Prudential Regulation Authority Rulebook

4.1

This chapter provides information 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 FSMA 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,^[42] on which a society should seek its own legal advice.

4.2

This chapter describes the relevant provisions of the 1986 Act, and the information which must be made available to the PRA, the FCA, and 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.^[43]

4.3

The chapter also describes the role of the PRA in 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,^[44] which a society may send to its members instead of the Transfer Statement, is also discussed.

4.4

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.

4.5

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 PRA’s is 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 PRA early on in the formative stages of transfer proposals. Such consultation will be treated in the strictest confidence. It will be helpful, also, to have regard to the indicative timetable set out in section ‘Timetable’.

4.6

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. (a) to a specially formed company,^[45] known as conversion;^[46] or
2. (b) to an existing company,^[47] known as a takeover.

4.7

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 provides that a company shall have qualified protection from takeover for up to five years after the vesting date.^[48] 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.

4.8

One of the principal purposes of the 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. They will be 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.

4.9

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 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.

4.10

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 ‘General Meetings and Resolutions’.

4.11

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.

4.12

The 1986 Act specifies certain procedures for the consideration of representations by interested parties concerning confirmation, and the criteria which the PRA must consider before deciding whether or not to confirm a transfer. The matters which the PRA may 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.

4.13

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 paragraph 4.1, 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:

1. (a) the Building Societies (Joint Account Holders) Act 1995 the Building Societies (Distributions) Act 1997, the Building Societies Act 1997, the Financial Services and Markets Act 2000 (in particular by the Financial Services and Markets Act 2000 (Mutual Societies) Order 2001), the Financial Services and Markets Act 2000 (Consequential Amendments and Repeals) Order 2001, the Financial Services and Markets Act (Mutual Society) Order, the Building Societies (Transfer of Business) Regulations 1998 (SI 1998/212) and Paragraph 8 of Schedule 9 to the Financial Services (Banking Reform) Act 2013.

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

1. (c) 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) and Bradford & Bingley Building Society (28 September 2000).

4.14

Societies should be aware of the provisions of paragraphs 9 to 14 of Schedule 9 to the Financial Services (Banking Reform) Act 2013 (see section ‘Electronic communications’ paragraph 2.40).

4.15

It is a matter for the board of a society to decide whether to recommend a transfer to its members. The overriding duty of the board is to reach a view having regard to what is in the best interests of the society in the short and long term, including the interests of the members as a whole, both present and future, as members of a building society, both borrowing members and shareholding members. The board of a society may also reasonably consider the interests of customers who are not members, of the staff, of suppliers of goods and services, and of the wider community.

4.16

The decision of the board to recommend a transfer must be based on a proper evaluation of the issues in relation to a strategic assessment of how the society can best serve its members. One element of that assessment will be the forward business plan of the successor company^[49] (including, in the case of a takeover, how the successor company plans to integrate the business of the society) which will be relevant to:

1. (a) the presentation of the case to the members; and
2. (b) the submission to the Banking Regulator^[50] for permission to carry on the regulated activities which it will undertake as a result of the transfer.

4.17

Copies of the plan should be provided to the PRA and to the Banking Regulator (if the latter is a different authority in another member state).

4.18

Neither conversion nor takeover are likely to figure routinely as options in societies’ corporate plans. However, a board may develop the society’s business in ways which point to the need to consider the transfer option: in which case, a transfer should be foreseen and emerge from the board’s strategic plans. If a board is considering the options of conversion or merger with another society, it should, as a matter of prudence, consider how it would respond to a counter proposal and develop appropriate contingency plans.

4.19

When a board is seriously considering conversion or a takeover, the range of issues which it will need to assess will vary from case to case and is for the board to decide. However, the board will necessarily have regard to its primary duty to reach a view on what is in the best interest of the members, as members of a building society, and not only their short-term interests. It will also be conscious of the requirement to give, in the Transfer Statement, a factual account of the options which it considered and of the reasons why it decided to recommend to the members the terms of any proposed transfer and of the qualifying conditions for any distribution of funds or shares in the successor company in consideration of the transfer.

4.20

A board will usually wish to announce its proposals as soon as possible after it has decided to recommend a transfer to the society’s members. In particular, the board will no doubt wish to inform the members and staff of the proposed terms so that they do not then operate their accounts, or otherwise act, in ignorance of proposals which would have affected their behaviour.

4.21

The board will also wish to avoid misleading potential investors and borrowers; and societies with listed CCDS, PPDS or PIBS must have regard to the FCA’s requirements concerning early disclosure of any information which might affect the price of securities. However, a board may not feel able to make an immediate announcement, perhaps for prudential or commercial reasons, or because it first wishes to settle all the details of the proposed terms. In these circumstances, the board must have contingency plans to make an early announcement to deal with any potentially damaging rumours and to avoid members being misled or left in a state of uncertainty. In considering the timing and terms of an announcement, the board will wish to minimise the risk of destabilising flows of funds.

4.22

The announcement, particularly information provided directly to members and staff, should make it clear that the proposal is subject to approval by the members and completion of the statutory procedures. It should also be made clear, in the case of a takeover, and if such is the case, that the proposal is subject to completion of due diligence investigations by the acquirer and, in either a conversion or takeover when shares in the successor company are to be issued, that the proposal is subject to the shares being listed on the London Stock Exchange or elsewhere.

