The Dunfermline Building Society Compensation Scheme, Resolution Fund and Third Party Compensation Order 2009

SCHEDULE 1 The Dunfermline Resolution Fund

PART 1 Arrangements for the Dunfermline Resolution Account

The Dunfermline Resolution Account

1.—(1) The Dunfermline Resolution Account shall be held at the Bank of England and must be an interest bearing account.

(2) The Dunfermline Resolution Account must be held in the name of an independent person appointed by the Treasury (“the Account Holder”).

Annual report and accounts

2.—(1) The Account Holder must prepare accounts in relation to the operation of the Dunfermline Resolution Account—

(a) in such form, and in such manner, as the Treasury specify, and

(b) as soon as is reasonably practicable after the end of each financial year in which the Dunfermline Resolution Account is open.

(2) The accounts must set out the details of each payment from the Dunfermline Resolution Account.

(3) The Comptroller and Auditor General must examine, certify and report on the accounts.

(4) The Account Holder must send a copy of the accounts to the Treasury as soon as is reasonably practicable.

(5) The Treasury shall lay a copy of the accounts before each House of Parliament.

PART 2 Arrangements for making payments into the Dunfermline Resolution Account

Payments into the resolution fund

3.—(1) The Bank of England must pay into the Dunfermline Resolution Account—

(a) any distribution made to the Bank of England—

(i) by the Bridge Bank (whether made following the disposal of some or all of the business of the Bridge Bank or otherwise);

(ii) by a liquidator appointed to wind up the Bridge Bank;

(b) any consideration received for shares in the Bridge Bank.

(2) The Bank of England may require the Bridge Bank, a liquidator of the Bridge Bank or a purchaser of the shares in the Bridge Bank to make payment of amounts under paragraph (1) direct to the Dunfermline Resolution Account, and any such payment shall constitute a good discharge to the Bridge Bank, liquidator of the Bridge Bank or purchaser as the case may be.

PART 3 Arrangements for making payments from, and entitlements to, the Dunfermline Resolution Account

Payments from the resolution fund

4.—(1) The Account Holder may only make payments from the Dunfermline Resolution Account in accordance with a direction issued by the Treasury.

(2) The Treasury may direct the Account Holder to make a payment to—

(a) Dunfermline;

(b) the Treasury;

(c) the Bank of England.

(3) The Treasury must not direct the Account Holder to make a payment from the Dunfermline Resolution Account if making the payment would cause the balance of the Dunfermline Resolution Account to fall below zero.

(4) A direction under sub-paragraph (2) must be in writing and the Treasury must send a copy of the direction to—

(a) Dunfermline, and

(b) the Bank of England.

Payments to the Treasury and the Bank of England

5.—(1) The Treasury may direct the Account Holder to make a payment to the Treasury or the Bank of England only where—

(a) the payment is to be made for the purposes of reimbursing the Treasury or the Bank of England (as the case may be) for any costs (including liability for tax) incurred in relation to, or in consequence of, any of the following—

(i) the transfer of the Bridge Bank business;

(ii) the incorporation, authorisation and operation of the Bridge Bank;

(iii) the sale of the Bridge Bank, or some or all of the property, rights or liabilities of the Bridge Bank, to a purchaser;

(iv) the winding up of the Bridge Bank;

(b) the independent valuer has certified, in accordance with paragraph 7, that the costs were properly and reasonably incurred by the Bank of England or the Treasury (as the case may be); and

(c) the direction is made within 12 months of the date of—

(i) the completion of the winding up of the Bridge Bank; or

(ii) if earlier, the sale of shares in the Bridge Bank.

(2) In the event that the Bank of England (as sole member of the Bridge Bank) passes a resolution to wind up the Bridge Bank, the Bank of England must, as soon as is reasonably practicable after the passing of the resolution, send a copy of the resolution to—

(a) Dunfermline, and

(b) the Treasury.

Entitlement to the resolution fund: Dunfermline

6.—(1) The Treasury must notify the Account Holder when no further (if any) directions are to be made under paragraph (4)(2)(b) or (c) (as the case may be).

(2) As soon as is reasonably practicable after the notification specified in sub-paragraph (1) has been made the Treasury must direct the Account Holder to pay to Dunfermline any moneys remaining in the Dunfermline Resolution Account.

Certification of costs

7.—(1) Where the Treasury consider that any costs specified in paragraph 5(1)(a) may be paid from the Dunfermline Resolution Account, the Treasury must supply to the independent valuer—

(a) any invoices in relation to the costs,

(b) an explanation of the reasons for the costs, and

(c) any other information the independent valuer reasonably requests for the purpose of assessing whether the costs were reasonably and properly incurred.

(2) Within 30 days of receipt of the information specified in sub-paragraph (1), the independent valuer must—

(a) inform the Treasury by notice in writing whether, in the independent valuer’s opinion, the costs were reasonably and properly incurred for the purposes specified in paragraph 5(1)(a); or

(b) request further information from the Treasury or the Bank of England (as the case may be).

