser. Where a partial transfer takes place, the residual bank—the part left behind—may be insolvent. In such circumstances, the Bank of England may make an application to the court for a bank administration order.

The bank administration procedure is a new and unique insolvency procedure created to deal with an insolvent residual bank following a partial transfer, although it is largely based on existing insolvency provisions, specifically the procedure of administration as set out in schedule B1 to the Insolvency Act 1986. It is designed to ensure that any essential services or facilities that cannot be immediately transferred to a bridge bank or private sector purchaser will continue to be provided for a period of time.

The Committee heard the Government’s case for the importance of the partial transfer tool within the special resolution regime when we discussed part 1 of the Bill. The Committee has also heard that the Government are engaging closely with stakeholders to put in place safeguards to allay any potential concerns over a partial transfer. We discussed these safeguards last week in our consideration of clauses 42, 43 and 55. As the Committee will be aware, we are continuing to consult on these issues, including through the expert liaison group which we have established and which one of the later amendments seeks to provide on a statutory basis. In the context of consultation, it is also worth noting that key stakeholders, including, for example, the British Bankers Association, broadly agree that if the partial transfer power is used the bank administration procedure may be necessary and is a sensible measure for the winding up of a residual bank.

Bearing that in mind, I will outline why the bank administration procedure is necessary and what it is designed to achieve. Where part of a failing bank’s business is transferred to either a bridge bank or a private sector purchaser, in accordance with clauses 10 and 11, the residual part of the bank may be left as an insolvent entity. However, it may be vital that the insolvent residual company continues to provide support activities to the commercial purchaser or bridge bank. For example, it might be impossible to transfer certain assets or service contracts as part of the initial arrangements. These items may be vital for the successful operation of the transferred business.

Under a normal administration, the administrator would have no obligation to provide support services to a commercial purchaser or bridge bank and would be required to take actions in the best interests of creditors. This could include taking immediate steps to wind up the affairs of the company, selling its assets and distributing the proceeds to creditors. Such action could threaten successful resolution of a failing bank through a partial transfer, since it may render a bridge bank unworkable or deter any commercial sector acquisition. Crucially then, the bank administration procedure will oblige the bank administrator of an insolvent residual bank to provide essential services and facilities to the transferee. To that end, the bank administrator will have unique statutory objectives: first, to provide support to a commercial purchaser or bridge bank and secondly, to rescue the residual bank as a going concern or wind up its affairs in the best interests of creditors.

By obliging the residual bank to continue to provide services to the transferee, the bank administration procedure will improve the likelihood of a successful resolution of a failing bank’s business. Once it becomes no longer necessary for the residual bank to continue to provide support services, the procedure would continue in a similar way to an ordinary administration, although to keep down costs, maximise returns to creditors and to protect the interests of creditors by providing for a full range of outcomes, some of the existing powers of a liquidator have been built into the procedure.

One of the main concerns raised by stakeholders—which the Government have addressed—is that following a partial transfer those creditors who remain in the residual bank will lose out. We have debated this before, which is why the Government have put measures to mitigate the risks in clauses 42, 43 and 55, and in the code and regulations on which we are consulting. We are continuing to discuss the subject with the expert liaison group.

The bank administration procedure also provides that the bank administrator will work on both objectives simultaneously, to protect the interests of creditors. The bank administrator will be required to ensure that essential services and facilities are supplied to the private sector purchaser or bridge bank. At the same time, he or she will be able to take action to rescue the residual bank or to wind up its affairs, provided that these do not interfere with the first objective. It might be perfectly feasible to realise some of the residual bank’s assets without prejudicing the operation of the transferred business.

Many provisions of the bank administration procedure are substantially based on the existing provisions of UK insolvency law, namely the administration provisions of the Insolvency Act 1986, as amended by the Enterprise Act 2002. The provisions will, therefore, be familiar to companies and their professional advisers. The UK’s existing insolvency regime is widely regarded as robust and well supported. In line with the approach taken for the bank insolvency procedure, powers are to be taken in the Bill to extend the provisions of the bank administration procedure to building societies and credit unions, with necessary modifications. A power is also to be taken to adapt the bank administration procedure to deal with multiple transfers to different purchasers.

The bank administration procedure is a well designed measure, for use only in very specific circumstances, which builds on existing insolvency procedures and forms an essential part of the special resolution regime. It has been consulted on and there is substantial agreement that it is necessary. The subsequent clauses have attracted very little comment and have wide-ranging support. I hope that this brief overview debate is helpful to the Committee.

David Gauke (Conservative, South West Hertfordshire)

I welcome you to the Chair, Mr. Gale. The Minister might be being a little pessimistic—or optimistic—in saying that this is the penultimate sitting of the Committee. I do not know which way to look at it. I know that we are enjoying it a great deal, but I fear that we may get through the remainder of the Bill in the course of the morning. We shall see; perhaps I am being pessimistic in thinking that we will not have the pleasure of debating it this afternoon as well.

I shall make two points about the clause. I welcome the attempt to address the difficulties that we face by improving the structure of administration for failing banks. We strongly believe that administration has a large part to play. Indeed, we advocated some kind of administration structure in the case of Northern Rock. We welcome the Minister’s saying that this is appropriate. If I may, I will contrast that constructive approach with the comments made by his senior colleagues earlier this year. For example, the Chancellor of the Exchequer, in the context of Northern Rock, said:

“Administration would mean that control would immediately pass to an administrator who would look to realise the value of the company’s assets, which, under current market conditions, would amount to a fire sale.”—[Official Report, 21 January 2008; Vol. 470, c. 1208.]

The Prime Minister, two days later, said:

“Let me just tell the House what administration means. It means a fire sale of the assets, it means closing down the company and it means the Government losing billions of pounds. It is the worst possible solution and the Conservatives are not only guilty of inconsistency, but guilty of putting the stability of the economy at risk.”—[Official Report, 23 January 2008; Vol. 470, c. 1490.]

Now we find that the Government recognise that administration for a financial institution does not necessarily put the economy at risk, cost the Government billions, and lead to mass unemployment and a plague of locusts. Indeed, I asked the Minister at the beginning of these Committee proceedings whether administration means a fire sale of assets to which to he replied:

“It is not right to say how the administrator would want to pursue its duties. The administrator would certainly have objectives for ensuring the supply of essential services and either rescue it as an ongoing concern or wind up its affairs. It would normally want to do that in the best possible way. If it can rescue the bank, it will want to do that and, if it is to wind up its affairs, it will want to do that in a responsible and appropriate manner.”——[Official Report, Banking Public Bill Committee, 21 October 2008; c. 8, Q12.]

The Minister puts it very well; that is what administrators do. Some of his colleagues appeared to be confused about the difference between administration and liquidation. Clearly, administration does not mean a fire sale of assets. It is one of the useful and necessary tools that need to be available to the authorities in the case of a failing bank, and we therefore welcome the inclusion of part 3. We will make one or two comments on it during the proceedings, but—as the Minister says—it has not produced many comments from outside bodies. We have debated other parts of the Bill at great length, but that will not be necessary with part 3.

Another general observation, which could have been made about other parts of the Bill but which could help here, is that the Government have in mind—as the Minister has stated and as appears in the Bill—that when a financial institution runs into difficulties some of the assets will be transferred to a bridge bank, or straight to a private sector purchaser, and that will be the good bank. The residual bank is the bad bank. We have debated what toxic assets are, and agreed that the issue with a bad bank is often uncertainty rather than its being all that terrible. The Bill, particularly in part 3, makes it clear that the residual bank is the bad bank.

In our debates, the Government have argued for as much flexibility as possible in the Bill. However, the concern has been raised with us that the Bill to some extent closes down one area of flexibility in that, in simplistic terms, the residual bank will always be the bad bank and the good assets will be transferred out. Is it not conceivable that the easiest route would be for the residual bank to be the good bank, and for some of the bad assets to be transferred out? It is possible to imagine circumstances in which transferring assets to a bridge bank would trigger an event of default, or in which regulatory permission might be required. It might be difficult to transfer the good assets, and it would possibly be better to transfer the bad ones and leave the good ones in the residual bank. That has not been the experience so far; that route was not taken with Bradford & Bingley. The residual bank would perhaps normally become the bad bank, but the Government seem to have closed off the alternative route. Tabling amendments to address that would be hugely complicated and would, I suspect, create difficulties even for the Treasury. None the less, it would help the Committee if the Minister could explain why the Bill has closed off that route. Does he consider it highly unlikely that it would ever be useful to retain the good assets in the residual bank and transfer the bad ones out?

In conclusion, we support the need for a bank administration power. We will raise one or two points in the course of the proceedings, but I hope that we can make reasonably quick progress today.

Ian Pearson (Labour, Dudley South)

That was fantastic. I thought when the hon. Gentleman started criticising the Chancellor and Northern Rock that we might get a chance to talk politics rather than debate the technical details of the Bill. Alas, it was quite ephemeral and he went on to the technical comments.