4.23

The PRA expects that Boards should be careful to avoid appearing to assume that the outcome is a foregone conclusion, and should identify any matters of substance on which the proposed terms of the transfer remain to be settled. Briefing of staff who will be responsible for responding to enquiries from members and the Press should be considered carefully and prepared in advance of the announcement to avoid any risk of members being unintentionally misled.

4.24

A Freephone helpline may be desirable for members’ enquiries about whether they qualify for any distribution under the proposed transfer scheme, but again the staff must be well briefed. It is essential that the announcement, and subsequent information given to members before they are sent the statutory Transfer Statement, or Summary, and in any briefing of the Press, is entirely consistent with what will appear in that Statement.

4.25

In particular, members should be advised to await the Transfer Summary, and especially the Transfer Statement which will contain full details of the proposals and the information relevant to their decision on how they wish to vote. The PRA is happy to comment on drafts shown to it at an early stage, and may be able to help societies to avoid unintentionally misleading statements.

4.26

The board should consult the PRA and, if a different body, the Banking Regulator at an early stage in its consideration of transfer proposals, and certainly no later than its decision in principle to seek a transfer. The complexities of the statutory provisions are such that it is necessary to have the proposed transfer terms specified very closely indeed before it is possible for the PRA to take a view on whether the proposals are fully in conformity with the 1986 Act.

4.27

The Banking Regulator will not be in a position, at this early stage, to give positive assurances as to the permission to be given to the successor company. However, a prudent board will seek the views of the PRA, and also, if different, of the Banking Regulator, before it decides to announce its transfer proposals to the members.

4.28

This preliminary discussion with the PRA will necessarily cover the proposed structure of the successor company or group and a written specification of the transfer terms, particularly the scheme for distribution of any consideration to be offered to the members for the loss of their membership rights in the society, which members and other persons are to benefit, and the criteria for qualification.

4.29

Should there be a difference of view between the PRA and the society as to whether a scheme, or a particular feature of it, is in conformity with the 1986 Act, it may prove desirable to apply to the High Court for a declaration. It will then be necessary for any preliminary announcement of the board’s proposals to make the position clear, and for it to allow sufficient time in its proposed timetable for the application to be heard, and for any appeal.

4.30

In addition to information about the proposed transfer scheme, the PRA expects the board to provide it with information about its plans for ensuring the prudent management of the society through to the proposed vesting date. That information will be consistent with what the board itself will require, bearing in mind that it is for the board to exercise due diligence and to be satisfied that the society’s business continues to be directed and managed prudently. The information required is:

1. (a) the names and responsibilities of senior managers assigned to manage the transfer process;
2. (b) an assessment of the systems requirements of the transfer process, together with the specification of work to be done by consultants (eg the external auditors/scrutineers) and their report(s);
3. (c) contingency plans, with sensitivity and risk assessments, for managing funding and liquidity during the transitional period; and
4. (d) copies of the business plans of the successor company as submitted in connection with its permission to carry on the regulated activities which it will undertake as a result of the transfer.

4.31

The PRA will also wish to have a letter from or on behalf of the society’s board, which consents to the PRA discussing the society’s affairs with the Banking Regulator (if a different body) and the competent authority for listing in the United Kingdom (if a different body from the PRA and an issue of shares in the successor company is intended to be made in connection with the transfer).

4.32

A transfer is exceptionally time-consuming for senior management. The PRA expects to be satisfied that the society has sufficient management resources to cover both the transfer and its day-to-day business within its proposed transfer timetable. It will usually be necessary for the society severely to limit new business developments and initiatives during the transitional period.

4.33

It should be noted that the requirements for information to be provided to members mean that full disclosure will be required in the Transfer Statement of any negotiations in progress on acquisition or other links during the transfer process. The Banking Regulator must be kept fully informed of any such plans because any changes to the society’s business, structure, controls etc may well be relevant to the terms of its successor company’s permission.

4.34

The PRA will appoint a project team, responsible for operational management of the PRA’s functions in relation to the transfer process. The expectation would be that the team will include the Manager responsible for the society’s supervision and one of the PRA’s legal advisers. Names and contact numbers will be provided to the society.

4.35

The PRA expects a society to appoint a project team, headed by a senior manager responsible to the board for management of the whole process and with authority to control the drafting and verification of the Transfer Document,^[51] other briefing and information to members, and responses to representations at the confirmation stage. Strong central control under the direction of the board is, in the PRA’s view, essential for effective management of a transfer.

4.36

The PRA expects the society to provide a systems report from its auditors together with an action plan to remedy any shortcomings. The Banking Regulator, if a different body, may have similar requirements. This report is only part of the full information package which the Banking Regulator will (or is likely to) require in connection with the successor company’s permission to carry on the regulated activities which it will undertake as a result of the transfer and which will be needed so that the PRA can be satisfied in relation to its requirements up to the vesting date.

4.37

The society will need to develop plans to deal with a number of possible contingencies; for example, receipt of a counter-offer (whether private or public) during the transfer process, changes in market conditions or financial results which materially affect the information given in the Transfer Statement, failure to obtain the members’ approval, delay of the planned vesting date and of any flotation, and greater exposure to liquidity risk during the transitional period.

4.38

The Transfer Agreement^[52] should include provision for its termination if, for any reason, flotation does not take place within a specified period after confirmation, and for the board to decide not to proceed if market conditions or other developments mean that it would not be reasonable to do so having regard to the basis on which it secured the approval of the members. The PRA expects to see the society’s contingency plans.