(3) In the event the independent valuer determines that the costs, or a proportion of the costs, were not properly or reasonably incurred, within 14 days of the receipt of the notification, the Treasury may require, by notice in writing, the independent valuer to reconsider his or her determination.

(4) Where the independent valuer is required to reconsider his or her determination, the independent valuer must issue a revised notice within 14 days of receipt of the notice specified in sub-paragraph (3).

(5) Where the independent valuer determines that only a proportion of the costs were properly and reasonably incurred for the purposes specified in paragraph 5(1)(a), the Treasury may issue a direction, under paragraph 4(2)(b) or (c) (as the case may be), only in relation to that proportion of the costs.

SCHEDULE 2 The Dunfermline Third Party Compensation Scheme

PART 1 General provisions

Citation

1.  This scheme may be cited as the Dunfermline Third Party Compensation Scheme.

Interpretation

2.  In this Schedule—

“actual treatment” means the treatment pre-transfer creditors have received, are receiving or are likely to receive if no (or no further) compensation is paid;

“assessment notice” means a notice issued by the independent valuer in accordance with paragraph 4 or 10 of this Schedule;

“insolvency treatment” means the treatment which pre-transfer creditors would have received had Dunfermline entered insolvency(1) immediately before the relevant time;

“relevant time” means 8am on 30 March 2009, which is the time the Transfer Instrument came into force;

“remaining creditors” has the meaning given in paragraph 5(b);

“transferred creditors” has the meaning given in paragraph 5(a).

PART 2 Determination of amount of compensation: third parties affected by the application of section 38(6) of the Act

Third party compensation: persons affected by the application of section 38(6) of the Act

3.—(1) Subject to sub-paragraph (4), the amount of any compensation payable to persons whose default event provisions(2) were affected by the application of section 38(6) of the Act (by virtue of paragraph 6 of the Transfer Instrument) must be determined by the independent valuer in accordance with this paragraph.

(2) The amount of any compensation payable to a person must be such compensation as may be fair and equitable in respect of the effect on that person’s property, rights or liabilities of the application of section 38(6) of the Act.

(3) In determining any compensation payable, the independent valuer must take into account—

(a) any diminution in the value of the person’s property or rights; or

(b) any increase in the burden of any liability on that person,

which is attributable to the application of section 38(6) of the Act.

(4) Compensation is payable only if it is required to be paid to comply with the Convention rights (within the meaning of section 1 of the Human Rights Act 1998(3)).

Assessment notice

4.—(1) Where the independent valuer makes a determination in accordance with paragraph 3, the independent valuer must issue an assessment notice to—

(a) the person affected by the application of section 38(6) of the Act, and

(b) the Treasury.

(2) An assessment notice must contain the following information—

(a) the date on which the assessment notice is issued,

(b) the amount of any compensation payable, and

(c) the reasons for the independent valuer’s decision.

PART 3 Determination of amount of compensation: pre-transfer creditors

Third party compensation: pre-transfer creditors of Dunfermline

5.—(1) The amount of any compensation payable to—

(a) pre-transfer creditors whose rights were transferred by virtue of the Transfer Instrument (“transferred creditors”) shall be determined in accordance with paragraph 7;

(b) pre-transfer creditors whose rights were not transferred by virtue of the Transfer Instrument (“remaining creditors”) shall be determined in accordance with paragraph 8.

(2) The independent valuer, in conducting his or her functions in accordance with this Part, may make determinations in respect of all pre-transfer creditors, a class of pre-transfer creditor or a particular pre-transfer creditor as the independent valuer considers appropriate.

(3) The independent valuer must have regard to any information provided by a pre-transfer creditor which is relevant to the conduct of his or her functions under this Part and in particular must have regard to any information which relates to the assessment of—

(a) the insolvency treatment;

(b) the actual treatment.

Assessment of insolvency treatment

6.—(1) The independent valuer must assess the insolvency treatment of the pre-transfer creditors of Dunfermline.

(2) In making the assessment of the insolvency treatment, the independent valuer must determine the insolvency process it is likely Dunfermline would have entered had the Transfer Instrument not been made.

Assessment of compensation: transferred creditors

7.—(1) The independent valuer must assess the actual treatment of transferred creditors (including any payment of compensation to be made in accordance with a determination of the independent valuer under paragraph 3).

(2) If the independent valuer considers that, in relation to any transferred creditor, the actual treatment is less favourable than the insolvency treatment, the independent valuer must determine the amount of compensation payable to the transferred creditor.

(3) The independent valuer must assess the compensation payable—

(a) by reference to the difference between the insolvency treatment and the actual treatment; and

(b) on the basis of the fair and equitable value of that difference in treatment.

Assessment of compensation: remaining creditors

8.—(1) The Treasury must notify the independent valuer as soon as is reasonably practicable after giving the notification under paragraph 6(1) of Schedule 1 that the notification has been made.

