Statutory Instruments
FINANCIAL SERVICES
Made
27th March 1991
Laid before Parliament
3rd April 1991
Coming into force
25th April 1991
The Secretary of State, in exercise of his powers under sections155(4) and (5), 158(4) and (5), 160(5), 173(4) and (5), 174(2) to (4),185, 186 and 187(3) of the Companies Act 1989(1) and of all other powers enabling him in that behalf, andhaving consulted the Treasury and the Bank of England in accordance withsections 173(6) and 174(5) of that Act, hereby makes the followingRegulations:
1. These Regulations may be cited as the Financial Markets andInsolvency Regulations 1991 and shall come into force on 25th April1991.
2.—(1) In these Regulations“the Act” means the Companies Act 1989.
(2) A reference in any of these Regulations to a numbered regulationshall be contrued as a reference to the regulation bearing that numberin these Regulations.
(3) A reference in any of these Regulations to a numbered paragraphshall, unless the reference is to a paragraph of a specified regulation,be construed as a reference to the paragraph bearing that number in theregulation in which the reference is made.
3. For subsection (2) of section 155 of the Act (market contracts)substitute—
“(2) Except as provided in subsection (2A), in relation to a recognisedinvestment exchange this Part applies to—
(a)contracts entered into by a member or designated non-member of theexchange which are either
(i)contracts made on the exchange or on an exchange to whoseundertaking the exchange has succeeded whether by amalgamation, mergeror otherwise; or
(ii)contracts in the making of which the member or designated non-member was subject to the rules of the exchange or of an exchange towhose undertaking the exchange has succeeded whether by amalgama- tion,merger or otherwise; and
(b)contracts subject to the rules of the exchange entered into by theexchange for the purposes of or in connection with the provision ofclearing services.
A“designated non-member” means a person in respect of whom action may be taken under thedefault rules of the exchange but who is not a member of the exchange.
(2A) This Part does not apply to contracts falling within paragraph (a)of subsection (2) above where the exchange in question is a recognisedoverseas investment exchange.”.
4.—(1) Section 159 of the Act (proceedings of exchange or clearing housetake precedence over insolvency procedures) shall be amended as follows.
(2) After subsection (4) there shall be inserted the following newsubsection—
“(4A) However, prior to the completion of default proceedings—
(a)where it appears to the chairman of the meeting of creditors that asum will be certified under section 162(1) to be payable, subsection (4)shall not prevent any proof or claim including or consisting of anestimate of that sum which has been lodged or, in Scotland, submitted,from being admitted or, in Scotland, accepted, for the purpose only ofdetermining the entitlement of a creditor to vote at a meeting ofcreditors; and
(b)a creditor whose claim or proof has been lodged and admitted or, inScotland, submitted and accepted, for the purpose of determining theentitlement of a creditor to vote at a meeting of creditors and whichhas not been subsequently wholly withdrawn, disallowed or rejected, iseligible as a creditor to be a member of a liquidation committee or, inbankruptcy proceedings in England and Wales, a creditors' committee.”.
(3) In subsection (5) for the words“subsection (4)” there shall be substituted the words“subsections (4) and (4A)”.
5. At the end of subsection (4) of section 160 of the Act (duty to giveassistance for the purposes of default proceedings) there shall be addedthe following words—
“and for the purpose of determining the priority in which his expensesare payable out of the assets, sums in respect of time spent shall betreated as his remuneration and other sums shall be treated as hisdisbursements or, in Scotland, outlays.”.
6.—(1) Section 162 of the Act (duty to report on completion of defaultproceedings) shall be amended as follows.
(2) At the beginning of subsection (1) insert“Subject to subsection (1A),”.
(3) After subsection (1) insert the following new subsection—
“(1A) A recognised overseas investment exchange or recognised overseasclearing house shall not be subject to the obligation under subsection(1) unless it has been notified by the Secretary of State that a reportis required for the purpose of insolvency proceedings in any part of theUnited Kingdom.”.
7. In this Part of these Regulations, unless the context otherwiserequires—
“the Bank” means the Bank of England;
“business day” has the same meaning as in section 167(3) of the Act;
“CGO” means the Central Gilts Office of the Bank;
“CGO Service” means the computer-based system established by the Bank and TheStock Exchange to facilitate the transfer of specified securities;
“CGO Service charge” means a charge of the kind described in section 173(1)(c) of theAct;
“CGO Service member” means a person who is entitled by contract with the Bank to use theCGO Service;
“former CGO Service member” means a person whose entitlement by contract with the Bank to usethe CGO Service has been terminated or suspended;
“market charge” means a charge which is a market charge for the purposes of PartVII of the Act;
“settlement bank” means a person who has agreed under a contract with the Bank tomake payments of the kind mentioned in section 173(1)(c) of the Act;
“specified securities” has the meaning given in section 173(3) of the Act;
“Talisman” means The Stock Exchange settlement system known as Talisman;
“Talisman charge” means a charge granted in favour of The Stock Exchange overproperty credited to an account within Talisman maintained in the nameof the chargor in respect of certain property beneficially owned by thechargor; and
“transfer” when used in relation to specified securities has the meaning givenin section 173(3) of the Act.