4.39

Before it approves the Transfer Statement, the PRA will need to be satisfied that the successor company is expected to have permission to carry on such regulated activities as will enable it to undertake the business it will have as result of the transfer. It will also ask the Banking Regulator, if different, to confirm that the information given in the draft Transfer Statement appears to be consistent with, and has no material omission of, information available to the Banking Regulator.

4.40

This section discusses the provisions of the 1986 Act which prescribe the terms of a transfer which must be included in the Transfer Agreement and the restrictions on terms which may be included. It also discusses the formation of, and protective provisions for, specially formed companies and the status of existing companies.

4.41

Section 97(4) of the 1986 Act provides that in order to transfer its business to a company, inter alia, a society must agree conditionally with its successor in a Transfer Agreement on the terms of the transfer which, in so far as they are ‘regulated terms’ (as defined in Section 97(12)), comply with Sections 99 and 100 of the 1986 Act and with the Transfer Regulations. In the case of a specially formed company, a society must also secure that the articles of association of the successor company have the requisite protective provisions prescribed by Section 101(2) of the 1986 Act.

4.42

The choice of Qualifying Day^[53] is important because it is a determining factor in deciding which members must have conferred upon them a right to the Statutory Cash Bonus^[54] provided by Section 100 of the 1986 Act. It may also be relevant in deciding which members may receive certain rights under a proposed distribution of funds or of shares in the successor company. The Commission’s view was that there can be only one Qualifying Day for these purposes, which must be clearly distinguished from any other ‘reference dates’ which may be chosen by a society for the purposes of its transfer scheme.

4.43

Subsection (13) of Section 100 defines the Qualifying Day as the day specified in the Transfer Agreement as the qualifying day for the purposes of that subsection. This does not appear to restrict the society’s choice of qualifying day. A number of arguments for such a restriction have been advanced, including that the use of the past tense ‘which expired with the qualifying day’ in subsection (9), read in the context of Section 100 as a whole, indicates that the Qualifying Day must pre-date the Transfer Agreement. The PRA has not been required to express a view on the matter (and see paragraphs 4.20 and 17.4 of the Commission’s Decision to confirm the transfer of the business of Cheltenham & Gloucester Building Society to a subsidiary of Lloyds Bank plc).

4.44

The PRA takes the view that the conditional Transfer Agreement must have been signed by the society and its successor company and commenced (albeit conditionally) before the PRA can approve the Transfer Statement. The PRA must be satisfied, before it approves the Transfer Statement that the Statement correctly describes the proposed terms of the transfer as provided by the Transfer Agreement, and the Agreement cannot properly be said to exist until it has been signed by the parties concerned.

4.45

The Transfer Agreement, as is made clear by its definition in Section 97(12) of the 1986 Act, is necessarily conditional, inter alia, on the society’s members’ approval of the Transfer Resolutions under Section 97(4)(c), and confirmation of the transfer by the PRA (which includes confirmation by the Banking Regulator that it expects to authorise the successor company) under Section 98(2) of the 1986 Act.

4.46

Section 100(2)(a) and (3) of the 1986 Act provide that the terms of a transfer must require the successor company to assume as from the vesting date a liability in respect of a deposit to every member of the society equal to the value of the shares held by such member immediately before the vesting date. In other words, amounts held in share accounts on the eve of the vesting date must become identical amounts held in deposit accounts from the start of the vesting date.

4.47

Section 100(2)(b) and (4) of the 1986 Act provide that the terms of a transfer must confer a right to a distribution of funds by way of bonus, whether paid by the society or its successor company, on every member of the society who held shares in the society on the Qualifying Day but was not eligible to vote on the shareholding members’ resolution. Where the account is in joint names, Schedule 2 to the 1986 Act and the Rules of a society prescribe who is eligible to vote.

4.48

Broadly speaking, members who are not entitled to vote on the resolution are those who are under 18 years of age on the date of the meeting or, if the Rules so provide, those who had less than the qualifying shareholding (usually £100) on the qualifying shareholding date or who ceased to hold shares in the period between the qualifying shareholding date and the voting date. However, the High Court declared in Abbey National Building Society v The Building Societies Commission that, in order to qualify for the Statutory Cash Bonus, in addition to having held shares in the society on the Qualifying Day, a member also must have held shares continuously between the Qualifying Day and the vesting date.

4.49

In coming to this judgement, the Vice Chancellor found the sequence of tenses used in subsection (4) of Section 100 of the 1986 Act to be illuminating: ‘It says that a member is… a qualifying member if he held… shares in the society on the qualifying day and was not… eligible to vote… The subsection is therefore looking at somebody who at a particular point of time is a member and who had certain qualifications in the past… the relevant date for establishing membership is the vesting day… it is implicit in subsection (4) that the person… must have been a member on the qualifying day and have remained a member thereafter continuously through until the vesting day’. In settling the terms of the declaration, the Vice Chancellor confirmed that when referring to the member remaining a member between the two dates, he intended to mean as a member holding shares.

4.50

The bonus is to be calculated as that proportion which the society’s reserves bear to its total liability to its members in respect of shares, as shown in the latest balance sheet of the society, applied to the value of the shares held by the member on the Qualifying Day. If a Transfer Statement is approved and sent to the members just before, or shortly after, the end of the financial year of the society, it will be important to note that the Annual Report and Accounts for the year will have been published by the vesting date, when qualifying membership has to be established and the bonus is due to be paid. In those circumstances, ‘the latest balance sheet of the society’ will be that published in the most recent Annual Accounts. The same considerations may apply when a society publishes half-yearly results.

