The Building Societies (Supplementary Capital) Order 1988

PART III interpretation

References to borrower and lender

1.—(1) Any reference in this Schedule to the borrower in respect of any subordinated debt shall be interpreted as meaning the person to whom the subordinated debt was advanced or, to the extent that some other person has succeeded to the rights and obligations of the recipient of the advance under the issue terms relating to the subordinated debt, that other person, and any reference to the lender shall, subject to subparagraph (2) below, be interpreted similarly as meaning the person by whom the subordinated debt was advanced or his successor.

(2) For the purposes of this paragraph, in circumstances where a debt is evidenced by a transferable instrument and the issue terms relating to the debt provide for the right to enforce the debt to be exercisable, or exercisable in circumstances provided for in those issue terms, by a trustee for creditors rather than the holder of the instrument, the holder of the instrument and not the trustee shall be regarded as the lender in respect of the debt.

Calculation of principal amount advanced

2.  In calculating for the purposes of this Schedule the principal amount of any subordinated debt advanced, any deduction of the incidental costs of obtaining finance (within the meaning of section 77 (incidental costs of obtaining loan finance) of the Income and Corporation Taxes Act 1988(1)) relating to the advance of that subordinated debt shall be disregarded.

Determination of effect of issue terms

3.  In determining for the purposes of this Schedule the effect of issue terms any right of a borrower capable of being exercised without contravening those terms shall be disregarded to the extent that—

(a) the person who is the borrower has undertaken in writing to the supervisory authority not to exercise that right while that person remains the borrower, and

(b) that person has neither exercised that right nor indicated an intention or a possible intention to do so.

Other Expressions

4.  In this Schedule—

“assessment date A” means a date on which, and “assessment date B” means a date in respect of which, there falls to be assessed whether a society is satisfying the first criterion in section 45(3) (criteria for prudent management) of the Act,

“authorised institution” means an institution which is an authorised institution for the purposes of the Banking Act 1987,

“creditors”, in relation to a society, extends to members holding shares in the society as regards the principal of their shares and any interest due in respect of those shares,

“initial maturity period”, in relation to any relevant debt element, means the period beginning—

(a)

where the relevant debt element comprises or is included in subordinated debt which falls under its issue terms to be advanced on a single day, on that day,

(b)

where the relevant debt element comprises or is included in subordinated debt which falls under its issue terms to be advanced over a number of days—

(i)

where the entirety of the debt has been advanced, on the last day on which an advance of any of the debt was made, and

(ii)

where the entirety of the debt has not been advanced, on the latest possible day on which an advance of any of the debt may be made,

and ending on the key date,

“instalment”, in relation to the principal of subordinated debt required by the issue terms relating to that subordinated debt to be repaid, means any amount less than the entirety of that principal which the borrower is, by those issue terms, required or permitted to repay at any one time,

“issue terms” means the provisions of a document which sets out, or of a connected series of documents which set out, the rights and obligations of the borrower, the lender and the other persons (if any) in relation to any debt,

“key date” means—

(a)

in relation to an initial maturity period, the earliest possible date at which, under the issue terms, and

(b)

in relation to a residual maturity period, the earliest possible date at which, under the issue terms as read—

(i)

where assessment date A falls before the assessment date B on which the residual maturity period begins, at assessment date A, and

(ii)

otherwise, as at that assessment date B,

the relevant debt element could fall to be repaid (or, in the case of subordinated phased debt, to be repaid in full) otherwise than in pursuance of recognised repayment term A or B,

“recognised repayment event” means—

(a)

the commencement of the winding up of the borrower,

(b)

the commencement of the dissolution of the borrower where the borrower is dissolved otherwise than by virtue of section 93(5), 94(10) or 97(9) or (10) of the Act,

(c)

the cancellation of registration of the borrower under the Act otherwise than under section 103(1)(a) thereof (which deals with cancellation following dissolution by virtue of one of those sections),

(d)

failure by the borrower to pay any sum of money which under the issue terms the borrower is obliged to pay, or

