The Building Societies (Limits on Transactions with Directors) Order 1995

Explanatory Note

(This note is not part of the Order)

Section 64(1) of the Building Societies Act 1986 prohibits a building society from entering into arrangements whereby a director or a person connected with him acquires non-cash assets of the requisite value from the society, or whereby the society acquires non-cash assets of the requisite value from a director or connected person unless in either case the arrangement is approved by a resolution passed in a general meeting. Section 64(2) fixes the requisite value for that purpose at £50,000, or in the case of societies with reserves less than £500,000, ten per cent. of these reserves, or £1,000, whichever be the higher. Section 64(3) enables the Building Societies Commission, by order made with Treasury consent, to vary these amounts. This Order increases the figure for the maximum requisite value from £50,000 to £100,000.

Section 65 of the Act prohibits building societies from entering into certain other transactions with directors or connected persons, unless the transaction is approved in general meeting or subject to other exceptions, notably that a society may make loans in the ordinary course of business and on terms not more favourable than it would offer to an unconnected person, or in the case of an executive director, on terms similar to those it offers to employees, provided that the loan is for the purchase or improvement of a dwelling house used or to be used as the director’s only or main residence and provided that the loan does not exceed £50,000. Subsection (8) enables the Commission, with Treasury consent to vary the sums specified in the section. Article 3 of the Order with the Schedule increases the limits in the section, making them comparable with limits in the Companies Acts. The amount of the limit on preferential loans to an executive director is increased to £100,000.

A review of the cost of compliance with this Order has been undertaken and the resulting compliance cost assessment may be obtained from the Secretary, Building Societies Commission, 15 Great Marlborough Street, London W1V 2LL.