4.51

The PRA may direct, however, where it confirms a transfer of a society’s business to an existing company (ie only in a takeover), that no Statutory Cash Bonus is paid or that a lesser amount is paid than that referred to in paragraph 4.50, having regard to what is equitable between the members.

4.52

Section 100(1) of the 1986 Act provides that:

‘Subject to subsections (2) to (10), the terms of a transfer of business by a building society to the company which is to be its successor may include provision for part of the funds of the society or its successor to be distributed among, or other rights in relation to shares in the successor conferred on, members of the society, in consideration of the transfer’.

4.53

In respect of rights to shares, Section 100(8) of the 1986 Act provides that:

‘The terms of a transfer of a society’s business may confer a right to acquire shares in the successor on a member of the society only if the member (a) held shares in the society throughout the period of two years ending with the qualifying day, or (b) on that day hold deferred shares in the society that are of a class described in the transfer agreement; and it is unlawful for any right in relation to shares to be conferred in contravention of this subsection’; and, in respect of a distribution of funds, Section 100(9) of the 1986 Act provides that:

‘Where the successor is an existing company, any distribution of funds to members of the society, except for the distribution required by subsection (2)(b), shall only be made to those members who (a) held shares in the society throughout the period of two years ending with the qualifying day, or (b) on that day, hold deferred shares in the society that are of a class described in the transfer agreement ; and it is unlawful for any distribution to be made in contravention of the provisions of this subsection’; while, in respect of a transfer to a specially formed company, Section 100(10) of the 1986 Act provides:

‘The following restrictions apply to any distribution of funds, or any conferring of rights in relation to shares, in connection with the transfer of its business from the society to its successor where the successor is a company specially formed by the society, that is to say:

1. (a) no distribution shall be made except that required by subsection (2)(b); and
2. (b) where negotiable instruments acknowledging rights to shares are issued by the successor within the period of two years beginning with the vesting date, no such instruments shall be issued to former members of the society unless they are also issued, and on the same terms, to all other members of the company; and it is unlawful for any distribution of funds to be made in contravention of the provisions of this subsection’.

4.54

The meanings of subsections (1), (8), (9) and (10) of Section 100 of the 1986 Act (before the amendments to subsections (8) and (9) were made by paragraph 8 of Schedule 9 to the Financial Services (Banking Reform) Act 2013) have been considered by the High Court in four cases: Cheltenham & Gloucester Building Society v The Building Societies Commission, in relation to distributions of funds, and Abbey National Building Society v The Building Societies Commission, The Building Societies Commission v Halifax Building Society and Leeds Permanent Building Society and R v The Building Societies Commission, ex parte Whitmey in relation to share distributions. These judgments related to specific proposals and may not necessarily be directly relevant in all respects to transfer schemes proposed by other societies in the future.

4.55

A society must obtain its own advice when formulating proposals for a cash or share distribution scheme. In particular, they may not be relevant having regard to the wording of section 100(8) and (9) of the 1986 Act brought in by paragraph 8 of Schedule 9 to the Financial Services (Banking Reform) Act 2013.

4.56

As is explained in paragraph 4.26–4.28, the PRA will have to see a fully specified description of the distribution scheme before it can form its own view of whether it is in conformity with the 1986 Act. The PRA expects the society to enclose copies of the legal advice it has received when submitting a scheme for consideration.

4.57

Paragraph 7 of Schedule 2 to the 1986 Act deals with joint shareholders and defines the ‘representative joint holder’ as ‘that one of the joint holders who is named first in the records of the society’. Paragraphs 7(5) and (5A) of that Schedule provide that, for the purposes of Sections 87 and 93 to 102 of the 1986 Act, the shares shall be treated as held by the representative joint holder alone and, accordingly, joint holders, other than the representative joint holder, shall not be regarded as members of the society by reason only of being a joint holder of those shares.

4.58

The effect of this provision (but subject to the provisions of Section 102A) is that if, for example, the representative joint holder dies, or the order of names on the account is changed in the two years preceding the Qualifying Day, any rights to a distribution under a transfer scheme, which are conferred on those who have held shares for two years up to the Qualifying Day, cannot devolve upon any other joint account holder, unless that holder is in his or her own right, by virtue of another account holding, a two-year shareholding member.

4.59

Section 102A, however, provides that, in certain circumstances, second named joint holders, who have themselves held shares in the society continuously during the two year qualifying period, whether as sole or joint holders of shares, may qualify for a right which otherwise could only have gone to a first named holder.

4.60

Cases which would be covered by the provisions of Section 102A include: the death of the first named holder, including where, for example, a third named joint account holder would move up the scale if both the previous first named and second named holders were killed in the same car accident; the creation of a joint account, for example, on marriage; the division of a joint account on divorce or separation, or for any other reason, where the previous first named holder has ceased to hold shares in the society; and when there has been a change in the order of names within an account.

4.61

Section 102A applies only to joint share account holders (joint borrowers are not affected) and is only relevant where the application of the two year qualifying period prescribed by Section 100 is relevant to a proposed distribution of funds or conferring of rights to shares. The provisions of Section 102A are permissive, not mandatory (see paragraphs 13.2 to 13.5 of the Commission’s Confirmation Decision on the application by National & Provincial Building Society) and are not ‘relevant requirements’ of the 1986 Act (see paragraph 4.179).