8.—(1) No charge, whether fixed or floating, shall be treated as a marketcharge to the extent that it is a charge on land or any interest inland.
(2) For the purposes of paragraph (1), a charge on a debenture formingpart of an issue or series shall not be treated as a charge on land orany interest in land by reason of the fact that the debenture is securedby a charge on land or any interest in land.
9. Section 173 of the Act (market charges) shall be amended—
(a)by inserting the following paragraph after section173(1)(a)—
“(aa)in favour of The Stock Exchange, for the purpose of securing debtsor liabilities arising in connection with short term certificates;”;
(b)by inserting, in section 173(1)(c), the words“or allotment” after the word“transfer” and the words“or allottee” after the word“transferee”;
(c)by inserting“(aa),” after the words“subsection (1)(a)” in section 173(2); and
(d)by substituting the following for the first line of section 173(3)—
“In subsection (1)—
“short term certificate” means an instrument issued by The Stock Exchange undertaking toprocure the transfer of property of a value and description specified inthe instrument to or to the order of the person to whom the instrumentis issued or his endorsee or to a person acting on behalf of either ofthem and also undertaking to make appropriate payments in cash, in theevent that the obligation to procure the transfer of property cannot bedischarged in whole or in part;”
10.—(1) A charge granted in favour of a recognised investment exchange otherthan The Stock Exchange shall be treated as a market charge only to theextent that—
(a)it is a charge over property provided as margin in respect of marketcontracts entered into by the exchange for the purposes of or inconnection with the provision of clearing services;
(b)in the case of a recognised UK investment exchange, it secures theobligation to pay to the exchange the net sum referred to in paragraph9(2)(a) of Schedule 21 of the Act as it applies by virtue of paragraph1(4) of that Schedule; and
(c)in the case of a recognised overseas investment exchange, it securesthe obligation to reimburse the cost (other than fees and otherincidental expenses) incurred by the exchange in settling unsettledmarket contracts in respect of which the charged property is provided asmargin.
(2) A charge granted in favour of The Stock Exchange shall be treated asa market charge only to the extent that—
(a)it is a charge of the kind described in paragraph (1); or
(b)it is a Talisman charge and secures an obligation of either or bothof the kinds mentioned in paragraph (3).
(3) The obligations mentioned in this paragraph are—
(a)the obligation of the chargor to reimburse The Stock Exchange forpayments (including stamp duty and taxes but excluding Stock Exchangefees and incidental expenses arising from the operation by The StockExchange of settlement arrangements) made by The Stock Exchange insettling, through Talisman, market contracts entered into by thechargor; and
(b)the obligation of the chargor to reimburse The Stock Exchange theamount of any payment it has made pursuant to a short term certificate.
(4) In paragraph (3),“short term certificate” means an instrument issued by The Stock Exchange undertaking toprocure the transfer of property of a value and description specified inthe instrument to or to the order of the person to whom the instrumentis issued or his endorsee or to a person acting on behalf of either ofthem and also undertaking to make appropriate payments in cash, in theevent that the obligation to procure the transfer of property cannot bedischarged in whole or in part.
11. A charge granted in favour of a recognised clearing house shall betreated as a market charge only to the extent that—
(a)it is a charge over property provided as margin in respect of marketcontracts entered into by the clearing house;
(b)in the case of a recognised UK clearing house, it secures theobligation to pay to the clearing house the net sum referred to inparagraph 9(2)(a) of Schedule 21 to the Act; and
(c)in the case of a recognised overseas clearing house, it secures theobligation to reimburse the cost (other than fees or other incidentalexpenses) incurred by the clearing house in settling unsettled marketcontracts in respect of which the charged property is provided asmargin.
12. A CGO Service charge shall be treated as a market charge onlyif—
(a)it is granted to a settlement bank by a person for the purpose ofsecuring debts or liabilities of the kind mentioned in section 173(1)(c)of the Act incurred by that person through his use of the CGO Service asa CGO Service member; and
(b)it contains provisions which refer expressly to the CGO.
