Introduction
Section 90: Overview
241.This section outlines the main features of the bank insolvency procedure which is based largely on the existing liquidation provisions of the Insolvency Act 1986, with modifications where required. The Government’s principle reason for seeking to introduce a new insolvency procedure for banks (as an alternative to existing insolvency processes) is to ensure that, where a bank fails, depositors who are eligible claimants under the terms of the Financial Services Compensation Scheme are paid out promptly(2).
242.The equitable treatment of creditors as a whole is a key feature of the UK’s insolvency regime, and the bank insolvency procedure has therefore been designed to enable rapid compensation payments to depositors without creating a regime in which those depositors receive preference over other creditors.
Section 91: Interpretation: “bank”
243.This section limits the application of the bank insolvency procedure to UK institutions with permission to accept deposits under the provisions of the Financial Services and Markets Act 2000. The procedure may be extended by secondary legislation to building societies and credit unions (sections 130 and 131). The Treasury may, by order, add to the exclusions from this definition of bank.
Section 92: Interpretation: “the court”
244.The bank insolvency procedure can only commence by an order of the court and the process is subject to the general supervision of the court. Due to the size and complexity of the UK’s banks, the higher courts will supervise the process.
Section 93: Interpretation: other expressions
245.This section defines some terms used in this part of the Act, including the meaning of the Financial Services Authority (FSA), the Financial Services Compensation Scheme (FSCS) and “eligible depositors” (which means those persons eligible under the FSCS. The persons so eligible for compensation are set out in the FSA Handbook, which is available online.3).
246.Subsection (4) defines “inability to pay debts” and applies existing definitions from sections 367(4) and (5) of the Financial Services and Markets Act 2000 (as applied by subsection 4(a)) and section 123 of the Insolvency Act 1986 (as applied by subsection (4)(b)).
247.Subsections (5) and (6) provide that the expressions used generally throughout this part of the Act and also in insolvency and company legislation have the same meaning, except that subsection (8) provides that “fair” is used in this part instead of the somewhat antiquated term “just and equitable” (used in the Insolvency Act 1986).
The Financial Services Compensation Scheme was established under Part XV of the Financial Services and Markets Act 2000.
The FSA handbook is available from http://fsahandbook.info/. The Compensation section of the handbook sets out the rules governing eligibility under, and levies for, the FSCS (reference code: COMP).