4.62

It is for the society’s board when proposing a transfer scheme to decide whether to incorporate in its distribution scheme none, some, or all of the cases where Section 102A allows membership of a joint account, other than as the first named holder, to count towards the two year qualifying period. Finally, these provisions do not affect the position of the personal representatives or beneficiaries of deceased sole holders of share accounts. Societies should obtain their own advice on all these matters when considering how they wish to construct the terms of a proposed distribution scheme.

4.63

A member who holds funds in a share account, or holds a mortgage account, on trust for another person is not a Trustee Account Holder unless the following conditions are satisfied. Sections 102B to D of the 1986 Act require that, if the terms of a transfer include distributions of funds or of rights to shares to members of the society, then each Trustee Account Holder shall be treated by the society and its successor as not being disentitled from receiving, in addition to any distribution to which he or she may be entitled in any other capacity, a separate distribution in respect of each account which he or she holds in trust for certain categories of beneficiaries (provided that, as holder of that account, he or she meets the conditions for receipt of a distribution under the scheme).

4.64

An account may be either a share account or a mortgage account of which the Trustee Account Holder may be the sole or representative joint holder. A member may receive only one distribution for each account he or she holds as a Trustee Account Holder (irrespective of the number of account holders or beneficiaries of that account) and a member who holds only one account may receive only one distribution in respect of that account whether as a member or, if he or she so decides, as a Trustee Account Holder. 

4.65

If a person is a qualifying beneficiary of more than one account held by a Trustee Account Holder (referred to in Section 102D(5) as ‘duplicate accounts’), then only a single distribution is required to be paid in respect of the duplicate accounts whether or not there are other qualifying beneficiaries of those accounts. A change in the identity of the Trustee Account Holder during any qualifying period for a distribution does not affect the entitlement to a distribution in respect of the account. The categories of qualifying beneficiaries of such accounts are persons who cannot reasonably practicably act in relation to the accounts themselves by reason of ill-health or old age or any physical or mental incapacity or disability.

4.66

A society will need to take its own legal advice as to the interpretation of these Sections and whether and, if so, what advice it should give to its members to help them decide whether they are Trustee Account Holders. The PRA expects to see that advice to help it reach a view on whether the society’s proposals appear to it to be lawful, while recognising that only the courts can interpret the law. With that important proviso in mind, the PRA has taken the view that a scheme may provide that a member is a Trustee Account Holder if the funds (or debt) in the relevant account are held either wholly or partly for one or more qualifying beneficiaries. CCDS, PPDS and PIBS do not appear to be share ‘accounts’ as described by Sections 102B to D so that a person could not be a Trustee Account Holder in respect of a holding of PIBS.

4.67

A society is not required to notify its members of these provisions. However, unless it does so, it will not gain the protection of Section 102B(4) which provides that a Trustee Account Holder will not be entitled to a distribution in that capacity if the society has notified him that he must make a statutory declaration and the Trustee Account Holder has not made such a declaration before the date specified in the society’s notice to him. Moreover, the Transfer Regulations require that the Transfer Statement must contain a forecast of the amount and proportion of the total consideration which is expected to be distributed to Trustee Account Holders.

4.68

The PRA expects the final date for receipt of statutory declarations from Trustee Account Holders to be shortly before the vesting date so that declarations may take account of any changes in the identity of the account holder or the status of the beneficiary or beneficiaries. Trustee Account Holders must also be able to make an informed judgement as to whether the terms of the distribution scheme are such that making a statutory declaration will be in the best interests of the beneficiary or beneficiaries of an account; they cannot do this until the full terms of the proposed scheme have been published in the Transfer Statement and made available for inspection in the Transfer Agreement.

4.69

The PRA expects, therefore, that societies will issue notices under section 102B to Trustee Account Holders not later than despatch of notices of the SGM at which the Transfer Resolutions are to be considered, and that the specified date for returning statutory declarations by Trustee Account Holders will be on, or shortly before, the vesting date or, in any event, not less than 1 month after the despatch of the notices.

4.70

No regulations have been made by the Treasury under Section 102D(11). However, to meet the requirement that the Transfer Statement must contain a forecast of distributions to Trustee Account Holders, and so that it can determine the qualifying conditions for, and estimate the value of distributions to members generally, and individually, particularly if the scheme includes a variable element, the PRA expects that a society will need to write to all its members at least 2 months before the Transfer Statement is expected to be issued advising them of the procedures for dealing with distributions to Trustee Account Holders, perhaps also with the notices envisaged by Section 102B(4), and asking them, if appropriate, to register their interest in making statutory declarations as Trustee Account Holders.

4.71

In a conversion, the successor company must be specially formed by the society (and by no others than its nominees) wholly or partly for the purpose of assuming and conducting the society’s business in its place and must be a company within the meaning of the Companies Act 2006 which is a public company limited by shares (Section 97(12) of the 1986 Act) or a body corporate incorporated in another EEA State with power to offer its shares or debentures to the public (Section (97(13)).

4.72

Section 98(3) of the 1986 Act provides that the PRA shall not confirm the transfer if there is a substantial risk that the successor will not have such permission under FSMA as will enable it to carry on the business which it will have as a result of the transfer. The society must secure that the successor company is formed having articles of association with the ‘requisite protective provisions’ (Section 97(4)(a) of the 1986 Act).