13. A CGO Service charge shall be treated as a market charge only to theextent that—
(a)it is a charge over any one or more of the following—
(i)specified securities held within the CGO Service to the account of aCGO Service member or a former CGO Service member;
(ii)specified securities which were held as mentioned in sub-paragraph(i) above immediately prior to their being removed from the CGO Serviceconsequent upon the person in question becoming a former CGO Servicemember;
(iii)sums receivable by a CGO Service member or former CGO Service memberrepresenting interest accrued on specified securities held within theCGO Service to his account or which were so held immediately prior totheir being removed from the CGO Service consequent upon his becoming aformer CGO Service member;
(iv)sums receivable by a CGO Service member or former CGO Service memberin respect of the redemption or conversion of specified securities whichwere held within the CGO Service to his account at the time that therelevant securities were redeemed or converted or which were so heldimmediately prior to their being removed from the CGO Service consequentupon his becoming a former CGO Service member; and
(v)sums receivable by a CGO Service member or former CGO Service memberin respect of the transfer by him of specified securities through themedium of the CGO Service; and
(b)it secures the obligation of a CGO Service member or former CGOService member to reimburse a settlement bank for the amount due fromhim to the settlement bank as a result of the settlement bank havingdischarged or become obliged to discharge payment obligations in respectof transfers or allotments of specified securities made to him throughthe medium of the CGO Service.
14.—(1) In this regulation“qualifying period” means the period beginning with the fifth business day before theday on which a petition for the making of an administration order inrelation to the relevant CGO Service member or former CGO Service memberis presented and ending with the second business day after the day onwhich an administration order is made in relation to the relevant CGOService member or former CGO service member pursuant to the petition.
(2) The disapplication of sections 10(1)(b) and 11(3)(c) of theInsolvency Act 1986(2) by section 175(1)(a) of the Act shall be limited inrespect of a CGO Service charge so that it has effect only to the extentnecessary to enable there to be realised, whether through the sale ofspecified securities or otherwise, a sum equal to whichever is less ofthe following—
(a)the total amount of payment obligations discharged by the settlementbank in respect of transfers and allotments of specified securities madeduring the qualifying period to the relevant CGO Service member orformer CGO Service member through the medium of the CGO Service less thetotal amount of payment obligations discharged to the settlement bank inrespect of transfers of specified securities made during the qualifyingperiod by the relevant CGO Service member or former CGO Service memberthrough the medium of the CGO Service; and
(b)the amount (if any) described in regulation 13(b) due to thesettlement bank from the relevant CGO Service member or former CGOService member.
15.—(1) The disapplication of sections 15(1) and (2), 43 and 61 of theInsolvency Act 1986 by section 175(1)(b) and 175(3) of the Act shallcease to have effect in respect of a charge which is either a CGOService charge or a Talisman charge after the end of the second businessday after the day on which an administration order is made or, as thecase may be, an administrative receiver or a receiver is appointed, inrelation to the grantor of the charge, in relation to property subjectto it which—
(a)in the case of a CGO Service charge, is not, on the basis of avaluation in accordance with paragraph (2), required for the realisationof whichever is the less of the sum referred to in regulation 14(2)(a)and the amount referred to in regulation 14(2)(b) due to the settlementbank at the close of business on the second business day referred toabove; and
(b)in the case of a Talisman charge is not, on the basis of a valuationin accordance with paragraph (2), required to enable The Stock Exchangeto reimburse itself for any payment it has made of the kind referred toin regulation 10(3).
(2) For the purposes of paragraph (1) the value of property shall,except in a case falling within paragraph (3), be such as may be agreedbetween whichever is relevant of the administrator, administrativereceiver or receiver on the one hand and the settlement bank or TheStock Exchange on the other.
(3) For the purposes of paragraph (1), the value of any investment forwhich a price for the second business day referred to above is quoted inthe Daily Official List of The Stock Exchange shall—
(a)in a case in which two prices are so quoted, be an amount equal tothe average of those two prices, adjusted where appropriate to takeaccount of any accrued interest; and
(b)in a case in which one price is so quoted, be an amount equal tothat price, adjusted where appropriate to take account of any accruedinterest.
16.—(1) In this regulation“relevant transaction” means—
(a)a market contract effected as principal by a member or designatednon-member of a recognised investment exchange or a member of arecognised clearing house being a market contract—
(i)which is an investment falling within paragraph 7, 8 or 9 ofSchedule 1 to the Financial Services Act 1986(3) or falling within paragraph 11 of that Schedule insofaras that paragraph is relevant to any of those paragraphs; and
(ii)in relation to which money received by the member or designated non-member is client money for the purposes of the Financial Services(Clients' Money) Regulations 1987(4) or would be client money for the purposes of thoseregulations were it not money which, in accordance with thoseregulations, may be regarded as immediately due and payable to themember or designated non-member for his own account; and
(b)a market contract which would be regarded as a relevant transactionby virtue of sub-paragraph (a) above were it not for the fact that nomoney is received by the member or designated non-member in relation tothe contract.