Partial transfers are important; there is a world of difference between putting a whole bank and putting part of a bank in administration. I strongly believe that the actions we took with Northern Rock and Bradford & Bingley, which were opposed by the Conservative party, were the right ones. They benefited depositors and will prove beneficial to creditors too. I contrast what we did there and what we are proposing in the BAP, with the actions that the Conservative party took when it opposed the Banking (Special Provisions) Act 2008, opposed what we did on Northern Rock and opposed what we did on Bradford & Bingley. That is probably the end of the politics. I give way to the hon. Gentleman and then I am sure we will revert to discussing the BAP.

David Gauke (Conservative, South West Hertfordshire)

Let me prolong the pleasure of discussing politics for a moment. If the distinction the Minister is making is between a partial transfer and then administration of part of a bank compared with administration of the whole of the bank, would he not agree with his initial statement to the Committee that an administrator would act in a “responsible and appropriate manner”, whether it is the whole of a bank or part of a bank? That is what administrators do. They do not engage in fire sales.

Ian Pearson (Labour, Dudley South)

I agree that it is the responsibility of administrators to act in a fair and responsible manner. Let me move on to address the point that the hon. Member directly raised about transferring out parts of a bad bank and the specific issue of whether the residual company could be the good company. I want to make two points. Certainly there are powers in the legislation to have multiple transfers. Those could be transfers of good assets. They could possibly be transfers of bad assets as well. Certainly the Bill provides for flexibility.

With regard to the specific points, I do not think that it would meet the Government’s policy objectives to leave good assets under the control of the original owner once the bank has failed its threshold conditions. However, it is certainly perfectly possible that a decision could be taken to take the whole of the bank into temporary public ownership and then bad assets could be transferred out using the onward transfer powers. That would be a conceivable scenario.

As the hon. Gentleman notes, part 3 has attracted relatively little attention from outside commentators because they have recognised that it is a necessary part of what we are trying to achieve. We shall come on to some technical amendments, which have been tabled largely in response to some of the outside comments and also on areas where we need to improve drafting to make things clearer. Otherwise, this clause is in very good shape and is widely welcomed.

Clause 124

David Gauke (Conservative, South West Hertfordshire)

The point I would like to make about this clause is similar to one that my hon. Friend the Member for Fareham made about bank insolvency or liquidation. I know there was a debate about the terminology. My point relates to the credit institutions reorganisation and winding up directive 2001 and the 2004 regulations that enforced it. The purpose of that directive and those regulations is to have some mutual recognition arrangement within the European economic area for winding-up proceedings.

A concern has been raised with us that the arrangements for bank administration feel more like regulatory arrangements than insolvency arrangements, particularly because objective 1 takes priority over objective 2. Objective 1 is support for a commercial purchaser of a bridge bank, so I seek reassurance from the Minister that in those circumstances, as far as the Government are concerned, those arrangements will be recognised under the directive, creditors will be treated equally, we will not run into difficulties and essentially those arrangements will not be recognised in other jurisdictions. That means that for assets held in other jurisdictions we will have two separate sets of insolvency proceedings or administration proceedings, so the whole process will become rather confused and dragged out and there will be an issue concerning what happens to assets held in other jurisdictions within the EEA.

Will the Minister also mention the “normal” administration objective 2, which is subservient—to use the Treasury language—to objective 1? Does that mean that shareholders in a bank that is in administration will be in a worse position than those in a company that is in normal administration because we have objective 1? We are broadly supportive of clause 124, but it might be helpful if he could outline that to the Committee and address those points.

Ian Pearson (Labour, Dudley South)

The clause provides that the bank administrator has specific statutory objectives, the first being the provision of support for the bridge bank or private sector purchaser. Once such support is no longer required, the objective is to achieve either of the two principal aims of an ordinary administration: either to rescue the company as a going concern or to achieve a better result for creditors in an immediate liquidation.

I can confirm to the hon. Gentleman that the bank administration procedure will fall within the scope of the directive he mentioned as a reorganisation measure, and shareholders in the administration will be in the same position in the bank administration procedure as in a normal administration procedure, so there is no intention to do anything differently. I remind him about clause 55 and the “no creditor worse off” position outlined in the Bill. We believe that there are proper safeguards, and those in the industry, whom we will continue to talk to, are broadly satisfied with what we are trying to achieve.

Clause 130

David Gauke (Conservative, South West Hertfordshire)

The Minister was complaining about all the technical talk, but I have a technical question for him. The clause relates to the grounds for applying for a bank administration order and states the conditions that must apply before the Bank of England may apply for a bank administration order. It states:

“Condition 1 is that the Bank of England has made or intends to make a property transfer instrument in respect of the bank in accordance with section 10(2) or 11(2).”

Clause 7 sets out the conditions under which the powers contained in clauses 10 and 11 may apply. One of those conditions is whether the Financial Services Authority is satisfied that certain conditions have been met. Clause 130 says that the Bank of England may apply for a bank administration order if

“it intends to make a property transfer instrument”.

It can make a property transfer instrument only once the FSA is satisfied that certain conditions apply. That is what we have in clauses 7 and 8. Clause 130 seems to allow an application to be made and clause 131 allows a bank administration order to be made by the court before clauses 7 and 8 are satisfied, because of the words that the Bank

“intends to make a property transfer instrument”.

Is it necessary that all the conditions in clauses 7 and 8 have been satisfied—relating to clauses 10 and 11—before clause 130 becomes operative? It seems that the Bank can apply before the FSA says it is appropriate and then the FSA can subsequently determine whether the conditions set out in clauses 7 and 8 have been met. I am sure that is all entirely clear to the Minister but if he wants any clarification I will try to help him.

Ian Pearson (Labour, Dudley South)

I think it is clear and I shall try to be clear in how I explain it. The legislation is framed so that the FSA has responsibility for deciding whether the threshold conditions have been met. Clause 7 relates to this in subsection (1) where it says:

“A stabilisation power may be exercised in respect of a bank only if the FSA is satisfied that the following conditions are met.”

We have talked about this before. First, the FSA—having consulted the Bank and the Treasury—decides whether the threshold conditions are met and pulls the trigger. Then, the Bank is responsible for deciding which stabilisation option should be taken. If the Bank decides that one stabilisation option is a bridge bank and wants to make a property transfer instrument, then clause 130—subsections (1) and (2) in particular—would apply. The FSA’s decision to trigger the special resolution regime comes first. As I understand it, the Bank could not decide to make a property transfer instrument before the decision had been taken that a bank was failing.

David Gauke (Conservative, South West Hertfordshire)

The Minister’s answer has been clear. He has addressed the degree of ambiguity in the Bill and I am grateful.

Clause 132

Ian Pearson (Labour, Dudley South)

I beg to move amendment No. 163, in clause 132, page 65, line 33, after ‘administration’ insert ‘or administrators’.

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss Government amendments Nos. 164 to 166.

Ian Pearson (Labour, Dudley South)

This group of amendments tidies up clause 132 and also puts in place arrangements for the appointment of a provisional bank administrator. The amendments are similar to provisions previously discussed under amendment No. 158 for the provisional bank liquidator for the bank insolvency procedure, and they serve a similar purpose.

Amendments Nos. 163 and 164 are straightforward tidying-up provisions to include the phrases “or administrators” and “or liquidators” where required in the application and modification of existing provisions of the Insolvency Act 1986 to the bank administration procedure. That is necessary because clause 132 modifies various provisions of the Act in their application to the bank administration procedure. Those provisions refer to the powers of liquidators, as well as to the process of liquidation. The amendments simply reflect that.

Amendment No. 165 is another tidying-up provision, which corrects a conflict in the drafting. Clause 132, table 1, applies schedule B1(65)(3) of the Insolvency Act, and table 2 applies section 168(4) of the Act, both of which allow for the payment of dividends to creditors. However, section 168(4) allows a dividend to be paid to unsecured creditors at the discretion of the liquidator, while schedule B1(65)(3) requires an administrator to seek permission from the court before paying a dividend to unsecured creditors. It should not be necessary for the bank administrator to seek the permission of the court, since that would incur additional expenses for the creditors. Amendment No. 165 therefore removes the reference to paragraph 65(3). That sensible approach benefits creditors.

Amendment No. 166 is probably the most significant amendment in the group. It provides for the appointment by the court of a provisional bank administrator, following an application for a bank administration order. During the brief hiatus between the application for a bank administration order and the court hearing to make the order, it might be necessary for the residual bank to continue to provide services to the private sector purchaser or bridge bank. The appointment of a provisional bank administrator will facilitate that process and will also protect assets for the benefit of creditors in that initial brief period.

Following the making of the bank administration application, an interim moratorium will be in put in place to preserve the assets of the residual company. The court will also be able to appoint a provisional bank administrator where necessary, granting him or her powers to protect assets and manage the residual company in accordance with objective 1 of the bank administration procedure, which is to provide services to the bridge bank or private sector purchaser. The provisional bank administrator will not be entitled to pursue either strand of objective 2, and will not be allowed to make subsequent transfers, which means that the powers of a provisional bank administrator will be suitably restricted. Those are the equivalent powers that we were talking about in relation to the bank insolvency procedure. A typical activity that the provisional bank administrator might undertake would be facilitating access to e-mail or computer systems.