(e)

any event which can happen only after one or more of the other recognised repayment events,

“recognised repayment term A” means an issue term which requires or permits any subordinated debt to be repaid with the relevant consent of the supervisory authority,

“recognised repayment term B” means an issue term which requires or permits any subordinated debt to be repaid following a recognised repayment event without the relevant consent of the supervisory authority in satisfaction of the borrower’s liabilities in its winding up or in the dissolution of the borrower in circumstances where that subordinated debt would not have been required or permitted to be repaid had that winding up or dissolution not taken place,

“relevant consent” means consent applied for by the borrower otherwise than in consequence of a provision among the issue terms requiring the borrower so to apply or granting a benefit to the borrower for so applying or imposing a sanction against failure by the borrower so to apply,

“relevant debt element” means the principal or (as the case may be) the instalment of principal of subordinated debt to which a supplementary fund relates,

“repayment”, in relation to subordinated debt the issue terms relating to which require the borrower to pay principal in excess of the principal advanced to the borrower, extends to payment by the borrower of that excess, and “repay” shall be construed accordingly,

“residual maturity period”, in relation to any relevant debt element, means the period beginning on an assessment date B and ending on the key date,

“shares” means shares which are not deferred shares within the meaning of section 119 of the Act or Schedule 1 to the Building Societies (Authorisation) Regulation 1981(2) or to the Building Societies (Authorisation) Regulations (Northern Ireland) 1982(3),

“subordinated debt” means a sum in sterling borrowed on issue terms which have the effect that no repayment will be made to the lender following the commencement of the winding up except where at least all sums due from the borrower to other creditors (apart from any sums due in respect of other subordinated debts) are paid to those creditors in full,

“subordinated long term debt” means subordinated debt comprising or including any relevant debt element the initial maturity period relating to which is at least five years and one day,

“subordinated phased debt” means subordinated debt borrowed on issue terms which also have the effect that—

(a)

the amount of principal advanced is the same as the amount of principal required to be repaid,

(b)

the entirety of that amount of principal is required to be repaid in a number of equal instalments,

(c)

those equal instalments are required to be repaid at quarterly, half-yearly or annual intervals,

(d)

there are, if those instalments are required to be repaid—

(i)

at quarterly intervals, no less than 12 and no more than 20 such instalments,

(ii)

at half yearly intervals, no less than 6 and no more than 10 such instalments, and

(iii)

at annual intervals, no less than 3 and no more than 5 such instalments, and

(e)

the initial maturity period relating to that subordinated debt is not less than the total reached by adding the period of five years and one day to the period beginning on the day on which the first and ending on the day on which the last such instalment is required to be repaid,

“supervisory authority” means—

(a)

in relation to a borrower which is a society, the Commission, and

(b)

in relation to a borrower which is an authorised institution, the Bank of England,

“supplementary financial resources”, in relation to subordinated debt, means financial resources of a borrower which are derived from the advance to the borrower of that subordinated debt,

“supplementary fund” means—

(a)

in relation to subordinated debt which is either subordinated debt the principal of which is neither required nor permitted under the issue terms (save in pursuance of recognised repayment term A or B) to be repaid in instalments or subordinated phased debt, an amount calculated as equal to the principal amount of the subordinated debt advanced to, and not repaid by, the borrower, and

(b)

in relation to each instalment of principal of subordinated debt, other than subordinated phased debt, required or permitted under the issue terms (otherwise than in pursuance of recognised repayment term A or B) to be so repaid, an amount equal to such proportion of the amount calculated in subparagraph (a) of this definition as that instalment bears to the total of those instalments, and

“transferable instrument” means an instrument which is a transferable bearer instrument or a transferable non-bearer instrument for the purposes of section 7 (power to raise funds and borrow money and limit on non-retail funds and borrowing) of the Act.

(1)

1988 c. 1.

(2)

S.I. 1981/1488, revoked by the Building Societies Act 1986.

(3)

S.R. (N.I.) 1982 No. 155, revoked by the Building Societies Act 1986.