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BSOG 2.6 Transfer Of Engagements Under Direction

BSOG 2.6.1G

This section describes the Authorityspowers to direct a society to transfer all its engagements to one or more other societies and/or to proceed by board resolution, and the modified merger procedure consequently prescribed by the 1986 Act. Section 42B of the 1986 Act provides that, if the Authorityconsiders it expedient to do so to protect the investments of shareholders or depositors, it may direct a society, among other things, to transfer all its engagements to one or more other societies within a specified period (subsection (1)(a)). In such a case, or where the Authoritywould have directed a transfer of engagements, but for the fact that negotiations were already under way, the Authoritymay also direct that the approval of the transfer of engagements by the transferor society may be by board resolution rather than by Merger Resolution. In these circumstances, because neither a Schedule 16 Statement nor Merger Resolutions are required, the 1986 Act requires the society instead to send to every member entitled to notice of a meeting a Merger Notification Statement before it applies for confirmation of the transfer of engagements, (paragraphs 3 and 4 of Schedule 8A to the 1986 Act). Finally, in these circumstances, the First and Second Criteria concerning information made available to, and the views of, the members (see section 2.5) are replaced by a single criterion: the members or a proportion of them would be unreasonably prejudiced by the transfer; (paragraph 5 of Schedule 8A to the 1986 Act).

BSOG 2.6.2G

Where a society is proceeding under a Section 42B(3) direction by board resolution, the Schedule 16 Statement is replaced by a Merger Notification Statement and a general meeting of the society is not required. The contents of the Merger Notification Statement are prescribed by The Building Societies (Merger Notification Statement) Regulations 1999 (SI 1999/1215).

BSOG 2.6.3G

The Merger Notification Statement must have been approved by the Authoritybefore it is sent to the members, and must be sent within the specified time limit. Applications for approval should, in general, follow the procedure described in paragraphBSOG 2.3.28 G, and the final draft of the Merger Notification Statement should be accompanied by the relevant documents listed in paragraphBSOG 2.3.29 G, but as appropriate to the particular case and the less extensive information the statement is required to contain. The statement must include particulars of any compensation payable to directors or other officers of the transferor society to which the Authorityhas given its consent under paragraph 2(1) of Schedule 8A to the 1986 Act.

BSOG 2.6.4G

Section 2.4 (General Meetings and Resolutions) does not apply, except that the directors will need to be satisfied that the society's register of members is correct to enable the society to send Merger Notification Statements to those entitled to receive them.

BSOG 2.6.5G

When the board has resolved to transfer the society's engagements and Merger Notification Statements have been sent to its members, the society may apply to the Authorityfor confirmation of the transfer of engagements, but using an adaptation agreed with the Authorityof the pro forma in Annex 2A. The procedure described in section 2.5is to be followed, including the publication of notices in the official Gazettes and newspapers and the form of application. However, the lapse of time between each stage of the procedure may be modified according to the particular circumstances of a case, and having regard to the need to protect the investments of shareholders or depositors. While a scrutineers report will not be required, the Authoritywill require a report from the society's external auditors on the adequacy of the society's systems to fulfil the requirements of the 1986 Act and the Rules with regard to the sending of Merger Notification Statements. This is, of course, relevant to the Authority'sconsideration of the Third Criterion.

BSOG 2.6.6G

As is noted in paragraphBSOG 2.6.1 G, the First and Second Criteria are replaced, in those circumstances, by a single criterion as to whether the members or a proportion of them would be unreasonably prejudiced by the transfer. Whether this special criterion applies will be a matter of judgement for the Authorityto make in the light of any representations made to it and its own enquiries in respect of the particular case. It follows also that, in considering the Third Criterion, the Authoritywill take account of the modified procedure.