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Building Societies (Funding) and Mutual Societies (Transfers) Act 2007

Summary and Background

5.The purposes of the Act are to liberalise the wholesale funding limits on building societies, to place building society members on a par with creditors on a winding up, and to make it easier for mutual societies transfer their business to subsidiaries of other mutual societies.

6.The Act has three aims. First, to increase the proportion of wholesale funding building societies may use. At present, building societies must raise at least 50 per cent of their funds from shares held by individual members of the society. The Act allows the Treasury to change that requirement, so that societies may raise up to 75 per cent of their funding from wholesale sources. This is intended to give societies access to cheaper funding and create a more level playing field with banks. However, the retention of at least 25 per cent individual member funding will mean that this source of funding will remain significant.

7.Second, to alter the position on the distribution of assets on dissolution or winding up of a building society, to give shareholding members of the society equality with creditors. At present, creditors have priority over members in a winding up. A change to the funding limit would increase the risk to members in an insolvency, as any available funds would first be used to satisfy a larger pool of (wholesale) creditors. This second change is intended to reduce that risk, by improving the position of building society members in an insolvency.

8.Third, to make it easier for a building society, friendly society or industrial and provident society to transfer its business to a subsidiary of another such society or of an EEA (European Economic Area) mutual society. A subsidiary for these purposes is a company or other body corporate controlled by another mutual society. The Act allows the Treasury to modify the statutory provisions which apply to such transfers, to make them less onerous. This is intended to make it easier for mutual societies to acquire other mutuals, and to develop group structures. The changes will ensure that certain safeguards, such as members’ rights and safeguards against demutualization, remain in place.

9.The changes to the relevant legislation to give full effect to the policy will be made by the Treasury in secondary legislation. This will allow the Treasury to consult mutual societies and other interested parties before making any substantive changes to the legislation.

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