In effect, the role of the provisional bank administrator is simply to keep things ticking over for a few hours until the full court hearing for the making of a bank administration order. It is an important provision, which will minimise disruption and protect assets for the benefit of creditors, prior to the making of a bank administration order.

The provisional bank administrator’s appointment will lapse when a bank administrator is appointed, although there is nothing to stop him or her then being appointed as the bank administrator. In all cases, the provisional bank liquidator must be a qualified insolvency practitioner who consents to take on the role. Amendment No. 166 is a necessary provision, which protects the assets of the residual bank and allows for the provision of services to the private sector purchaser or bridge bank.

David Gauke (Conservative, South West Hertfordshire)

May I ask a question about amendment No. 166? I acknowledge the point made by the Minister, that the purpose of this provision is for someone to be in place to “keep things ticking over for a few hours”, as he described it, but what is the likely time scale? He referred to a few hours, but is there a maximum period for a provisional appointment? Can the Minister provide a firm reassurance beyond “a few hours”? I acknowledge the intention behind the amendment and it appears to be a useful addition, but it will be helpful if the Minister elaborates.

Ian Pearson (Labour, Dudley South)

It would not be right to put a time scale on the face of the Bill, but clearly the policy intention is that a provisional administrator would keep things ticking over for a short period. I mentioned a few hours—it might be a few more hours than that, but it would not be a substantial length of time. The intention would be to move to a proper and full bank administration procedure as quickly as possible. Given that things can move extremely quickly, as we know, and that property and assets can be transferred quickly, once the decision has been made that a bank is failing its threshold conditions and action is being taken it is right that we do not leave a time window between a decision being taken and its being implemented.

David Gauke (Conservative, South West Hertfordshire)

I am grateful for the Minister’s response and I understand why he does not want to be prescriptive, certainly on the face of the Bill, or to say much more than he already has about the length of time. As he said, objective 2 is disapplied, but will he assure the Committee that even though objective 2 does not apply—that is, the rescue of the residual bank as a going concern to achieve a better result for the residual bank’s creditors as a whole than if it was wound up without bank administration—the provisional administrator will do nothing to prejudice the objective 2 requirements?

Ian Pearson (Labour, Dudley South)

It certainly is not the Government’s intention that the provisional administration would do anything of the kind. In my opening remarks I mentioned facilitating the exchange of e-mails and such activities to ensure that we can have the properly functioning activities of a bridge bank and allow objective 1 to be pursued. We have been clear about the grounds for what a provisional administrator would be allowed to do, and amendment No. 166 makes clear the limited nature of what is proposed.

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 179, in clause 132, page 71, leave out lines 28 to 33.

The amendment relates to the applied provisions set out in the clause that would amend section 178 of the Insolvency Act 1986. Our concern is that the provisions amended by the Bill for the most part relate to administration, as one would expect given that the clause relates to administration. Section 178 of the 1986 Act relates to liquidation and specifically gives power to a liquidator to disclaim any onerous property. For those purposes onerous property includes

“any unprofitable contract, and...any other property of the company which is unsaleable or not readily saleable or is such that it may give rise to a liability to pay money or perform any other onerous act.”

Why should that power of disclaiming onerous property be available to an administrator rather than a liquidator? I recognise that the power is only to be given with the Bank of England’s consent and exercised with that consent, but it does not seem appropriate to give the power of disclaiming onerous property to an administrator, especially given the protection for creditors in section 178(6) of the 1986 Act:

“Any person sustaining loss or damage in consequence of the operation of a disclaimer under this section is deemed a creditor of the company to the extent of the loss or damage and accordingly may prove for the loss or damage in the winding up.”

With an administration there may not be a winding-up, so that section does not fit well with the modification to it in clause 132. It would help the Committee if the Minister could explain why section 178 is amended and why it is necessary for an administrator to be able to disclaim property, given that as a rule administrators do not have that ability.

Ian Pearson (Labour, Dudley South)

Amendment No. 179 would remove the ability of a bank administrator to disclaim onerous property. I shall set out why that ability is important and why we disagree with the amendment.

Onerous property includes unprofitable contracts and property that is unsaleable or not easily saleable, or that might give rise to a continuing liability. The ability to disclaim onerous property is a useful tool for the benefit of creditors, but it is normally available—as the hon. Gentleman says—only to a liquidator. We have applied the provision to bank administration, with some modifications, as giving the bank administrator that power will help to achieve the best result for creditors. Many members of the insolvency community, including practitioners and lawyers, think that an ordinary administrator should also be able to disclaim onerous property, so it is sensible to apply such a provision, which benefits creditors, to the bank administration procedure.

The modifications in clause 132 are in line with the application of other powers that are normally available only to a liquidator, for example the ability to bring an action before the court for fraudulent or wrongful trading and to pay dividends to unsecured creditors without requiring permission from the court. Such provisions will ensure that a bank administrator has all the powers necessary to fulfil his or her objectives. The application of the liquidation powers, including the power to disclaim, will also help to ensure that the bank administration procedure is a cost-effective and efficient stand-alone regime, which operates in the best interests of creditors.

I thank the hon. Gentleman for his amendment because it has enabled us to look at why table 2 applies only to section 178 of the 1986 Act, and not the following four sections, which also deal with disclaimers. He has brought that point to our attention and we will look into it. If technical amendments are required to apply further provisions of the 1986 Act relating to the operation of disclaimers, we will consider how to deal with them. Any necessary amendments will, of course, be subject to normal scrutiny. I urge the hon. Gentleman to withdraw his amendment because it is sensible that bank administrators have that power, but we will look at whether we need to address in due course the issues raised by the amendment.

David Gauke (Conservative, South West Hertfordshire)

I am grateful to the Minister for his remarks. At times, we do seek to be a constructive Opposition, and we have been in this case, even if inadvertently.

I am not entirely convinced by the Minister’s argument that as some insolvency lawyers think that the power to disclaim onerous property should apply to administrators generally we should therefore apply it in these provisions. There may or may not be a case for general reform. However, I will not press for a Division; the Minister has given his explanation and it has been useful to highlight the matter. I beg to ask leave to withdraw the amendment.

Clause 138

Ian Pearson (Labour, Dudley South)

I beg to move amendment No. 167, in clause 138, page 75, line 7, after first ‘bank’ insert ‘(“the original bank”)’.

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss Government amendments Nos. 168 to 174.

Ian Pearson (Labour, Dudley South)

The amendments are of a technical nature. They provide for two things. First, amendments Nos. 167 to 172 clarify some of the terms used in the clause in relation to “original bank” and “onward transferee”. Secondly, amendments Nos. 173 and 174 provide for an added level of flexibility in relation to onward property transfers from a bridge bank. Where an onward property transfer is made from a bridge bank to a transferee, it may require services from the original residual bank—clause 138 already provides for that—but it may also require services from the bridge bank. This is because some of the facilities may have been transferred from the residual bank to the bridge bank. These may be necessary to operate the business transferred from the bridge bank.

Amendments Nos. 173 and 174 provide that both the original residual bank and the original bridge bank may provide services to business transferred from the bridge bank. These are sensible amendments, which ensure that the bank administration procedure is effective for additional resolution scenarios.

Clause 140

David Gauke (Conservative, South West Hertfordshire)

The clause relates to the successful rescue of a bank and it applies if the bank administrator has pursued objective 2(a), which is the rescue of a residual bank as a going concern, and believes that it has been achieved. It also sets out various procedural matters. It appears that the decision as to whether a successful rescue of a residual bank has been achieved is left to the bank administrator and he will say, “We’ve made the decision. That’s it.” But what happens if the FSA or the Bank of England take a different view? Will the FSA and the Bank of England as a matter of course examine the rescue bank and if they feel that the threshold conditions have not yet been achieved, can they influence the bank administrator?

On the subject of successful rescue and the point at which a residual bank has been rescued, we have an example of how the system works in the case of Bradford & Bingley—as we have mentioned on a number of occasions—although I do not want to go into the case of the Icelandic banks. What progress is being made on Bradford & Bingley and does the Minister ever envisage that it could be rescued as a going concern? Does the Treasury expect that to happen and, if so, when?

Ian Pearson (Labour, Dudley South)

I do not particularly want to be drawn on Bradford & Bingley, which does not really have much to do with what the clause seeks to achieve. Clauses 140 and 141 provide for different ways of bringing a bank administration to an end. The approach is consistent with the ways in which an ordinary administration can be brought to a close—the hon. Gentleman will be familiar with them. Clause 140 is a straightforward technical clause providing a simple way to bring a bank administration to an end where both objective 1—support for a private sector purchaser or bridge bank—and objective 2(a)—rescue of the residual bank as a going concern—have been achieved. In those circumstances, the bank administrator can bring a bank administration to an end by following the process for formal administration set out in paragraph 80 of schedule B1 to the Insolvency Act 1986.

That means that the bank administration is brought to an end when the bank administrator files an appropriate notice with the court and Companies House. To ensure that creditors are aware that the administration is complete, a copy of that notice must be sent to all the company’s creditors and made available to them on request. As the residual bank will have been rescued as a going concern, the FSA must also be notified accordingly.

