Amendments to Law (Resolution of Dunfermline Building Society) Order 2009

My Lords, I beg to move that the House do approve the third draft order standing in my name. In speaking to this order, I am mindful of the concerns raised by Members of this House regarding Section 75 during the passage of the Banking Bill, including the welcome contributions made to the debate by the Constitution Committee and the Delegated Powers Committee, among others. I am grateful for the opportunity to demonstrate how we have stuck to both the spirit and the letter of the agreements that we made through the process of developing and passing the Banking Act in the exercise of this power. In keeping with the assurances that we gave this House through the passage of the Act, the powers exercised in the order before the House today were necessary to ensure the execution of the Dunfermline Building Society transaction. Their scope is reasonable. Members of the other place asked whether it would not have been better to put powers that may be replicated in every resolution into the Bill rather than repeating their use in orders relating to each subsequent resolution. As noble Lords will, I am sure, be aware, it is not uncommon for consequential changes, in the broader sense of the term, to be made by way of an order when a new regime is introduced into a complicated field of law. The Treasury will certainly consider whether it is appropriate for such provision to be made. In this instance, a number of the changes that we have proposed in the order are specific to the Dunfermline Building Society situation. On the order, Section 75 was included in the Banking Act 2009 so that provisions of primary and secondary legislation and common law could be amended to facilitate the resolution of a failing firm in accordance with special resolution objectives such as promoting financial stability, protecting depositors and ensuring the efficient use of public funds. In this case, these amendments to existing legislation include: making effective the transfer to Nationwide of shares in a subsidiary of the Dunfermline Building Society; and, in Part 3, making provision about the Dunfermline bridge bank—for example exempting the institution from the Freedom of Information Act, and conferring qualified immunity from litigation on its directors. As such, the substance of the order is largely technical. Reflecting the new responsibilities assigned to the Bank of England under the Banking Act, the order supports the property transfer instrument made by the Bank, which transferred the Dunfermline Building Society’s member business to the Nationwide Building Society, and the social housing portfolio to a bridge bank owned by the Bank of England. The rump Dunfermline Building Society was then placed into building society special administration following an application to court and by court order. Article 3 of the order supports the transfer of shares in Dunfermline Building Society nominees—a transfer that was effected by the property transfer instrument—by modifying certain provisions of companies’ legislation in consequence of the nature of the transfer. It ensures that the transfer to Nationwide of this subsidiary was effective from day one. Article 4 of the order makes provision in relation to employees. Most employees would transfer to Nationwide automatically by the operation of the Transfer of Undertakings (Protection of Employment) Regulations, otherwise known as TUPE. This provision ensures that all employees of the Dunfermline Building Society are transferred to Nationwide irrespective of whether they would fall within the scope of TUPE. Accordingly, they enjoy the protections of this legislation. Article 5 makes it clear that liabilities in respect of the Dunfermline Building Society pension scheme are not assumed by Nationwide, in accordance with the terms of the transaction. The position of the members of the Dunfermline Building Society’s pensions scheme was raised in Questions in the other place yesterday. My colleague, the Economic Secretary to the Treasury, will write to Members of the other place to put this on to the record. All Dunfermline Building Society employees were transferred to Nationwide on 30 March 2009. The Dunfermline Building Society’s defined benefit pension scheme was not transferred to Nationwide. However, the 160 employees who were members of the defined benefit pensions scheme will be offered membership of the Nationwide group personal pension arrangements. No new benefits will accrue under the Dunfermline Building Society’s defined benefit scheme. As the Dunfermline Building Society is now in special administration, the pension scheme is a creditor in the administration and is expected to make a significant recovery from the winding-up of the estate. These recoveries will be used to meet liabilities to pension holders. However, special administration is classed as an insolvency event for the purposes of Chapter 3 of the Pensions Act 2004. Therefore, the Pension Protection Fund will assess whether the assets of the scheme are less than the protected liabilities of the scheme. In the event of a shortfall of assets, the Pension Protection Fund would assume responsibility for the scheme. I have already mentioned the provisions made in Part 3 in relation to the Dunfermline bridge bank, which have been a feature of previous banking resolutions under the Banking (Special Provisions) Act. Articles 9 and 10 again make the technical provision about the FSA’s rule-making powers that has been made in previous resolutions. Article 11 makes provision for the treatment in insolvency of the claims that the Treasury will acquire against the Dunfermline Building Society in the special administration in consequence of the Treasury entering into the funding arrangement with Nationwide. It provides that the Treasury’s claims shall have the same priority in insolvency as the claims they replace. That is, the claims which replace those of the shareholding depositors will rank behind ordinary unsecured creditors, reflecting the present position of shareholding depositors in insolvency proceedings in respect of building societies. During the passage of the Bill, Members of this House raised their concerns about the potential for Section 75 orders to be made with retrospective effect. Once again, the powers we have taken in this case demonstrate how we intended to use the powers as framed in the Act and as set out in the detailed Code of Practice. In this case, the order was made at 9.45 am on 30 March, but had effect from 8 am, so that it came into force at the same time as the property transfer instrument that executed the transaction. That was necessary, as the order needed to reflect the provision of the property transfer instrument and the transfer needed to take place prior to the opening of the Dunfermline’s branches on Monday morning. I understand that took place at 8 am, which speaks highly of the work ethic in the Dunfermline Building Society, if nothing else. I hope that noble Lords will agree that this was an appropriate use of the Banking Act in quite extraordinary circumstances. I commend the order to the House.