45.Under this section, the Treasury may, by order, make supplementary, incidental, consequential or transitional provisions for the purposes of the Act, or in consequence of any provision made by or under it (subsection (1)).
46.In particular this power may be exercised to disapply any statutory provision or rule of law, to modify any statutory provision, or to dissolve any body in relation to which an order has been made under section 3 or 6 (subsections (2) and (3)(c)).
47.It may also be used to impose a moratorium on the commencement or continuation of any legal process, such as proceedings for the winding-up of an institution which is the subject of an order under section 3 or 6 (subsection (3)(a)). Exceptions may be made to such a moratorium for specific instruments or transactions, or where the leave of the court, or the consent of the Treasury or the Bank of England, is obtained (subsection (3)(b)).
48.This power may also be exercised to exempt directors of any relevant deposit-taker, or of any of its group undertakings, from liability in connection with acts or omissions in relation to the deposit-taker, or group undertaking, which are taken or omitted to be taken in their capacity as a director (subsection (3)(d)).
49.Any order under this section may make provision for the payment of compensation to persons affected by it (subsection (3)(e)).
50.This section confers general powers for orders and regulations under the Act to include supplemental, incidental, consequential or transitional provisions. It also provides that orders under sections 5, 7, 8(6) and 11 must be made under the affirmative resolution procedure, while all other orders and regulations under the Act are to be made under the negative resolution procedure.
51.Orders made under sections 3, 4, 6 and 12 of the Act may provide for any provision to have retrospective effect from a specified time on the date of a statement by the Treasury of their intention to make such an order in relation to a deposit-taker, or on the date on which any transfer was made under a previous relevant order. The order may also nullify the effect of transactions or events that took place after that time.
52.It might be necessary to make retrospective provision in a case where a transfer order had been made under section 3 and then a subsequent order under that section made supplementary provision in connection with the transfer under the previous order. It might be desirable for the supplementary provisions to have effect as from the date of the transfer.
53.The power under paragraph 4 of Schedule 1 to nullify the effect of instruments might be used retrospectively where, for example, announcement of the intention to use the power triggered rights to terminate loans to a deposit-taker or other relevant contracts.
54.Tax provisions made under section 10 may have retrospective effect to a time three months before Royal Assent. This would enable any such provisions to be backdated to a reasonable time before Royal Assent, to deal with the tax consequences of any transactions taking place in that period.
55.This section defines certain terms used in the Act.
56.“Financial assistance” includes assistance provided by way of loan, guarantee or indemnity, and also assistance provided by way of a transaction involving the sale and repurchase of securities. This kind of transaction is a form of lending between institutions.
57.“Securities” includes a range of instruments in addition to shares. These are mainly debt instruments and instruments which form part of an institution’s “own funds” for regulatory capital purposes (subsections (1) and (2)). Deposit-takers are required to hold a certain amount of this type of capital, for prudential supervision purposes, to ensure their solvency. In certain circumstances it may be appropriate to acquire these types of instrument by means of a transfer under section 3 or 6.
58.Subsection (4) is designed to ensure that, if an order is made under section 3 or 6 in relation to an institution, the powers in the Act can be exercised in relation to that institution even if it is no longer an authorised deposit-taker.
59.Subsection (5) provides that a group or subsidiary undertaking of a deposit-taker includes any undertaking which was a group or subsidiary undertaking of that deposit-taker immediately before an order was made under section 3 or 6 in relation to that deposit-taker.
60.Subsection (6) defines a company wholly owned by the Bank of England or the Treasury for the purposes of the Act. Such a company is either one of which the Bank, or a nominee of the Treasury, is the sole member, or a wholly-owned subsidiary of such a company.
61.This section provides for any expenditure incurred by the Treasury in the following connections to be paid from money provided by Parliament:
in connection with the provision of financial assistance to any body in relation to which a section 3 or 6 order is made, or to any person to whom a transfer is made;
in connection with the giving of an indemnity to the directors of a body in relation to which a section 3 or 6 order is made, to the directors of any body to which a transfer is made, or to the directors of a group undertaking of such a body;
in connection with the giving of an indemnity to the Bank of England in relation to any lending or other financial assistance to such a body;
in connection with the giving of an indemnity to a valuer appointed under section 9; or
otherwise incurred by virtue of the Act.
62.Subsection (3) provides that it is immaterial whether the indemnity or arrangements mentioned in subsection (1) were given or put in place before or after the passing of the Act.
63.In line with accepted practice set out in Managing Public Money(3), a Department which takes on contingent liabilities should report these to Parliament at the earliest opportunity and should consider backing such liabilities with statutory cover. This is because Parliament has the same interest in any expenditure which arises because of a contingent liability as in any other form of expenditure.
64.The Treasury announced on 20th September 2007 that it would put in place guarantee arrangements for existing deposits in Northern Rock plc. The Treasury made a further announcement on 11th October, explaining that it would extend the guarantee arrangements announced on 20th September. It also announced that it had agreed to indemnify the Bank of England in respect of facilities advanced by the Bank of England and any other liabilities that might arise from the Bank of England's role in the extended guarantee arrangements and additional facilities. On 18th December the Treasury announced that the guarantee arrangements were to be extended to a number of unsubordinated wholesale obligations. The full text of all these announcements can be found on the Treasury website.
65.Parliament has been kept informed about these announcements. The contingent liabilities described in these announcements have not crystallised.
66.The Treasury may also wish to provide financial assistance while a deposit-taker in public ownership in a variety of ways including – but not limited to – providing grants, loans or guarantees to the company, indemnifying directors, or giving a capital injection.
67.This section provides the necessary statutory cover for the existing and possible future financial assistance provided to Northern Rock plc. It would also cover financial assistance provided to any other authorised UK deposit-taker affected by the Act.
See Annex 2.5 of Managing Public Money, published on the Treasury’s website www.hm-treasury.gov.uk.