Peter Bone (Conservative, Wellingborough)

The Minister said that the clause had nothing to do with Bradford & Bingley but he then described exactly the situation that the Bradford & Bingley residual bank is in. Have I missed something? Does the Minister not want to comment on it because of commercial confidentiality? Surely it is exactly the situation that Bradford & Bingley is in.

Ian Pearson (Labour, Dudley South)

I do not want to be drawn into parallels with Bradford & Bingley. We are talking about new legislation. The Bill, as I have already indicated, parallels very closely the Insolvency Act 1986 provisions when there has been a successful rescue.

The hon. Member for South-West Hertfordshire asked about rescue situations. We need to be clear that the Bank of England would already have issued an objective 1 achievement notice and the bank administrator must be satisfied that the residual company has been rescued. However, as I have pointed out, the procedures are similar to those set out in paragraph 80 of schedule B1 to the Insolvency Act 1986. Clause 140 provides an appropriate way to bring a bank administration to an end where support for a commercial purchaser or bridge bank is no longer necessary and the residual bank has also been rescued as a going concern.

Clause 142

David Gauke (Conservative, South West Hertfordshire)

The clause refers to the Company Directors Disqualification Act 1986. Given our recent debate on clause 65 and the treatment of company directors, does the Minister anticipate that clause 65 could be used to amend that Act?

Ian Pearson (Labour, Dudley South)

The clause establishes that the provisions of the Company Directors Disqualification Act 1986 are applied to the bank administration procedure. That ensures that, where appropriate, action can be taken in the public interest against the directors of the company. As the hon. Gentleman notes, under that Act when a company goes into insolvency the office-holder—the liquidator or the administrator—is required to consider the conduct of the directors of the failed company and report to the Secretary of State.

Action may then be taken, if it is considered to be in the public interest, to disqualify a person from acting as a company director for a specified period. The 1986 Act prescribes that a wide range of matters may be considered in determining whether a director’s conduct has been such that action should be taken to bar him or her from acting as a director for a period of between two and 15 years.

Clause 142 applies the Act with necessary modifications. These are important powers to protect the public and it is therefore appropriate to apply them to the bank administration procedure. The provisions of the Company Directors Disqualification Act are of long standing and will therefore be familiar to companies and their professional advisers. The provisions of the clause are straightforward and consistent with the Government’s overall approach that the bank administration procedure should be generally consistent with existing insolvency law and practice. That is an approach strongly supported by stakeholders.

Clause 65 could in theory amend the 1986 Act but it is not necessary in the bank administration procedure, due to the application in clause 142. The hon. Gentleman is right: we would want to look at whether the Company Directors Disqualification Act powers should be used with regard to a failing company. It would be abnormal to say that because a bank had failed we did not want to consider whether the conduct of the directors of the failed company had been appropriate. I hope that gives the hon. Gentleman the reassurances he seeks.

Clause 143

David Gauke (Conservative, South West Hertfordshire)

With regard to my previous question as to whether clause 65 might be used to amend the Company Directors Disqualification Act 1986, I was half expecting the Minister to say no because it would be done under clause 143, which appears to be another Henry VIII clause that enables the Treasury to change primary legislation by order. I have no intention of repeating all the arguments of a constitutional nature that we used about clause 65. I think clause 65 is much more important in that respect as it raises issues of uncertainty in important areas.

Clause 143 is more tightly drawn, but it is worth asking what the Government have in mind. What sorts of orders can be made under these powers? Why are we not trying to address them specifically in the course of the Bill’s proceedings? Do the Government have concerns about using statutory instruments to amend Acts, given that the level of scrutiny is much lower? I acknowledge that the affirmative resolution procedure applies but do the Government have no concerns in this area? Why is the clause necessary and where may it apply?

Ian Pearson (Labour, Dudley South)

The clause provides a power for amendments to insolvency legislation to be applied to the bank insolvency procedure and provides a power to apply or amend insolvency provisions. We need that power because the bank administration procedure is complex and the existing UK insolvency regime is very sophisticated. Having the power to make such amendments ensures that the Government have a suitably limited power to ensure bank administration can continue to function effectively. Any changes needed will of course, as the hon. Gentleman notes, be subject to full parliamentary scrutiny through the affirmative resolution procedure.

Peter Bone (Conservative, Wellingborough)

The Minister has been very generous in giving way throughout the Committee. I understand the thrust of what he wants. We are talking about uncharted waters so things may need to be changed, but the problem with an affirmative statutory instrument is that it cannot be amended—the whole thing is either accepted or rejected. That is a problem for scrutiny. If an important issue is raised and we want to change the primary legislation, no one can amend it.

Ian Pearson (Labour, Dudley South)

I understand the hon. Gentleman’s point and I want to reassure the Committee that a lot of work has gone into producing part 3 of the Bill, including extensive consultation. We believe that we have an effective piece of legislation. This is a complex area and things change. There may need to be some minor adjustments to ensure that the bank administration procedure continues to be effective. In such cases, a statutory instrument is normally appropriate. The approach for the bank administration procedure is the same as for the bank insolvency procedure in part 2, where clause 109 provides the same powers in relation to bank insolvency procedure.

The hon. Member for South-West Hertfordshire talked about the powers under clause 65. Without going back to that debate, I remind him that the power to modify legislation in clause 65 is only when it can make the SRR powers more effective. It is a limited power and the powers in clause 143 are certainly very limited.

John Pugh (Liberal Democrat, Southport)

The Minister has mentioned amending, modifying, altering and tweaking, but clause 143 specifically says, “provide for an enactment”, which means that, in a sense, novel legislation will be produced, as well as tweaking and altering existing legislation. What does the Treasury have it in mind to provide in the fullness of time?

Ian Pearson (Labour, Dudley South)

As I said, the legislation in part 3 is effective as it stands. I do not have specific examples of where we want to improve the legislation at the moment; if I did, I would have included them in the Bill. When we make legislation, it is right that we have the opportunity to amend it in the future, if circumstances require it, without having completely new primary legislation. That is really what clauses 143 and 109 do for bank insolvency procedures. They provide for specific amendments to insolvency law, and the Secretary of State for Business, Enterprise and Regulatory Reform shares the powers because of his insolvency responsibilities. It would not be appropriate to use clause 65 for that purpose, which is why we need the powers in clause 143, as well as those in clause 109.

Clause 145

David Gauke (Conservative, South West Hertfordshire)

The clause states:

“The Treasury may by order provide for this Part to apply to building societies . . . as it applies to banks”.

In what circumstances would the Government consider it necessary to do so? Why, as a precautionary matter, do the Government not seek to set up a building society administrative procedure? Why not grasp the nettle?

Ian Pearson (Labour, Dudley South)

The approach to building societies set out in the clause is consistent with that taken in clause 117 for applying the bank insolvency procedure to building societies.

Detailed procedures for applying the provisions of the bank administration procedure to building societies have not been put in the Bill, principally because insolvency legislation is complex, and building societies have unique legal and commercial features that differ from those of banks. It will therefore be necessary to spend time ensuring that procedures are introduced that work for building societies and are fit for purpose.

However, it is envisaged that the new procedures for building societies will in practice be similar to the provision of the bank administration procedure, and a building society administration procedure would be used only in connection with a partial transfer of a failing building society’s business. The Government will consult on the necessary regulations, which will be laid before the House in due course. The legislation will be subject to the affirmative resolution procedure, allowing full parliamentary scrutiny.

Building on the strength and effectiveness of the existing insolvency regime, the procedures for building societies will also closely follow existing UK insolvency law and practice, and will be familiar to building societies and their professional advisers. I do not think that I need say more. I have explained why the procedures are not in the Bill, and have indicated the Government’s strong willingness to work with building societies and to consult on the regulations that will be presented to the House in due course.

Clause 147

Clause 154

Clause 234

David Gauke (Conservative, South West Hertfordshire)

I do not stand up merely to give you a rest, Mr. Gale. I wish to ask the Minister a brief question. I noticed the wording of subsection (2) only just before coming into the Committee. This question may be more for you, Mr. Gale. Is it possible for an Act to specify that a statutory instrument is not a hybrid matter? I understand that it is for the authorities of the House, with regard to a Bill, to determine whether it is hybrid. Is it possible for a Bill of this sort to determine that an order made under it is not hybrid and therefore does not involve the more complicated and perhaps cumbersome proceedings that apply in the case of hybrid instruments?

Roger Gale (Conservative, North Thanet)

That is probably a point of order. I am advised that that procedure is common in the House of Commons. In the House of Lords there is a separate procedure. I do not know if that helps the Minister, and he may comment if he so wishes.

Ian Pearson (Labour, Dudley South)

Mr. Gale, my briefing states:

“(at present only the House of Lords has such a procedure)”.

I am happy to stand by your ruling on that point of order.

Clause 239

Ian Pearson (Labour, Dudley South)

I beg to move amendment No. 33, in clause 239, page 115, line 5, leave out ‘section 231 extends’ and insert

‘sections [Registration of charges: Scotland] and 231 extend’.