4.73

The terms of the transfer must include provision to secure that the society ceases to hold any shares in the specially formed successor company by the date on which the society is to dissolve (Section 100(11) of the 1986 Act). The provisions of the 1986 Act concerning the dissolution of the society and the disposal of any shares in its successor are discussed in section ‘Notification and Dissolution’.

4.74

The terms of the transfer must include provision to secure that the society ceases to hold any shares in the specially formed successor company by the date on which the society is to dissolve (Section 100(11) of the 1986 Act). The provisions of the 1986 Act concerning the dissolution of the society and the disposal of any shares in its successor are discussed in section ‘Notification and Dissolution’.

4.75

The requisite protective provisions are the provisions of Section 101 of the 1986 Act which require the successor company to ensure that it does not allow one person, or two or more persons acting in concert, to hold more than 15% of the shares of the company during the period from the company’s incorporation until 5 years after the vesting date. The purpose of this provision is, clearly, to protect the newly converted bank from takeover. The provisions will cease to apply if the PRA so directs, or if the successor company acquires another financial institution, as defined in Section 101(6), or if the shareholders resolve to that effect by a majority representing at least 75% of the nominal value of shares giving voting rights. The PRA is required to consult the FCA before making a direction under section 101.

4.76

For a takeover, an existing company, which is to assume and conduct the society’s business in its place, is defined in Section 97(12) and (13) of the 1986 Act as a company as defined in section 1(1) of the Companies Act 2006, which is a public company limited by shares, or a body corporate incorporated in another EEA State with power to offer shares or debentures to the public, ‘carrying on business as a going concern on the date of the transfer agreement’.

4.77

Section 98(3) provides that the PRA shall not confirm the transfer if there is a substantial risk that the successor will not have such permission under FSMA as will enable it to carry on the business which it will have a result of the transfer. The effect of these provisions is that the business of a society may be transferred to a body corporate incorporated in another EEA State which, at the date of the Transfer Agreement, is a going concern and which is acceptable as a deposit taker to the appropriate regulatory authority. To be a going concern, the company must actively be carrying on a business before it can enter into an agreement to acquire the business of a society. Conversely, it would not seem possible to use a company which carries on no substantive business, other than employing its capital, simply as a vehicle for taking over a society.

4.78

The successor company does not need to have the required permission under FSMA at the time of the takeover offer or the Transfer Agreement; but it must be carrying on business as a going concern. However, the subsequent obtaining of the necessary permission is a key criterion. An offer will not be credible unless the company has first obtained an indication from the PRA or other EEA competent authority that it is prepared to authorise, or to continue the authorisation of, the successor company, upon transfer on terms which will enable it to carry on the business it will have following the transfer. As a practical matter, the authorities would find it difficult to authorise an institution whose business from the time of authorisation was not predominantly banking or deposit taking and would require to be satisfied that the parent company (if any) as controller was fit and proper.

4.79

Any compensation for loss of office or diminution of emoluments attributable to the transfer which is proposed to be paid to directors and other officers must be approved by a separate special resolution, in addition to the Transfer Resolutions required to approve the terms of transfer as a whole (Section 99 of the 1986 Act). Loss of office includes loss of office in any other body held by virtue of the director’s or other officer’s position in the society. ‘Compensation’ is not defined in the 1986 Act, except to the extent that Section 99(6) says that it includes benefits in kind.

4.80

In the PRA’s opinion, compensation does not include statutory redundancy payments, damages for breach of contract, or other payments, for example, falling due under the terms of a pre-existing contract of employment, or a pre-existing arrangement giving rise to a reasonable expectation. However, it does include any proposed ex-gratia payments or other provision of benefits in money or money’s worth. Societies should consider very carefully the extent to which any proposed payment may exceed the amount provided for by statute or contract. In view of the requirement in Section 99(4) that unauthorised payments must be repaid by the recipient, societies are advised to take legal advice on any payments which are not specifically authorised by the terms of a special resolution passed by the members in accordance with Section 99(2)(a). The Treasury has not made any regulations under Section 99(2)(b) and (3).

4.81

All proposed payments requiring approval by special resolution must be disclosed in the Transfer Statement. In addition, the PRA expects disclosure in the Transfer Statement of any other payments to directors or other officers arising directly from the transfer. So that members are aware of the direct interest of the directors or other officers in a transfer, societies should consider whether the amount, as distinct from the fact, of any statutory or contractual payments should be disclosed where these arise directly from the transfer. More generally, societies need to consider whether any facts relevant to any director or other officer, or to any person(s) connected with any director, should be disclosed where these are material to the decision of the members who are to be asked to vote on the proposed transfer.

4.82

Increased emoluments are defined by Section 99A of the 1986 Act as an increase in consequence of the transfer, and included in the terms of the transfer, for any director or other officer, whether by way of increased remuneration or the grant of share options or otherwise. The PRA expects this formulation to include the receipt of distributions of funds or of rights to shares in consideration of the transfer which are made to directors or other officers in their capacity as employees or pensioners of the society or any of its subsidiaries. However, this is a matter which can only be conclusively determined by the courts.

4.83

Any such increase in emoluments is required by Section 99A(2) of the 1986 Act to be put before a meeting of the society in an ordinary resolution approving such provision. However, although such an ordinary resolution must be put to a meeting, it is not required to be passed in order to authorise such increases which will be authorised by the general approval of the transfer and its terms provided by the passage of the Transfer Resolutions. Neither is it required that the ordinary resolution be put before the meeting which is to consider the Transfer Resolutions. However, as is explained below, any proposed increase in emoluments will have to be explained in the Transfer Statement, and the PRA will have to be satisfied that the requisite ordinary resolution was put before a meeting of the society when it considers a society’s application for confirmation of a transfer.