(2) For the purposes of subsection (1) of section 187 of the Act(construction of references to parties to market contracts) a member ordesignated non-member of a recognised investment exchange or a member ofa recognised clearing house shall be treated as effecting relevanttransactions in a different capacity from other market contracts he haseffected as principal.
17. In Schedule 21 to the Act (additional requirements for recognition)the following new sub-paragraph shall be added at the end of paragraph2—
“(4) The reference in sub-paragraph (1) to rights and liabilities betweenthose party as principal to unsettled market contracts does not includerights and liabilities—
(a)in respect of margin; or
(b)arising out of a failure to perform a market contract.”.
18. In subsection (2) of section 175 of the Act (administration ordersetc), after the words“pari passu with the market charge,” there shall be inserted the words“on the application of any person interested”.
19.—(1) For the purposes of sections 161, 163, 164, 175(5) and 182 of theAct (various legal proceedings under Part VII of Act)“the court” shall be the court which has last heard an application in theproceedings under the Insolvency Act 1986 or the Bankruptcy (Scotland)Act 1985(5) in which the relevant office-holder is acting or, as thecase may be, any court having jurisdiction to hear applications in thoseproceedings.
(2) For the purposes of subsection (2) of section 175 of the Act(administration orders etc),“the court” shall be the court which has made the administration order or, asthe case may be, to which the petition for an administration order hasbeen presented.
(3) The rules regulating the practice and procedure of the court inrelation to applications to the court in England and Wales undersections 161, 163, 164, 175 and 182 of the Act shall be the rulesapplying in relation to applications to that court under the InsolvencyAct 1986.
John Redwood
Minister of State,
Department of Trade and Industry
27th March 1991
(This note is not part of the Regulations)
The regulations make various amendments and modifications to theprovisions of Part VII of the Companies Act 1989 (“the Act”) which concerns the effects of insolvency law, and the enforcementof certain rights and remedies, on the operation of certain financialmarkets. One effect of Part VII of the Act is to modify the way in whichinsolvency law applies in relation to certain contracts defined as“market contracts”. Regulation 3 of the regulations amends the definition of“market contracts” for the purposes of Part VII. Regulations 4 and 5 make provisionconcerning the exercise of voting rights at meetings of creditors andthe ranking, in insolvency, of expenses incurred by insolvency officeholders in providing assistance under the Part. Regulation 6 restrictsthe circumstances in which an overseas investment exchange or clearinghouse recognised under the Financial Services Act 1986 (c. 60) is obligedto make a report under section 162 of the Act.
Regulations 7 to 15 make various provisions as to charges which aretreated as“market charges” for the purposes of Part VII of the Act. Part VII modifies the wayin which market charges are treated in an administration. Regulation 8makes provision concerning the treatment of charges on land or anyinterest in land. Regulation 9 provides that certain charges granted infavour of The Stock Exchange in relation to short term certificates areto be treated as market charges. Regulation 9 also extends section173(1)(c) of the Act to cover charges granted in connection with theallotment of securities of the kind mentioned in that section.Regulations 10 and 11 contain provision as to the extent to whichcharges granted in favour of an investment exchange or clearing houserecognised under the Financial Services Act 1986 are to be treated asmarket charges. Regulations 12 and 13 make provision as to thecircumstances in which and the extent to which charges of the kinddescribed in section 173(1)(c) (“CGO Service charges”) are to be treated as market charges. (CGO Service charges arecharges granted in connection with the assured payments system connectedwith the Central Gilts Office of the Bank of England.) Regulation 14limits the disapplication, by section 175(1) of the Act, of sections10(1)(b) and 11(3)(c) of the Insolvency Act 1986 (c. 45) in relation toCGO Service charges. Regulation 15 makes provision concerning theability of an administrator or a receiver to recover assets subject to aCGO service charge or to a limited class of charge granted in favour ofThe Stock Exchange.
Regulation 16 makes provision treating certain contracts effected bya person as principal as effected in a different capacity from othercontracts he has effected as principal. Regulation 17 restricts therights and liabilities which the rules of a UK investment exchangerecognised under the Financial Services Act 1986 must enable to bedischarged by virtue of paragraph 2 of Schedule 21 to the Act.Regulations 18 and 19 make provision as to the persons who can apply tothe court for an order under section 175(2) of the Act and as to thecourts which have jurisdiction to hear proceedings under Part VII of theAct.
Regulations made by the Securities and Investments Boardunder section 55 of the Financial Services Act 1986 and issued (withamendments) in the Board’s release No. 54. The regulations have beenfurther modified, in an irrelevant respect, by the Financial Services(Clients' Money) (Amendment) Regulations 1990 issued in the Board'srelease No. 85.