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss Government new clause 6—Registration of charges: Scotland.

Ian Pearson (Labour, Dudley South)

New clause 6 is technical in nature and will enable clause 230, which relates to the registration of charges, to operate effectively in relation to Scottish floating charges. A recent Act of the Scottish Parliament, the Bankruptcy and Diligence etc. Act (Scotland) 2007, will undermine certain of the intended effects of clause 230 with regard to Scottish floating charges.

Hon. Members will recall that clause 230 provides that charges issued by a company in favour of a central bank shall be exempt from the requirement to register details of the charges that they grant at Companies House and at their own offices. Although that applies generally, in practice it will apply most often to charges granted by banks and building societies in order to secure lending from a central bank.

Part 25 of the Companies Act 2006 means that any company that receives liquidity assistance from the Bank of England and offers the Bank a charge by way of collateral has to register the fact that it has done so. The requirement to register charges at Companies House and on the companies register could provide untimely market visibility of the liquidity support that banks receive, so clause 230 removes the Companies Act requirement in the case of charges to central banks. Charges granted in receipt of normal commercial lending by other institutions will still have to be registered.

The Bankruptcy and Diligence etc. Act (Scotland) 2007 will, when it comes into force, undermine the provisions of clause 230 that relate to the Companies Act. The 2007 Act provides that a Scottish floating charge is not created until it has been registered on the Scottish register of floating charges so that the act of registration itself creates the charge. For companies whose floating charges are subject to Scottish law, therefore, such charges would need to be registered if they are to be regarded in law as having been created. Such registration would undermine the intent of clause 230.

There is also a possibility of legal ambiguity occurring, should the Government not take the steps laid out in the amendment. In particular, the courts could determine that the provisions of clause 230, as it stands, mean that the registration of charges shall not be possible, even where that is legally required in order for them to be created. That could lead to a situation in which Scottish institutions were not able to grant floating charges at all, and the possibility of such a legal interpretation reinforces the need for clarification.

New clause 6 addresses both difficulties and ensures that the provisions of clause 230, which has been scrutinised by the Committee, can operate throughout the United Kingdom. In consequence, Government amendment No. 33 would mean that clause 239 is laid with reference to Scotland only.

New Clause 3

New Clause 5

New Clause 6

New Clause 8

Ian Pearson (Labour, Dudley South)

I beg to move, That the clause be read a Second time.

As hon. Members will by now know, in October I set up an expert liaison group to advise Ministers on the development of the secondary legislation that will implement the Bill’s special resolution regime provisions. When I met stakeholders they requested that that group be formalised in legislation, and the new clause is a direct response to that request. The clause places the Government’s stakeholder consultation group, known as the expert liaison group, on a permanent statutory footing. It is designed to formalise the role of this important mechanism of Government consultation with the financial services industry. The expert liaison group will advise the Government on the development of secondary legislation related to parts 1, 2 and 3 of the Bill, such as the safeguards for partial transfers. I hope that the expert liaison group will also be able to help the Government review secondary legislation in the light of practical experience and developments in the financial markets.

The expert liaison group will advise the Government on the permanent secondary legislation relating to parts 1 to 3 of the Bill. It will not have input into any specific orders such as the stabilisation powers, compensation schemes, the resolution fund and third-party compensation orders, as consultation on such matters would be inappropriate due to the market-sensitive nature of such orders and the potential need to exercise these powers on a very urgent basis.

As hon. Members will know, the initial focus of the group is very much on secondary legislation on partial transfer safeguards and the group has already contributed significantly to the development of the proposals on which we are currently consulting. I look forward to the group’s continued engagement on this. While not mentioned in the new clause, there could be a role for the group in wider matters such as the development of the code of practice and, over time, reviewing the SRR in general. As I have said before, we will consult the expert liaison group over any changes made to clause 65 and its application to the Banking Bill to strengthen legal certainty around that vital power. The new clause provides for the expert liaison group to include representatives from the Treasury, the FSA, the Bank of England and the Financial Services Compensation Scheme. It also provides for the Treasury to appoint persons it believes are able to represent banks and persons who, in the Treasury’s opinion, have expertise in financial services and insolvency law. The Treasury will chair the group which is consistent with its role in formulating Government policy. I believe that the expert liaison group has already shown its value in advising the Government on some of the safeguards relating to the Bill.

David Gauke (Conservative, South West Hertfordshire)

As briefly as possible: one, we welcome this and two, will the minutes of the banking liaison panel be published?

John Pugh (Liberal Democrat, Southport)

Just to make a simple point again, does the new clause address the concerns felt within the banking industry? Looking at the list of people appointed, they are largely appointed by branches of Government, or thought to be okay according to Government. I would like the Minister’s assurance that the expert liaison group is not just another name for Government advisers under one guise or another but genuinely reflects the wider concerns of the financial services industry.

Ian Pearson (Labour, Dudley South)

I can certainly tell the hon. Gentleman that this is not just a group of Government advisers. The initial meeting that I attended with the British Bankers Association and other representatives, who are now members of the expert liaison group, did not give a clue that this was a cosy little grouping of Government appointees. That is not what we want to see. We want an expert liaison group that is representative of the industry, can provide us with technical import and help us initially with secondary legislation and potentially more widely.

With regard to whether minutes will be published, I do not see the expert liaison group as working in the formalised way in which minutes would be published on a website. It is more there to provide technical advice. If the group felt it wanted to publish minutes or a memorandum, I would not have a problem agreeing. The group may also be discussing market-sensitive issues that it would not wish disclosed. I would be happy to take that issue back to the expert liaison group and ask it whether it felt that such publication were necessary. If the group felt that that would help, I would not object to it.

New Clause 9

New Clause 10

New Clause 11

New Clause 12

New Clause 13

New Clause 17

New Clause 18

New Clause 19

New Clause 15

Sally Keeble (Labour, Northampton North)

I beg to move, That the clause be read a Second time.

Roger Gale (Conservative, North Thanet)

With this it will be convenient to discuss new clause 16—Mortgage possession proceedings brought by a bank—

‘At the beginning of Part 4 of the Administration of Justice Act 1970 insert—

“35A Mortgage possession proceedings

(1) Section 35B applies in the case of any mortgage possession proceedings brought by a bank (within the meaning of section 2 of the Banking Act 2008).

(2) Section 36 applies in the case of any other such proceedings.

35B Mortgage possession proceedings brought by a bank

(1) All mortgages securing a loan of money or other form of credit on residential premises shall be enforceable only upon the mortgagee obtaining an order of the court.

(2) A power of sale which becomes exercisable by a mortgagee of residential premises, whether under the mortgage agreement or by virtue of sections 101 to 103 of the Law of Property Act 1925, shall be exercised only following an order for possession granted by the court.

(3) Where a mortgagee under a mortgage of residential premises brings an action in which he claims possession, the court may exercise any of the powers in subsection (4) if it appears to the court that it is reasonable in all the circumstances to do so.

(4) In a possession claim of the kind specified in subsection (3) the court may, if it considers it just to do so—

(a) adjourn the proceedings;

(b) make the operation of any term of the order conditional on the doing of specified acts by any party to the proceedings;

(c) suspend the operation of any term of the order; or

(d) at any time before execution of a judgment or order, postpone the date of possession, or stay or suspend execution of the judgment or order, for such period or periods as the court thinks reasonable or until such time as the court subsequently directs.

(5) For the avoidance of doubt, the court’s powers under subsection (4) exist in relation to any mortgage or charge under which a loan of any kind is secured upon residential property, irrespective of the purpose for which the loan was taken out or of the relative priority of the loan or of regulation by any other enactment.

(6) On making an order under subsection (4), the court shall impose such conditions with regard to payment by the mortgagor of any sum secured by the mortgage or the remedying of any default as the court thinks fit.

(7) Notwithstanding the terms of any agreement, a mortgagee of residential premises shall be entitled to charge to the mortgagor the costs of and ancillary to proceedings for possession or for recovery of any sums due under the mortgage only if, and to the extent that, the court makes an order for costs in his favour.

(8) The remedy of foreclosure shall no longer apply to mortgages of residential premises.

(9) In this section “residential premises” mean any premises comprising or containing a dwelling.

(10) Nothing in this section affects the power of the court to make a time order or other orders under sections 129 to 140B of the Consumer Credit Act 1974 in relation to agreements regulated by that Act.”’.

Sally Keeble (Labour, Northampton North)

New clause 15 deals in particular with the rights of tenants in properties that are then repossessed. The new clause ensures that they have some rights in the process, rather than, as sometimes happens, their being left completely unaware of what is happening, pretty much until the bailiff comes to evict them. I am particularly grateful to Shelter, which has repeatedly raised that concern on behalf of people it deals with.

The new clause gives discretion to the courts to delay repossession for up to 90 days, to look at the circumstances of children living in the property, and to consider the nature of the tenancy. It also gives tenants a right to be heard at the hearing—an important right, which they do not have now. The new clause also sets out in more detail the type of notice that tenants should be given and the frequency with which they should be informed of what is happening to their home. That is particularly important now, because one of the sectors affected by the credit crunch is the buy-to-let market. A lot of private sector rented property in this country belongs to landlords who own just a few properties and live on the rental income. That sector is hard hit and its tenants are particularly vulnerable to action that landlords might take.