4.84

Section 98(1) of and Part I of Schedule 17 to the 1986 Act require a building society which desires to transfer its business to a company to send a statement relating to the proposed transfer to every member entitled to notice of a meeting of the society. This may be either a Transfer Statement or a Transfer Summary, and is to be included in or with the notice of the meeting at which the Transfer Resolutions are to be moved. If a Transfer Summary is sent, then the society must also make the Transfer Statement available forthwith, free of charge, to every member who asks for it. The Treasury has power to make regulations for the purpose of specifying the matters of which Transfer Statements and Transfer Summaries are to give particulars. No Transfer Statement shall be sent or made available unless its contents, so far as they concern the matters so specified, and any other matters which the PRA may require in the case of a particular transfer, have been approved by the PRA. The Transfer Summary, however, is not required to be approved by the PRA.

4.85

The Transfer Statement has to contain the particulars of the ‘prescribed matters’ which are set out in Schedule 1 to the Transfer Regulations. It must also include particulars of any other matters which the PRA may require (paragraph 3(1)(b) of Schedule 17 to the 1986 Act). Note that Regulation 3(2) of the Transfer Regulations provides that if a particular matter is not ascertainable at the time, a forecast may be given; for example, of the percentage amount of the Statutory Cash Bonus, or of the division of any distribution of shares or cash among different classes of recipient (see subparagraph (c)).

4.86

The principal matters the PRA expects a Transfer Statement to contain can be summarised as follows:

1. (a) a factual statement of the strategic options considered by the board and the reasons why it decided to recommend the particular proposals being put to the members. In the case of a takeover, the board must also provide a valuation of the business compared with the consideration which is proposed to be paid by the successor company, and state whether it considers the offer price to be fair and reasonable;
2. (b) disclosure of the names of any building societies or companies from which written proposals for merger or takeover were received within the preceding twelve months as required by Regulation 3 of the Transfer Regulations. The fact of the proposal, the name of the proposer and the terms of the proposal must be disclosed, unless the proposer has requested either that the whole matter, or just the terms of the proposal, be treated as confidential. An invitation to discuss a possible merger or takeover would probably not constitute a ‘proposal’. A society should consider carefully, and take advice on, whether any approach it has received does qualify as a disclosable proposal. If no proposals have been received that fact could be stated in the Transfer Statement, for the avoidance of doubt;
3. (c) details of any share and/or cash distribution scheme, as provided by the Transfer Agreement, and showing separately the estimated amount of the benefits (if any) to be conferred on members, Trustee Account Holders, and on others such as employees and pensioners of the society, and giving information about the value of any shares including, if unquoted ordinary shares, an illustrative estimate of the market price of the shares if they had been issued at some specified date within the previous 6 months;
4. (d) the consequences of the transfer for members of the society, including a clear explanation of the potential effects on interest rates and containing, in particular, a factual statement of changes in the factors relevant to the determination of interest rates on retail deposits and loans by the successor company compared with the society (having regard to the need for the company to pay dividends to its shareholders), and including any change in the terms on which deposits are to be held and any changes in the applicable terms of the statutory protection scheme and complaints handling arrangements;
5. (e) the consequences of the transfer for employees of the society, including any changes in the branch structure or economies in head office departments;
6. (f) the financial interests of the directors and other officers arising from, or as a consequence of, the transfer. If directors or other officers have no financial interests in the transfer, either by way of increased emoluments, compensation or other benefits, this should be stated explicitly, for the avoidance of doubt;
7. (g) the main features of the published consolidated annual accounts of the society group for the last three financial years and its current financial position, including the amount of the society’s reserves, at a date not more than six months prior to the date of the Transfer Statement;
8. (h) in the case of a takeover, the main features of the published annual accounts of the successor company group for the last three financial years, its current financial position at a date not more than six months prior to the date of the Transfer Statement, and key business indicators of the society group and the successor company group for each of the past three financial years. If the successor company is a significant subsidiary within a group, the PRA may require corresponding information about the company alone to be given;
9. (i) the future financial prospects of the successor company;
10. (j) the intended range and relative importance of the activities of the successor company and any change proposed following the transfer;
11. (k) in the case of a takeover, the structure and activities of any group to which the successor company belongs;
12. (l) a summary of the provisions of the Transfer Agreement concerning the conditions precedent to its completion and providing for its termination;
13. (m) a statement as to whether the transfer will conflict with any contractual obligations of the society (which would include agency agreements);
14. (n) the total estimated costs and expenses of the transfer, together with (if applicable) the estimated amount of, and the terms on which, fees and disbursements will be paid to advisers, such as merchant bankers, relating to the valuation of the business;
15. (o) responsibility statements by the directors of the society and the successor company, and opinions of the external auditors and any other experts, such as merchant bank advisers; and
16. (p) if a Transfer Summary is issued, a statement that the full Transfer Statement will be provided free and on request and how it can be obtained.

4.87

A Transfer Summary may be sent, instead of the Transfer Statement, in or with the notice of the meeting at which the Transfer Resolutions are to be considered, to every member entitled to that notice. As its title indicates, the Transfer Summary must contain information derived from the Transfer Statement, particulars of which are prescribed by Schedule 2 to the Transfer Regulations: principally, that is, the matters described in paragraph 4.85–4.86, in summary form, excepting detailed financial information and terms of the Transfer Agreement.