(2) As soon as is reasonably practicable following the receipt of the notification under sub-paragraph (1) the independent valuer must assess the actual treatment of remaining creditors, including by virtue of any payment to be made—

(a) to Dunfermline from the Dunfermline Resolution Account; and

(b) in accordance with a determination of the independent valuer under paragraph 3.

(3) If the independent valuer considers that, in relation to any remaining creditor, the actual treatment is less favourable than the insolvency treatment, the independent valuer must determine the amount of compensation payable to the remaining creditor.

(4) The independent valuer must assess the compensation payable—

(a) by reference to the difference between the insolvency treatment and the actual treatment; and

(b) on the basis of the fair and equitable value of that difference in treatment.

Valuation principles

9.  In making the assessment of the insolvency treatment as required under paragraph 6(1), the independent valuer must determine the amount of compensation payable in accordance with the following valuation principles (in addition to the principle which applies by virtue of section 57(3) of the Act)—

(a) that Dunfermline was failing, or was likely to fail, to satisfy its threshold conditions (within the meaning of section 41(1) of the Financial Services and Markets Act 2000(4) (permission to carry on regulated activities));

(b) that Dunfermline would have entered insolvency immediately before the relevant time;

(c) the Transfer Instrument has not been made and that no other order or instrument under Part 1 of the Act would have been made in relation to or in connection with Dunfermline; and

(d) that no financial assistance(5) would have, after the relevant time, been provided to Dunfermline by the Bank of England or the Treasury.

Assessment notice

10.—(1) Where the independent valuer makes an assessment in accordance with paragraph 7 or 8, the independent valuer must issue an assessment notice to—

(a) the pre-transfer creditor,

(b) the building society special administrator of Dunfermline, and

(c) the Treasury.

(2) An assessment notice must contain the following information—

(a) the date on which the notice is issued,

(b) the amount of any compensation payable, and

(c) the reasons for the independent valuer’s decision.

Interim payments

11.—(1) The independent valuer may determine that the Treasury must make interim payments to pre-transfer creditors, a class of pre-transfer creditors or all pre-transfer creditors on account of compensation determined to be payable under this Schedule (“payments on account”).

(2) The independent valuer may make a determination under sub-paragraph (1) at any time before the assessment required by paragraph 7(1) or paragraph 8(2) has been made.

(3) Subject to sub-paragraph (4), the independent valuer may make such provision as to payments on account as he or she thinks fit (including a requirement that payments are to be made in instalments).

(4) Payments on account must be made subject to the following conditions—

(a) that the acceptance of such a payment by the pre-transfer creditor reduces any obligation (whether in existence at the time of the payment or not) on the Treasury to pay compensation to the pre-transfer creditor by the amount of the payment on account;

(b) that, where the independent valuer, in accordance with paragraph 12, determines that the pre-transfer creditor should make a balancing payment to the Treasury, the pre-transfer creditor is liable to pay that amount.

(5) In considering whether to require payments on account to be made in accordance with this paragraph, the independent valuer must have regard to the merits of ensuring that pre-transfer creditors receive compensation in a timely manner.

Balancing payments

12.—(1) Where the independent valuer has determined that the Treasury must make interim payments in accordance with paragraph 11, the independent valuer must determine what balancing payments, if any, are appropriate to ensure that each pre-transfer creditor receives the relevant amount of compensation, if any, determined to be payable in accordance with paragraph 7(1) or 8(2) (and no more than that amount).

(2) The independent valuer must make a determination under sub-paragraph (1) as soon as is reasonably practicable after the assessment required by paragraph 7(1) or 8(2) has been made.

(3) Where the independent valuer determines that it is necessary for—

(a) the Treasury to make a balancing payment to a pre-transfer creditor, the independent valuer must notify in writing the Treasury of—

(i) the need to make that payment, and

(ii) the amount of the payment to be made;

(b) the pre-transfer creditor to make a balancing payment to the Treasury, the independent valuer must notify in writing—

(i) the pre-transfer creditor of —

(aa) the need to make that payment, and

(bb) the amount of the payment to be made;

(ii) the Treasury of the entitlement to receive that payment.

PART 4 Payment of compensation

Payment of compensation

13.—(1) The Treasury must, as soon as is reasonably practicable following receipt of an assessment notice, pay to the person entitled the amount of any compensation set out in that assessment notice.

(2) But where an order under section 55(6) of the Act is in force and a person affected by the determination of the independent valuer—

(a) requires the reconsideration of the determination;

(b) appeals to a court or tribunal against a determination of the independent valuer;

the Treasury shall not be required to make payment of the compensation payable (if any) until the matter has been finally disposed of.

(1)

See section 60(3) of the Act.

(2)

“Default event provision” is defined in section 38(1) of the Act.

(3)

1998 c.42.

(4)

2000 c.8.

(5)

“Financial assistance” is defined in section 257 of the Act.