BUILDING SOCIETIES Citation and commencement 1 This Order may be cited as the Building Societies (Undated Subordinated Debt) Order 1994 and shall come into force on 15th April 1994. Interpretation 2 In this Order— “ the Act ” means the Building Societies Act 1986; “the applicable provisions” means section 97 of the Act and the other applicable provisions as therein described; “borrower” in relation to qualifying subordinated debt means the person to whom that debt was advanced or to the extent that some other person has succeeded to the rights and obligations under the issue terms of the recipient of the advance, that other person; “commercial company” means a company within the meaning of the Companies Act 1985 ; “crediting” in relation to interest on qualifying subordinated debt shall not include incurring in lieu of interest, further qualifying subordinated debt credited as fully paid by the application of reserves to an amount not greater than the interest foregone; “creditors” in relation to a society extends to members holding shares in the society, other than deferred shares, as regards the principal of those shares and all interest due thereon in accordance with their terms; “the first criterion” means the first criterion in section 45(3) (the criteria for prudent management) of the Act; “issue terms” in relation to an issue of qualifying subordinated debt means the provisions of a document which sets out or of a connected series of documents which set out the rights and obligations of the borrower, the lender and other persons if any in relation to such debt; “lender” in relation to qualifying subordinated debt means the person by whom that debt was advanced or to the extent that some other person has succeeded to the rights and obligations under the issue terms of the person by whom the debt was advanced, that other person; “the prescribed terms” means the terms specified in Schedule 1 hereto and “the disqualifying terms” means the terms specified in Schedule 2 hereto; “qualifying subordinated debt” has the meaning ascribed to it in article 3(2); “rate” in relation to interest means the rate per annum and “fixed rate”, “floating rate”, “market rate” and “stepped rate” have the respective meanings assigned by article 3(3); “relevant consent” has the meaning ascribed to it in article 5(2); “society” in relation to an issue of undated loan capital means a building society which is or proposes to become the borrower in relation to the qualifying subordinated debt from which such capital is derived; “specified” means specified by issue terms; “supervisory authority” means— in relation to a borrower which is a society, the Commission; in relation to a borrower which is an authorised institution for the purposes of the Banking Act 1987 , the Bank of England; and “undated loan capital” means financial resources derived from qualifying subordinated debt. Capital resources which may be aggregated with reserves 3 1 Subject to articles 4 and 5 below where a society has obtained fully paid up undated loan capital derived from qualifying subordinated debt in respect of which the society is the borrower that undated loan capital may, for the purposes of the first criterion be aggregated with reserves save that in so far as the amount of such undated loan capital exceeds the extent, or contravenes any conditions specified by any order made under section 45(5) of the Act in relation to such capital or to the total of such capital with other items which, apart from such extent or such contraventions would be aggregable with reserves, that excess shall be excluded from such aggregation. 2 For the purposes of this article “qualifying subordinated debt” means a sum borrowed on issue terms which— a have the effect that no repayment will be made to the lender except— i with the relevant consent of the supervisory authority, or ii subject to sub-paragraph (b) of this paragraph in the winding up of the borrower; b have the effect that in the winding up of the borrower claims in respect of such debt shall be limited to such amount as would have been payable in respect thereof if immediately prior to the commencement of the winding up and thereafter the lender— i in the case where the borrower is a society, were the holder of a share having a value calculated in accordance with section 119(3) of the Act equal to the principal amount of such debt, being a deferred share which the borrower, being a society having power to issue such shares, would be able to aggregate with reserves pursuant to an order made under section 45(5) of the Act, but ranking for the purposes of a dividend in the winding up prior to any such shares which had been issued by the society, or ii in the case where the borrower is a commercial company, were the holder of a share in the capital of the company of nominal value equal to the amount of such debt, being a share having a right, preferred over equity share capital and any preference shares which had been issued by the company, in the winding up of the company to a return of capital and accrued interest; c provide for payment, subject to a term which has the effect of the prescribed term, in respect of such periods as may be specified, of interest at a specified rate which shall be— i a fixed rate; ii a stepped rate; or iii a floating rate but which shall not be ascertained by reference to the profits of the society or any other factor other than a market rate; d issued upon issue terms which have the effect of the prescribed terms without other terms or with only such other terms as are not inconsistent with the prescribed terms, and e are not issued upon issue terms which have the effect of any of the disqualifying terms. 