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BSOG 3.1 Introduction

The Purpose of this Chapter

BSOG 3.1.1G

1This chapter ultimately derives from the Transfer Procedures Guidance Note published by the Commission in April 1998. It gives guidance on the requirements of the 1986 Act relevant to, and on the procedures to be followed by, a building society proposing to transfer its business to a company having permission under the Act to carry on those regulated activities which it will undertake as a result of the transfer. It is not intended to be exhaustive, and is not a substitute for looking at the 1986 Act and the Transfer Regulations, on which a society should seek its own legal advice. It describes the relevant provisions of the 1986 Act, and the information which must be made available to the Authorityand to the society's members, and outlines the procedures to be followed at general meetings, including the voting majorities required to pass the Transfer Resolutions. The chapter also describes the role of the Authorityin approving the Transfer Statement which must be sent to the members and in the confirmation procedure, together with its ongoing prudential supervision during the transfer process. The Transfer Summary, which a society may send to its members instead of the Transfer Statement, is also discussed. Except as described in section 3.7, to which section 3.8also applies, this section is concerned only with voluntary transfers under Section 97 of the 1986 Act.

BSOG 3.1.2G

It is for the directors of a society to assess the case for transfer, and they must explain and recommend their decision to the members. However, the Authority'sstaff are willing to discuss with a society the procedures to be followed and the information required to ensure that the members can reach fully informed decisions. Societies are strongly recommended to consult the Authorityearly on in the formative stages of transfer proposals. Such consultation will, of course, be treated in the strictest confidence. It will be helpful, also, to have regard to the indicative timetable set out in section 3.9.

BSOG 3.1.3G

Societies should consult their own legal advisers about the application of the provisions of the 1986 Act, and the general law, to the particular features of a proposed transfer.

BSOG 3.1.4G

This chapter considers each stage of the transfer procedure in chronological order. The remainder of this section gives a synopsis of the relevant requirements of the 1986 Act, which are then discussed in more detail in subsequent sections, as follows:

  1. (1)

    Section 3.2, Preliminary Matters, considers the rationale for a transfer and the handling of public announcements, and gives guidance on certain prudential issues.

  2. (2)

    Section 3.3, Terms of a Transfer, considers the mandatory provisions of Section 100 of the 1986 Act concerning the successor company's obligation to treat former shareholders of the society as depositors with it, and the Statutory Cash Bonus. It also considers the mandatory provisions of Sections 102B to D of the 1986 Act, concerning distributions to members who are Trustee Account Holders, the statutory restrictions on distributions to members in Section 100, and the permissive provisions of Sections 100 and 102A. The protective provisions for specially formed successor companies are also discussed.

  3. (3)

    Section 3.4, Information Provided to Members, discusses the form and content of the statutory Transfer Statement and the Transfer Summary, and the accompanying rationale and other statements by the board, and describes the form of application to be made to the Authorityfor approval of the Transfer Statement.

  4. (4)

    Section 3.5, General Meetings and Resolutions, discusses the register of members and members' entitlement to vote, the arrangements for general meetings, the conduct of voting on the Transfer Resolutions and the scrutineers' report.

  5. (5)

    Section 3.6, Confirmation, describes the form of application to the Authority for confirmation of a transfer, and the procedures which the Authority expects to follow in considering and hearing written and oral representations and in reaching its decision.

  6. (6)

    Section 3.7, Transfers Under Direction, describes the modified procedure to be followed when a society has been directed by the Authorityto transfer its business to a company and to proceed by board resolution.

  7. (7)

    Section 3.8, Notification and Dissolution, briefly discusses the process of notification of the vesting date and dissolution of the society.

  8. (8)

    Section 3.9, Timetable, reviews the several stages of a transfer from start to finish.

Statutory Requirements

BSOG 3.1.5G

The provisions of the 1986 Act concerning transfers are in Sections 97 to 102D of, and paragraph 30 of Schedule 2 and Schedule 17 to the 1986 Act, where two types of transfer of business are provided for:

  1. (1)

    to a specially formed company, known as conversion; or

  2. (2)

    to an existing company, known as a takeover.

The procedures are the same in each case, except that the specification of the turnout required to pass the shareholding members' resolution to approve a takeover is, in effect, higher than is required to approve a conversion. The 1986 Act also provides that a specially formed company shall have qualified protection from takeover for up to five years after the vesting date.

