Building Societies (Floating Charges and Other Provisions) Order 2016 — House of Lords, 2016-06-06
Topic: Domestic Commerce
Thomas Ashton (Conservative, Centre-right): My Lords, I echo the thanks of the noble Lord, Lord Tunnicliffe, to my noble friend Lord Lexden for adding to our debate today; he probably tripled the amount of time that it would have taken I shall be quick. I note my noble friend’s comments. He is right that the JCSI commented on a provision in the statutory instrument that amended another provision in the Scotland Act. I say in parenthesis that Treasury lawyers disagreed with the JCSI on that point, but that is of no matter; as my noble friend said, the Bank of England Act, which the noble Lord, Lord Tunnicliffe, was involved in, corrected that. I pay tribute to the detailed scrutiny that the JCSI carries out on these points but I think we all agree that we can now go forward, thanks to the Bank of England Act I turn to the questions from the noble Lord, Lord Tunnicliffe. The floating charge could become void because if there were a legal case—for example, sorting out counterclaims between secured and unsecured creditors—the court could determine that the charge that everyone thought was a fixed charge was in fact a floating charge. Creditors are therefore worried about this because if that were the case—the noble Lord is absolutely right—there would be no secured position if the court had deemed that it was a floating charge, because before March 2015, building societies were not able to create floating charges. Therefore, if the court then decided that it was a floating charge and they were not able to provide them, the creditors would have no secured credit. In a sense, this order does not specifically even allow building societies to create floating charges, although they could; its real purpose is to provide certainty over the fixed charges. I am not saying that building societies will not create floating charges, but that was the main effect and intention behind the order in March 2015 As regards administrative receivership and the fact that this concerns appointment of a receiver and not of an administrative receiver, that is simply because the Enterprise Act 2002 prohibited companies from appointing an administrative receiver to deal with floating charges. Now that as from May 2015 building societies are allowed to have floating charges, this puts the receivership arrangement on exactly the same footing as the company regime, which is why administrative receivers are prohibited for a floating charge The noble Lord, Lord Tunnicliffe, asked why this has taken so long. He is absolutely right that the original order to enable floating charges was commenced in March 2015. The delay between then and today was partly caused by the general election, but quite a lot of intricate work was also required to amend the Building Societies Act by draft affirmative order. This work involved consultation with officials in Northern Ireland and Scotland and clearing the draft with parliamentary counsel and the Joint Committee on Statutory Instruments. When the order was laid in early February, the further delay was caused by the JCSI and its scrutiny, which we all approve of, and it involved waiting for the provision to come into force, rectifying the mistake regarding the Scotland Act, which was dealt with, as I mentioned, by the Bank of England and Financial Services Act 2016. Therefore that is resolved Finally, there was an advantage in that the delay gave time for the building societies themselves to amend their constitutions to allow for this to come into effect. Therefore, there was some benefit. That is what happened in just over a year up to this coming into force in March This further legislation is required to ensure that the change the Government made last year to allow building societies to create floating charges is effective and helps building societies compete on a level playing field with banks. I hope that the House will join me in supporting this Motion.