3 In this article— “a fixed rate” means a rate of interest which remains the same for so long as the debt remains outstanding; “a stepped rate” means a rate of interest which increases or reduces from time to time by steps specified in time and amount; “a floating rate” means a rate of interest which is ascertained from time to time by reference to a specified market rate or by reference to a specified market rate varied by a specified margin; “a market rate” means— a rate being one of, or an average of, any published rates of interest applicable from time to time for the purpose of calculating interest on debt or other financial obligation arising from transactions between institutions which are authorised for the purposes of the Banking Act 1987; a rate being one of, or an average of, any rates of interest applicable from time to time for the purpose of calculating interest payable on any class of securities issued in the United Kingdom by Her Majesty’s Government; a rate being one of, or an average of, any published figures specifying the rate of yield obtainable on any class of securities issued in the United Kingdom by Her Majesty’s Government; the rate of interest payable on such interest bearing shares other than deferred shares in the society as have from time to time the lowest rate of interest; or the rate of interest payable on such interest bearing shares other than deferred shares in the society as have from time to time the highest rate of interest. 4 For the purposes of this article— a a market rate shall be taken to be specified notwithstanding that the issue terms contain a provision to the effect that, if a specified rate of interest or of yield applying to the issue as a market rate ceases to be published, another published market rate may be substituted therefore, being a rate which is calclated on principles as near as possible to the principles of calculation of the previously applicable rate, and subject thereto, such that immediately after substitution, the market rate shall be as nearly as practicable the same, as that applying immediately before the substitution, and b for the purposes of this article a rate of interest or of yield shall be taken to be published if it is ascertainable at regular intervals by reference to any national newspaper or other periodical publication or by reference to any electronic retrieval system accessible by the borrower and the lender or is notified to the borrower by an institution which is authorised for the purposes of the Banking Act 1987 being a rate of interest or of yield applicable as between institutions so authorised. Shares not to be written down 4 Undated loan capital shall not be aggregated with the reserves of a society for the foregoing purposes at any time at which the terms on which shares in the society other than deferred shares are held, whether contained in the society’s rules or otherwise, enable those shares to be written down. Effect of supervisory authority’s consent to repayment 5 1 Where the supervisory authority gives relevant consent to repayment by a society of qualifying subordinated debt the undated loan capital derived from the debt to which such consent relates shall cease to be aggregable with the reserves of the society for the foregoing purposes when such consent is notified to the society whether or not such debt is repaid pursuant to that consent. 2 For the purposes of this article, “relevant consent” means consent applied for by the borrower otherwise than in consequence of a provision among the issue terms requiring the borrower so to apply or granting a benefit to the borrower for so applying or imposing a sanction against failure by the borrower so to apply. Amendment of the Building Societies (Designated Capital Resources) (Permanent Interest Bearing Shares) Order 1991 6 The Building Societies (Designated Capital Resources) (Permanent Interest Bearing Shares) Order 1991 shall have effect except in relation to any permanent interest bearing shares issued by a society prior to the date on which this order comes into force as if, in the definition of “subordinated debt” in article 2(1) thereof the words “within a period not less than five years from the date of the transfer” were omitted. In witness whereof the common seal of the Building Societies Commission is hereunto fixed and is authenticated by me, a person authorised under paragraph 14 of Schedule 1 to the Building Societies Act 1986, on 7 March 1994. J. Dennis Secretary to the Commission 7 March 1994 We consent to this Order. T. Kirkhope I. Patnick Two of the Lords Commissioners of Her Majesty’s Treasury 11 March 1994