The new clause is particularly important now for a second reason. Often we think of private sector rented housing being entirely a private sector function, but increasingly that is not the case. Because of the shortage of social housing, a large number of what would normally be social tenants have been diverted into private sector rented property, through the options interview process, while still living on housing benefit. There are real concerns, therefore, about the level of resources available to some tenants in private sector rented properties and about their ability to move around and to find alternative housing.

I come across that problem repeatedly, as I am sure do a good number of other hon. Members. During advice surgeries, I have met people living in private sector rented properties whose landlords have defaulted on their mortgages. As a result, their properties have been repossessed and they have been ordered to leave at extremely short notice. The point of the new clause is not to prevent repossessions where people have defaulted, but to ensure that when it happens, it happens in an orderly fashion. The new clause would also ensure that, if a court orders a delay, it has the power to determine rental levels and to put in place arrangements for tenants to receive notice of what is happening and to put their case in court, for the needs of the household, especially children, to be considered and for the court to have some regard to other housing in the area.

I shall give an example of what can happen in the absence of an orderly wind-down. I was visited recently by a constituent of mine who had a tenancy in which the rent was inclusive of council tax. She was booted out at extremely short notice, but arrangements were not made for the proper winding down of the accounts and payments. One year later, after she had settled in to a new property, she was presented with a bailiffs’ bill for more than £1,000, which was the estimated cost of recovering one month’s council tax of £195. The landlord should have paid it, but had not. No process had been in place for sorting that out, so she was simply dumped with the bill. A process such as the one in the new clause would ensure that instead of just giving consideration to the owner of a property being repossessed, proper regard would also be given to those living in it. Proper arrangements should be in place to protect them from some of the worst excesses of the current system.

John Pugh (Liberal Democrat, Southport)

I speak to new clause 16, which stands in my name and that of my hon. Friend the Member for South-East Cornwall, but I shall also say something about new clause 15, which seems to be an attempt to impose sensible regulation on the timing and manner of mortgage repossession where tenants are concerned. It sets out some very legitimate social concerns that should be considered formally by the courts. I have just one concern about such an amendment, although to some extent the hon. Lady has responded to it already. We do not want to create a toolkit for delay, evasion or the perpetuation of unsustainable situations by putting off the inevitable. In such circumstances, a complex series of relationships will have been entered into, and they should not be unpicked precipitously or without care and thought.

To some extent, the same applies to new clause 16. Proposed new section 35B(1) and (8)—in many ways the shortest and most comprehensible subsections of what is quite a long new clause—address the nub of the matter. The new clause has been developed over time. I am not saying that it is business in progress, but obviously it could stand to be revised in the light of any critique from the Minister. However, it addresses an important consideration: we all agree that repossessions by banks—this Bill deals only with repossessions by banks—should take place in a considered way and by application to courts. It is perfectly possible for that not to happen and for the banks simply to foreclose under common law, for people not to know their rights or to be advised on them inadequately, and for there to be no considered and careful court process. That can be unfortunate and lead to a bad outcome, particularly when we remember, or have it brought to our attention, that many mortgage repossessions are prompted by strained personal circumstances, such as divorce. That kind of thing does not happen often. Where such big and traumatic events do occur, when situations were entered into with care and consideration, the exit should equally be marked with care and consideration.

If there is the option of an exchange of letters and the banks using powers to foreclose on the deal, which is not illegitimate and is allowed at the moment, things may not turn out perfectly or as we would wish, and will not reflect the balance of interests between the parties adequately. I think that the measure has the support of Shelter; I stand to be corrected on that, but I am fairly confident that it does. It closes a loophole in British law, which most of us are not aware of in the first place. It would be better if it was not there.

David Gauke (Conservative, South West Hertfordshire)

I am grateful to the hon. Members who proposed the new clauses; they have highlighted an issue of growing concern. We know that the Council of Mortgage Lenders has predicted 45,000 repossessions this year and there are concerns that the number might rise next year. There are worries that the balance between the rights of mortgagees and mortgagors is inappropriate, particularly regarding the important issue of repossessions occurring without a court order, which was raised by the hon. Member for Southport.

No doubt, the Minister will give us his assessment of whether the new clauses would achieve their objectives. Whether the Banking Bill is the appropriate vehicle for addressing these matters is, again, an issue for debate. The issues touched upon by the new clauses are important, and given the state of the economy and the likely level of repossessions over the months ahead, it is right that we have the opportunity to debate these matters at this stage. All serious politicians will give a great deal of thought to them in the months ahead.

Ian Pearson (Labour, Dudley South)

The Government welcome the opportunity to discuss the important issue of the protection of home owners in arrears and facing repossession proceedings. We have acted on it in a number of areas in recent weeks and months. I stress that we want all borrowers to be treated fairly and, particularly during difficult times, we want to ensure that appropriate actions are taken.

The two new clauses both concern repossession hearings. New clause 15 concerns the treatment of tenants in mortgaged properties subject to repossession. It aims to protect tenants and licensees who do not have a right to remain when a lender takes possession. Those occupiers should be allowed adequate time to make alternative arrangements. The key provision of the new clause is that the court should have discretion to allow the occupier of such a property up to three months in total to make alternative arrangements, before the date set by the court for the possession order to take effect. The provision is supported by others for notices to be served before and during possession proceedings.

I understand that, in practice, the proposal may be little different from the present law, although it could help to clarify it. At present, an occupier should receive at least 14 days’ notice of the possession hearing and may apply to the court to be joined in the possession action. The courts already have the power to allow such occupiers a reasonable amount of time to move out if their circumstances justify it. That is achieved without the additional expense and trouble that would be caused by the proliferation of notices that appear to be suggested in the amendment.

We need to ensure that the interests of ordinary families caught up in other people’s repossessions are properly protected. The Civil Procedure Rule Committee, which is the statutory body responsible for the development of rules of court, will be considering what notice of a mortgagee’s possession proceedings should be given to occupiers. The committee is the appropriate forum in which to decide whether further procedural protections are necessary.

The new clause provides that the occupier can be required to pay the lender for the use of the property during the relevant period. That is only reasonable, and it is broadly similar to the way tenants would be treated under the current law. I recognise that there are issues raised by the new clause tabled by my hon. Friend the Member for Northampton, North and, as I indicated, we are actively considering them.

I turn to new clause 16. As I said at the outset, the Government wish to see all borrowers treated fairly, and a key element is that lenders treat repossession as a last resort. At present, lenders seeking to evict borrowers from residential property will normally go to court to get a possession order. In those cases the court has power to delay or prevent the making or operation of the possession order, where it appears that the borrower can pay off the arrears within a reasonable time, while not falling further behind with future payments. That limitation recognises that a mortgage is a debt and ultimately, if we are to ensure that there are lenders willing to provide funds to home owners and home buyers, the debt has to be repaid.

The new clause would remove the remedy of foreclosure from residential properties. I understand that the remedy is little used but we need to consider properly what the implications of closing it off would be, before deciding that it can be abolished. The new clause would also restrict the ability of lenders to recover the costs of possession proceedings and proceedings to recover money, by making such recovery subject to the precondition of obtaining a court order.

I am sure that we have all received letters from constituents about excessive costs charged by mortgagees and added to the mortgage debt, so I understand the concern driving the new clause. However, if it is the intention that lenders may not recover their costs without a court order, we need to be careful that the provision does not increase those costs by requiring court action in every case. There is a danger of generating unnecessary litigation for the parties and the courts, which could feed through into higher borrowing costs to the detriment of borrowers generally.

We need to look at all the issues together. The new clauses address only the actions of banks, but clearly building societies and other lenders need to be considered. In relation to new clause 16, we also need to consider carefully how any restriction on the power of sale will interact with existing mortgages, where the power of sale forms part of the contractual rights of the lender. The Justice Secretary is actively considering whether further action should be taken in relation to repossession cases. We are committed to working with lenders, regulators and the judiciary to ensure that timely action is taken in response to problems.

The Government have already taken specific action. We have made clear our concern for families in financial difficulty and facing repossession. We are actively working with lenders, regulators and the judiciary to ensure that borrowers are treated fairly. In 2004 the Government extended the scope of Financial Services Authority regulation to cover mortgages. FSA regulation ensures that borrowers are afforded important protections and have appropriate means of redress. On 22 October the Master of the Rolls approved a new protocol for possession proceedings. It is intended to ensure that lenders and borrowers use every effort to ensure that there is a genuine attempt to find other solutions.

The protocol will come into force from tomorrow, and we will continue to provide advice and assistance through the courts and other agencies to individuals with mortgage payment problems. We will consider the policy issues underlying the amendments, and with that assurance I hope that my hon. Friend will withdraw the new clause.

Roger Gale (Conservative, North Thanet)

Dr. Pugh, do you want to respond?

