265.Part 6 of the Act (sections 111 to 128 and Schedules 6 and 7) establish a new special administration regime known as “FMI administration”. This will apply to “infrastructure companies”, as defined in section 112, that become insolvent. Part 6 also restricts powers of persons other than the Bank of England in the event of the insolvency of an infrastructure company.
266.Section 112 defines the term “infrastructure company”. The following companies are “infrastructure companies”: recognised inter-bank payment systems and securities settlement systems. This amendment also allows the Treasury to designate a company as an “infrastructure company” where the company is a key service provider to a recognised inter-bank payment system or a securities settlement system.
267.Section 113 defines certain terms for the purposes of the new Part 6.
268.Section 114 defines the term “FMI administration order” for the purposes of Part 6. FMI administration orders will be made by the court and have the effect of appointing an “FMI administrator” to manage the affairs of the infrastructure company.
269.Section 115 sets out the objective of FMI administration. The objective is (1) to ensure that the relevant recognised inter–bank payment system or securities settlement system is maintained and operated as an efficient and effective system; (2) in instances where the operator of any such system is also a recognised clearing house which provides clearing services without doing so as a central counterparty, to ensure that certain services that it carries on in that capacity continue to be maintained, and (3) to ensure that either as a result of the rescue of the infrastructure company as a going concern or as a result of a transfer of all or part of the undertaking of the infrastructure company to another company or companies, it becomes unnecessary for the FMI administration to continue.
270.Section 116 provides (1) that a FMI administration order can only be made upon the application of the Bank of England, (2) that when making the application, the Bank of England must nominate the FMI administrator and (3) that the infrastructure company must give notice of the application in accordance with rules that made for the purpose of FMI administration.
271.Section 117 specifies the three cases in which a court could make a FMI administration order: (1) where an infrastructure company is insolvent; (2) where an infrastructure company is likely to become insolvent or (3) the case is one where the Secretary of State could petition the court for the infrastructure company to be wound up on public interest grounds. It further specifies what action the court may take in relation to an application for an FMI administration order.
272.Section 118 provides that FMI administrators are to be officers of the court and that when acting in relation to an infrastructure company they will act as the infrastructure company’s agent. This section furthermore places FMI administrators under a duty to manage the infrastructure company so as to achieve the objective of FMI administration as quickly and efficiently as possible. It also provides that, insofar as it is possible to do so whilst acting consistently with the objective of FMI administration, FMI administrators should act in a way which best protects the company’s creditors. This section also establishes a related and secondary requirement that the FMI administrator should also act where possible in the interests of the company’s members as whole.
273.Section 119 provides that in instances where an infrastructure company has entered into arrangements with a supplier of certain specified goods and services prior to a FMI administration order being made, the supplier would only be able to terminate the supply (1) where charges in respect of supplies made after the date of the making of the FMI administration order have remained unpaid for more than 28 days; (2) with the consent of the FMI administrator or (3) with the court’s permission. This section also operates to render void any provision in a relevant supplier’s terms and conditions that purports to allow the supplier to terminate the supply agreement in the event of the infrastructure company entering into FMI administration.
274.Section 120 confers a power on the Bank of England to direct a FMI administrator to take, or to refrain from taking, specified action. When considering whether to make any such direction, the Bank of England will have to have regard to the public interest in the protection and enhancement of the stability of the financial system and the maintenance of public confidence in that system. This section also confers immunity from liability in damages upon certain specified persons arising from compliance with any such direction.
275.Section 121 introduces Schedules 6 and 7. Schedule 6 applies to FMI administration specified provisions of Schedule B1 to the Insolvency Act 1986 and certain other enactments which apply to ordinary administration. Schedule 7 sets out the detail as to how transfer schemes to achieve the objective of FMI administration will operate. Section 121(3) provides that the rule-making power conferred by section 411(1B) of the Insolvency Act 1986, which allows rules to be made for the purposes of bank administration, can also be used for the purposes of giving effect to FMI administration.
276.Section 122 restricts the circumstances in which any person other than the Bank of England may petition for the winding-up of an infrastructure company and to prevents the voluntary winding-up of an infrastructure company without prior notice to the Bank of England and the permission of the court.
277.Section 123 prevents ordinary administration orders being made in respect of an infrastructure company if a FMI administration order has already been made in respect of that company. It also provides that a court may not determine an application for an ordinary administration order in respect of an infrastructure company unless the Bank of England has had 14 days’ notice of the application for the order.
278.Section 124 requires any person seeking to enforce a security over an infrastructure company to give the Bank of England 14 days’ prior notice of any step taken to enforce the security.
279.Section 125 allows the Treasury to make loans to an infrastructure company in respect of which a FMI administration order has been made. The loan must be made for the purposes of achieving the objective of FMI administration. The Treasury has discretion as to the terms upon which any such loan is made and any sums repaid would have to be paid into the Consolidated Fund.
280.Section 126 permits the Treasury to indemnify certain persons (e.g. employees of the FMI administrator) in respect of liabilities arising and losses or damages sustained as a result of action taken by a FMI administrator in the course of his or her duties, on whatever terms the Treasury considers to be appropriate. Any such indemnity agreement should be laid before Parliament, and the infrastructure company would be under a duty to pay to the Treasury the whole amount, or part of the amount (as directed by the Treasury), of any sum paid pursuant to any such indemnity.
281.Section 127 contains interpretative provisions relating to FMI administration.
282.Section 128 makes provision about the application to Northern Ireland of the provisions on FMI administration.