[Note: a takeover may take the form of a transfer of business of a society to a subsidiary of the society which is an existing company carrying on business as a going concern, as in the case of Halifax plc (formerly Halifax Syndicated Loans Limited).]

BSOG 3.1.6G

One of the principal purposes of these provisions of the 1986 Act is to ensure that the members are given all the material information they need about the terms of the transfer which they are asked to approve, and proper opportunity to cast their votes. Subsequently, they are given the opportunity to make representations about that process before the transfer is confirmed. The 1986 Act also prescribes certain mandatory terms, and places restrictions on certain permitted terms, of a transfer.

BSOG 3.1.7G

The 1986 Act makes no provision for a transfer to be initiated by any means other than a recommendation of an agreed proposal put by the board of a society to its members (see paragraph 11.10 of the Commission's Decision to confirm the transfer of Halifax Building Society to Halifax plc, which related to alternative distribution schemes) and the Transfer Regulations require the board of a society to give particulars, in the Transfer Statement, of the options for the future conduct of the society's business which it considered before deciding to recommend the transfer to the members and of the reasons why it recommends the proposed terms. Each member who is entitled to receive notice of the general meeting at which the Transfer Resolutions are to be moved must also receive (or have made readily available to him if the Transfer Summary is provided) a copy of a statutory Transfer Statement. A transfer must be approved by a shareholding members' resolution and a borrowing members' resolution. The majorities required to pass these resolutions are described in section 5.

BSOG 3.1.8G

If the terms of a transfer include provision for the payment of compensation to directors or other officers for loss of office or of income attributable to the transfer, then the proposed payments must be authorised by a separate special resolution. If the terms include provision for any director or other officer to receive increased emoluments in consequence of the transfer, then an ordinary resolution approving that provision must be put before a meeting of the society.

BSOG 3.1.9G

The 1986 Act specifies certain procedures for the consideration of representations by interested parties concerning confirmation, and the criteria which the Authoritymust consider before deciding whether or not to confirm a transfer. The matters which the Authoritymay consider do not include the merits of the transfer proposals, nor the fairness of the terms, which the members will have approved by passing the Transfer Resolutions.

BSOG 3.1.10G

The statutory requirements of the 1986 Act are explained and discussed in more detail in subsequent sections of this chapter. However, as is stated in paragraphBSOG 3.1.1 G, this chapter is not exhaustive and is not a substitute for considering, and taking professional advice on, the primary documents, which include:

the Building Societies Act 1986, as amended by or under other legislation, including:

the Building Societies (Joint Account Holders) Act 1995

the Building Societies (Distributions) Act 1997

the Building Societies Act 1997 and

the Financial Services and Markets Act 2000 (in particular by the Financial Services and Markets Act 2000 (Mutual Societies) Order 2001) and the Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001

the Building Societies (Transfer of Business) Regulations 1998

(SI 1998/212)

Judgments of the High Court in:

Abbey National Building Society v The Building Societies Commission [1989] 5 BCC 259

Cheltenham & Gloucester Building Society v The Building Societies Commission [1994] 4 All ER 65, [1995] Ch 185, and [1994] 3 WLR 1238

The Building Societies Commission v Halifax Building Society and Leeds Permanent Building Society [1995] 3 All ER 193

R v The Building Societies Commission, ex parte Whitmey, unreported, 16 April 1997, Lightman J (relating to the Alliance & Leicester Confirmation Decision).

Building Societies Commission Confirmation Decisions on applications by:

Abbey National Building Society (5 June 1989)

Cheltenham & Gloucester Building Society (5 July 1995)

National & Provincial Building Society (3 July 1996)

Alliance & Leicester Building Society (11 March 1997)

Woolwich Building Society (16 May 1997)

Halifax Building Society (23 May 1997)

Bristol and West Building Society (9 July 1997)

Northern Rock Building Society (18 July 1997)

Birmingham Midshires Building Society (18 March 1999)

Bradford & Bingley Building Society (28 September 2000)

Electronic Communications Order 2003

BSOG 3.1.11G

Societies should be aware that this Order modifies various relevant provisions of the 1986 Act. This enables the use of electronic communications between societies, their members and other persons on matters relating to a proposed transfer of business, such as the transfer statement and voting arrangements. The Order requires that societies must obtain consent before using electronic means of communication. The remaining text of this chapter has not been amended to take account of the Order. A society proposing to use electronic communications in relation to a transfer of business will need to take its own legal advice as to how the procedures described in this chapter will have to be adapted. In that event the Authoritywill also adapt its own procedures appropriately.