John Pugh (Liberal Democrat, Southport)

I thank the Minister for his thorough and thoughtful response, which recognised the issue and dealt with it, but indicated some of the work that may need to be done in an amendment to address it satisfactorily. I shall read carefully what he said and consider the details, but I shall not press the new clause, which was a probing provision and has done exactly what it should do.

Sally Keeble (Labour, Northampton North)

I very much welcome the commitment to consider the issues, and the concern about people who face repossession of their homes and tenants who are living in privately rented properties subject to repossession. However, the explanation that has been provided is wide of the reality facing many people. If a social tenant receives notice only 14 days before the hearing that their landlord is being taken to court, and the next step is to be told that the bailiffs are coming round to evict them, it does not give them much opportunity to try to join in the proceedings or to tell the court what is happening. The court making the decision may not have a mechanism for the tenant even to be made aware of what is happening with the eviction, and might unwittingly make a vulnerable large family with a number of children homeless when there is not much other housing around.

I hope that the review will be careful, and that I and others with an interest can have input in some of the discussions so that we can decide what best practice should be. However, I completely recognise that this is probably not the time or place to press the new clause to a vote, so I beg to ask leave to withdraw the motion.

New Clause 20

John Pugh (Liberal Democrat, Southport)

I beg to move, that the clause be read a Second time.

In some ways, the new clause goes to the heart of the Bill, which is about remedies for rescuing banks. We all agree that collapsing banks are not a good thing, but it is possible that their collapse may not create a threat to the economy. There must be a reason for interfering in a bank’s misfortunes, and powers are being taken in the Bill to deal with those misfortunes, but for specific purposes.

One purpose might be that the bank is just too large to be allowed to fail, and its destiny may be the main or exclusive reason for worrying about it. More significantly, people talk about the interest not just of the bank, but of the economy beyond the bank and the various clients to whom it lends. Clearly, it is possible that when a bank is rescued it may recapitalise and save itself, and then punish its clients by calling in credit or issuing new loans—the reality is confronting us at the moment. Anecdotal and real evidence suggests that the hardening of the banks’ stance has been simultaneous with the Government’s charity to them. What we do to recapitalise banks may not achieve the objectives that Governments have in mind, and the banks may act contrary to what the Government intend.

One solution employed by the Chancellor is simply to gather bankers together and give them a good telling off. Obviously, that public pillorying will have some effect, but it may not have a radical effect or the strength that people desire. It does not by itself create an obligation. It is simply a telling off.

New clause 20 would put into the Bill an explanation of what we have in mind when we capitalise a bank, which is that to some extent the recapitalisation process should coincide with wider economic stability. If the banks receive help they must have regard to advice from the Treasury and thus do precisely what they are expected to do and what they are clearly not doing in many circumstances at present.

To give a personal critique of my own amendment, one might question whether it is tough enough because it does not create arrangements to monitor whether banks are doing what the Treasury thinks they should not be doing, nor does it create a series of penal sanctions if they fail to have regard to Treasury advice. When framing the new clause, which is entirely in place within the Bill, we were torn between two alternatives.

First, it is not a good idea for the Treasury to micro-manage the lending policy of all banks. We accept that. The Treasury, qualified though it is, is not party to all the commercial transactions that banks are involved in and ought not itself to run the banks day to day. Equally, there is clear and evident fear that something goes wrong if banks are left to their own devices. There are thus two unacceptable alternatives: micro-managing banks is bad but so is leaving them to their own devices.

The new clause tries to address both concerns as delicately as possible. One could point to the absence of sanctions and simply state in the Bill that banks can still ignore the advice just as they can ignore the Chancellor, although it is harder for them to do that. If the provision was in the legislation, it would be very much part of recapitalisation—it would be incorporated in the recapitalisation process. It would still be legally possible for banks to flout the law and to ignore the spirit of the law, but it would be harder to do if the Bill made perfectly explicit the basis on which they had received funds from the state in the first place.

I shall not press the new clause to a vote. I will listen to the Minister’s response and see if he can give a reason why we should not proceed with it. The proposal is an attempt to solve a genuine problem. A scheme will be enshrined in law; it has a definite political objective—to recapitalise banks in order to stabilise the economy—but nothing in the Bill obliges banks to consider the wider interests of the economy or to heed the advice of the Treasury, which allowed them to have the funds in the first place.

David Gauke (Conservative, South West Hertfordshire)

I am grateful to the hon. Member for Southport for tabling, speaking to and, to some extent, demolishing new clause 20.

John Pugh (Liberal Democrat, Southport)

I pre-empted criticism.

David Gauke (Conservative, South West Hertfordshire)

I have some slightly different criticisms that the hon. Gentleman has not pre-empted. I appreciate that he tabled the new clause in a probing manner. Were he to press it to a vote we would not support it for one rather important reason. If it is necessary to raise issues of public policy, remuneration, lending or dividend policy in a bank that has been recapitalised, the place to do so is in the original agreement, be that the placing offer, the subscription agreement or whatever. It is appropriate to reach agreement at that point, rather than to claim subsequently, notwithstanding agreements that have been reached, that there is a provision that banks must have regard to Government policy, whatever it might be. That would create an enormous degree of uncertainty, make recapitalisation through the process the Government used last month very unattractive for banks and do nothing for the long-term situation. Those things should be addressed at the time recapitalisation is agreed, when there is agreement between the parties.

None the less, it is helpful that the new clause has been tabled and that we have an opportunity to debate it, because it highlights some of the Government’s difficulties in the area. When the announcement was made on 8 October and confirmed on 13 October, much was said about lending policies, for example, and about returning to 2007 levels. The Government appeared to be in a complete muddle about what that actually meant, so we and others pursued the matter and eventually reached the position that availability of loans would be at 2007 levels, but not the volume of loans. That certainly was not clear initially and the announcement was spun by the Prime Minister and the Chancellor to suggest that we would be forcing banks to lend at 2007 levels. We should at least have some clarity on that point.

This morning the Government published a written ministerial statement on the bank recapitalisation scheme, and three points are salient to new clause 20. Paragraph 3 states:

“If the Government is to provide capital, the issue will carry terms and conditions that appropriately reflect the financial commitment made by the taxpayer, including in relation to dividend policy, remuneration, lending policy and wider public policy issues.”

As I understand it, the statement relates to future recapitalisations and not to those that have already occurred. Reference was made in the statement to RBS, Lloyds and HBOS, which have already participated.

I do not know whether paragraph 3 is an admission that, in essence, with regard to previous recapitalisations, the Government have not properly addressed the wider public policy issues, and that the terms and conditions reached previously have not fully addressed that point—the issue the hon. Member for Southport sought to address. Do the Government feel that they sufficiently achieved their objectives in reaching terms and conditions with RBS, Lloyds and HBOS to enable them to achieve their wider public policy concerns? I detect an admission of failure in paragraph 3.

Paragraph 4 appears to indicate a change in policy on the price the Treasury is prepared to pay. Paragraph 5 is interesting because it appears to indicate a change of approach for the coupon for preference shares. That has attracted a good deal of controversy, and concern that the level of 12 per cent. for the original recapitalisation was proving burdensome. The reference to “prevailing market conditions” suggests that the coupon may be at a somewhat lower level.

It might be helpful for the Committee if the Minister clarified precisely what the written ministerial statement is about in the context of debate about what has already occurred with regard to banks rescued under a recapitalisation scheme and whether the Government have sufficiently achieved their public policy objectives, particularly in the context of the confusion over lending. I am sure that the Committee would be grateful for further clarification from the Minister.

Ian Pearson (Labour, Dudley South)

I understand that the purpose of the new clause is primarily to stimulate debate and probe the Government. Technically it would apply to the Banking (Special Provisions) Act 2008, the recent recapitalisation scheme and any stabilisation powers under the Bill, and would require them to have regard to any policy statement by the Treasury. Although banks will have regard to policy statements by the Treasury and other Departments, commercial institutions must be able to make decisions on a commercial basis.

If a bank gets into difficulties, the authorities will want to take action under the special resolution regime to preserve or enhance financial stability, or to protect public funds. We have recently taken such action, but it is not designed to replace normal commercial decision making. It would not be in the long-term interests of the sector or its consumers if the authorities were allowed to override all commercial decisions. I believe that we have the right mechanisms to ensure that the Government have sufficient influence as may be necessary in specific circumstances.

If we take a bank into temporary public ownership under the special provisions Act, we have the powers of a sole shareholder to exercise control over the company. An example of that is the competitive framework agreed between the Government and Northern Rock. Similar mechanisms will apply to banks taken into temporary public ownership or transferred to a bridge bank under the stabilisation powers in the Bill, and the Bill provides for further provisions regarding the management of banks under public control to be put into the code of practice.

