Bank insolvency order
Section 94: The order
248.Where the court makes a bank insolvency order a qualified insolvency practitioner, who has formally agreed to accept the position, will be appointed as the bank liquidator. This post is restricted to insolvency practitioners because the Government considers that their resource capabilities and practical experience of dealing with assets in complex insolvencies will be vital to ensure that the objectives of the bank insolvency procedure can be achieved and returns to creditors maximised.
Section 95: Application
249.The Bank of England, the FSA (with the Bank of England’s consent) or the Secretary of State may make an application to the court for a bank insolvency order and that application must nominate a qualified insolvency practitioner to be appointed as the bank liquidator.
250.To ensure compatibility with Human Rights legislation, such an application must be served on the directors of the company prior to a court hearing for a bank insolvency order and those service requirements will be specified in secondary legislation (Rules) to support the bank insolvency procedure.
Section 96: Grounds for applying
251.Subsection (1) sets out the three grounds on which an application for a bank insolvency order may be based. The first of these is on the grounds of insolvency – that is, a bank is unable or is likely to become unable to pay its debts. An application may also be made where winding up the affairs of the bank would be in the public interest or fair (for the meaning of “fair” see the note to section 93(8)).
252.In addition to these grounds, as the bank insolvency procedure has been designed to ensure rapid compensation payments to depositors under the terms of the FSCS, an application for a bank insolvency order may be made only where a bank has eligible depositors, as per subsections (2)(b)(i), (3)(b)(ii) and (4)(a).
253.Subsection (2) provides that where the FSA notifies the Bank of England that the appropriate conditions for entry to the Special Resolution Regime have been met (see the note to section 7 on the general conditions for triggering the special resolution regime tools) and the Bank of England may make an application to the court for a bank insolvency order on the grounds either that the bank is insolvent or that winding up would be fair.
254.Given the role of the Bank of England in the Special Resolution Regime, subsection (3) provides that the FSA may apply for a bank insolvency order only where the Bank of England consents. The grounds for an application for a bank insolvency order by the FSA are otherwise the same as those on which the Bank of England may present an application.
255.It may be that a bank is not technically insolvent, but to protect a bank’s customers and the public generally, subsection (4) allows the Secretary of State to apply for a bank insolvency order where he or she considers that winding up the affairs of a bank is in the public interest. This provision reflects the Secretary of State’s existing powers under section 124A of the Insolvency Act 1986 to present a winding-up petition against a company where that is considered to be in the public interest.
Section 97: Grounds for making
256.In keeping with existing insolvency provisions, on the hearing of an application for a bank insolvency order the court may make such an order, adjourn the application or dismiss it.
257.To make the order, the court must be satisfied that the bank against which the application has been presented has eligible depositors. In addition, where the application has been brought by the Bank of England or the FSA, the court must be satisfied either that the bank is either insolvent or that the winding up of the bank would be fair; where an application is made by the Secretary of State, the court must be satisfied that the winding up of a bank would be in the public interest and fair.
Section 98: Commencement
258.Under the provisions of section 129 of the Insolvency Act 1986, where a winding-up order is made, the proceedings are deemed to have commenced at the time of the presentation of the winding-up petition.
259.This section therefore provides that where a bank insolvency order is made on an application by the Bank of England or the FSA following the presentation of a petition for a winding-up order or application for an administration order by a third party, the proceedings are deemed to have commenced at the time that petition or application was submitted.
260.The same applies where the Bank of England, the FSA or the Secretary of State makes an application for a bank insolvency order without any notice of intended insolvency proceedings being received -under the provisions of section 120, a bank insolvency order is treated as commencing at the time that the application was made.