We have the power to set the terms on which banks that have been recapitalised can obtain recapitalisation funding. As part of the recapitalisation, the Government have agreed a range of commitments with the banks supported by the recapitalisation scheme. The hon. Member for South-West Hertfordshire seemed to suggest that it had been a muddle. I entirely refute that. He will be aware of the conditions that have been imposed on banks accessing the recapitalisation scheme—those conditions have been published. It is important that over the next three years banks maintain the availability of competitively priced lending to home owners and small businesses at 2007 levels, and actively market it. The hon. Gentleman will also be aware of the conditionality on the remuneration of senior executives, the support for schemes to help those struggling with mortgage payments to stay in their homes, and the right for the Government to agree with boards both the appointment of new independent non-executive directors and the dividend policy, which was also part of the conditionality.

David Gauke (Conservative, South West Hertfordshire)

There are conflicting reports about the dividend policy. The written ministerial statement says that the completed documents are available in the Library. Will it not be possible to redeem preference shares until after five years, and will dividends not be payable on ordinary shares until the preference shares have been addressed?

Ian Pearson (Labour, Dudley South)

I do not have an immediate answer. I understand that dividends cannot be paid until the preference shares have been paid off. I think that for tier 1 capital purposes, preference shares have to be held for five years. Presumably, it would be up to the banks to come back with a refinancing arrangement that would be acceptable to the Government. However, I imagine that we would have no objection if preference shares were paid off earlier, as long as adequate tier 1 capital was available in the banks concerned. I shall consider the point that the hon. Gentleman has raised, however, and if I can provide further clarification, I shall.

David Gauke (Conservative, South West Hertfordshire)

I intervened partly to enable the Minister to provide that further clarification. I asked the question because there have been conflicting reports, and the uncertainty is not helpful. If the Minister can provide clarity this morning, it will be welcome.

Ian Pearson (Labour, Dudley South)

I am not sure that I can provide further clarification this morning, but I shall bear in mind the hon. Gentleman’s comments and see whether I can provide it very soon. As I said, my understanding is that normally preference shares should be held for five years, and that has been agreed. Future transactions might take place whereby somebody could take over the preference shares and ensure sufficient tier 1 capital. However, I shall get back to the hon. Gentleman about that.

The recapitalisations that have been taking place and have already been announced are consistent with paragraph 3 of the written ministerial statement to which the hon. Gentleman referred. I have just received some helpful clarification from officials who confirm what I was saying: the Treasury will permit and, indeed, encourage early repayment of the preference shares it holds at a price equal to 101 per cent. of par during the first six months following closing and funding of the equity offer, and thereafter at a price to be negotiated based on prevailing market conditions. Such repayment would be subject to FSA approval. I hope that provides the hon. Gentleman with clarification.

As Members will be aware, the Chancellor recently announced the creation of United Kingdom Financial Investments Ltd—UKFI—to manage the Government’s interests in the recapitalised banks and, in due course, Northern Rock and Bradford & Bingley. He reconfirmed our commitment to managing the Government’s investments on a commercial, arm’s length basis and not to interfere with day-to-day management decisions. The mechanisms that we have put in place ensure that the relationship between the banks and the Treasury is appropriate for the conditions in which we find ourselves.

I hope that the hon. Member for Southport will find my answers sufficient for him not to press new clause 20 to a Division, but if he does, I invite my hon. Friends to vote against it.

John Pugh (Liberal Democrat, Southport)

I hope I did not give the impression that I moved the new clause simply as a debating point. We are in a serious situation. How often do we hear, during Treasury questions and on other such occasions, that the banks are not passing on the money to those who ought to get it, including businesses that require credit lines to remain open? We all know that we need to do something about the situation. Clearly, a simple telling-off from the Chancellor will not be sufficient. The toolkit that Ministers have outlined is not working, otherwise the telling-off would not have been necessary, so we need to find other measures.

I was suggesting a light-touch but flexible measure. Perhaps it is too light, but it certainly allows for flexibility in legislation. That was what I was thinking of when I framed it in that way, rather than the suggestion from Conservative Members that the agreement gets hammered out at the start, so that the banks know exactly what the legal conditions on their future lending policy are. I am attracted to that alternative, but there is a weakness in it.

We are talking about emergency situations in which bankers who have moved serious sums of money need a reasonable view of where the future of their bank lies. If there is protracted negotiation not only about the sum being lent to them, but about what they are to do with every pound that they are given, that might lead to the bank failing because the process is not concluded in time.

There might be a cross between the Conservative suggestion and my proposal that enables us to amend the legislation earlier, so that we can incorporate economic objectives more rigidly and more formally into the legislation. However, there is a vacuum and, therefore, a clear need to do something. Having heard a critique of my new clause and the suggestion that it may need toughening up, I shall go away and think about how it could be toughened up.

David Gauke (Conservative, South West Hertfordshire)

Is the hon. Gentleman not worried that his new clause, even without toughening up, would create such uncertainty that banks would try even harder not to accept Government funds and, as Barclays Bank has done, seek finance from alternative sources? That is the route that the hon. Member for Twickenham (Dr. Cable) was so cross about.

John Pugh (Liberal Democrat, Southport)

That would be a concern if every bit of Treasury advice on every subject that crossed the Chancellor’s mind had been incorporated and taken into account by the banks. The new clause says

“for the purposes of this section”.

That means strictly for the purpose of recapitalisation. There would not be uncertainty because decrees could be issued on interest rates and so on. As long as we narrow the scope of the Treasury advice that is relevant to the legislation, we can produce an improved new clause which, I hope, Members will see on Report. For now, I beg to ask leave to withdraw the motion.

Ian Pearson (Labour, Dudley South)

On a point of order, Mr. Gale, I wish to thank you, Mr. Hood and Mr. Illsley for the excellent and expeditious way in which you have chaired the Committee. I also thank the Clerks, Mr. Sandall and Mr. Hillyard, for their contribution. I thank the hon. Members for South-West Hertfordshire and for Fareham, from the official Opposition, for the constructive way in which they dealt with proceedings. I also thank the hon. Members for Southport and for South-East Cornwall, from the Liberal Democrats, for the way in which they presented their proposed amendments. I thank my colleagues and all members of the Committee for the 17 sittings that we have undertaken to scrutinise the Bill.

The Bill is an important piece of legislation and it is right that it has undergone such thorough scrutiny over recent weeks. As we progress to Report, I believe we have improved the Bill where necessary. In the light of some of the contributions made during these proceedings, I have endeavoured to think again, and Government amendments will be tabled on Report to reflect the debates in Committee. It simply remains for me to thank you and your colleagues again, Mr. Gale. I wish the Bill well as it moves forward.

Mark Hoban (Conservative, Fareham)

Further to that point of order, Mr. Gale. I join the Minister in thanking you, and your co-Chairmen, Mr. Hood and Mr. Illsley, for the way in which you have supervised our proceedings over the 17 meetings. I am sorry that we have not made the 18th this afternoon, although that might be a relief to all those involved. I also thank the Clerks, Mr. Sandall and Mr. Hillyard, for their help, on which Opposition Members rely in order to get amendments into a form capable of being debated.

This is the first time that I have taken part in a Bill with evidence taken at the start. One of the joys of being Treasury spokesman is that one misses out on such things on the Finance Bill. The evidence session helped to set the framework for debate in Committee and highlighted some of the important issues, which we were then able to discuss.

As well as thanking my hon. Friends for their work, I want to highlight the extent to which the Committee benefited from the expertise brought by the four members of the Treasury Committee, who have wrestled with the issue for 18 months and continue to do so. Their expertise, interest and experience contributed enormously to the proceedings. The Minister and the Exchequer Secretary engaged in extremely constructive debate. The Minister shed light on the operation of the Bill and we have taken away thoughts that we will seek to explore again on Report. It has been a constructive process. I know from talking to outside parties that they appreciated the efforts of the Committee and the Minister in particular to set out in detail how the Bill will work in practice.

John Pugh (Liberal Democrat, Southport)

When selected to serve on the Committee, I thought the Bill might be dull. It has not always been fascinating, but it has been highly technical and important. It has been a sharp learning curve for me. I was helped by the tenor of the meetings, which has been measured and thoughtful throughout, for which all Members—experts and non-experts—should take credit. There are those in the room who are expert—certainly more so than I am. Credit must also be given to the Chairmen, who have kept us going in a businesslike and totally fair way. The Clerks, too, have been very helpful and efficient and deserve our sympathy because they have endured every one of the 17 meetings, as has the Minister.

Stewart Hosie (Scottish National Party, Dundee East)

I, too, thank you, Mr. Gale, your co-Chairs and the Clerks. It is worth putting on the record that when representing a minority party on Committees, I sometimes do not make a huge contribution. Once those on the Conservative Front Bench have read out briefing notes from outside bodies and those comments have been picked up by the Liberal Democrats, there tends to be little left for me to say. However, I hope the contribution has been useful, and when we get to Report and beyond, there may yet be some amendments and changes that can improve the Bill still further.

Roger Gale (Conservative, North Thanet)

As the Committee has been hopelessly out of order for the past five minutes or so, let me compound the situation by adding my own thanks to the Officers of the House, the constabulary and those others without whom our work would be impossible. May I also express my thanks to the Committee for the exemplary courtesy and good humour with which these proceedings have been conducted? The Chair appreciates it, and I only wish the general public had the opportunity to see and appreciate it. It is not widely reported, but it is a very good thing.