4.88

The basic qualifying conditions for a distribution of funds or shares might, for example, be summarised in the form of flow charts. More complex information, such as that relating to successors to deceased members, or second named joint account holders, should also be summarised with affected persons being referred to the Transfer Statement and, perhaps, special leaflets on particular terms.

4.89

Unlike the Transfer Statement, the Transfer Summary does not have to be approved by the PRA. It is to be compiled by, and on the responsibility of, the directors of the society and of the successor company. If a society decides to send a Transfer Summary, rather than the Transfer Statement, with the notice of the meeting, then the Transfer Summary must contain the director’s responsibility statements and state that it has not been approved by the PRA while the full Transfer Statement, which has been so approved, is on request available free of charge, to any member of the society to whom the Transfer Summary was sent, at any branch or office of the society or by post.

4.90

The Transfer Statement or Transfer Summary does not have to be a separate document. In practice it will usually be convenient to include it in a comprehensive Transfer Document which will also contain the notice of the meeting at which the Transfer Resolutions are to be moved, an explanation of the transfer procedure (including details of the confirmation stage — see section ‘Confirmation’) and a description of the requirements of the society’s Rules concerning entitlement to vote.

4.91

It may also be convenient to include additional material required by the PRA in connection with a flotation. However, the statutory Transfer Statement or Transfer Summary within the Transfer Document should be clearly identified as such (either by printing it on a different colour of paper or by some other means). An illustrative example of the structure of a Transfer Document containing a Transfer Statement is given in Appendix 1. A Transfer Document containing a Transfer Summary should take much the same form (in that case, the Transfer Statement made available to the members on request could be a separate document).

4.92

If shares in the successor company are proposed to be offered to members, either for subscription or free of charge, the society will need to consider whether and, if so, how it should combine the information relevant to the members decision on the proposed transfer, and that relevant to the share offer, in one document. The two requirements differ, particularly in extent. Combining the Transfer Statement and share prospectus may run the risk of confusing the issues for some members.

4.93

The PRA and its staff may be willing, but only if time and its resources permit, to comment informally on material additional to the statutory Transfer Statement which the board proposes to put to the members. The PRA considers that, if asked, it can best help the board and the members’ by making informal comments at the formative stage. However, it will only comment on the clear understanding that the final decision on what information to put to the members without the Transfer Statement is for the board to decide. The PRA is conscious that it may have to assess such additional material in the light of representations on the society’s application for confirmation of the proposed transfer, and any comments which it does offer are without prejudice to its position in those proceedings.

4.94

However, the PRA cannot undertake the additional work of reviewing and commenting upon the draft Transfer Summary. As is noted in paragraph 4.89, the board alone is responsible for ensuring that the Summary fairly and accurately summarises the prescribed information in the Transfer Statement, and that it fulfils the requirements of the 1986 Act and the Transfer Regulations. As with the other information provided to the members in addition to the Transfer Statement, the PRA will review the Transfer Summary at the confirmation stage of the transfer procedure.

4.95

The Transfer Regulations, deliberately confine the particulars required to be included in the statutory Transfer Statement to information which is factual and which can be verified by a society and its professional advisers, including factual statements of the reasons why the board decided to recommend the transfer and its terms (which may include statements of the board’s belief and opinions, clearly identified as such) and the options it considered for the future conduct of the society’s business, all of which can be verified by reference to the board’s minutes and papers. A board may choose to engage in more general advocacy of the merits or fairness of its proposals elsewhere in the documents sent to members, in which case, the PRA may have to have regard to whether such material is consistent with the information given in the statutory Transfer Statement when it comes to consider an application for confirmation.

4.96

The PRA expects the whole Transfer Document to be covered by responsibility statements by the directors of the society and the successor company. This may be given along the following lines (either a joint statement or separate statements by each board):

‘The directors of… Building Society and the directors of… accept responsibility for the information relating respectively to the society and the company which is contained in this document. To the best of the knowledge and belief of the directors (who have taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information’.

4.97

It will be helpful to both the society and the PRA for the society to consult the PRA about the outline structure of, and main features to be contained in, the Transfer Document at an early, formative stage. The PRA will also be prepared to consider a full specification of the proposed cash or share distribution scheme. Thereafter, a formal written application for approval of the statutory Transfer Statement must be made to the PRA by, or on behalf of, the board and accompanied by a draft Transfer Statement which should be as complete as is reasonably practicable at that stage, together with the fee prescribed by the current Fees Rules.

4.98

The PRA will then consider the application and decide whether or not to approve the Transfer Statement. It must satisfy itself that:

1. (a) in its opinion, the terms of the transfer scheme described in the Transfer Statement are consistent with the 1986 Act;
2. (b) the Transfer Statement contains particulars of the matters required by the Transfer Regulations
3. (c) there is no further material information which it appears to the PRA, on the basis of what it knows at that time, is relevant to the decision of the members and is appropriate to the Transfer Statement (since that Statement carries the explicit approval of the PRA); and
4. (d) the information in the Transfer Statement is presented clearly, in a balanced way, is consistent with the facts as known to the PRA, and is supported by responsibility statements from the directors and by opinions from the society’s auditors and advisers.

For that purpose, the PRA will require supporting documentary information, including, in particular:

1. (e) the draft Transfer Agreement, which will incorporate a full specification of the transfer distribution scheme (the Transfer Statement by itself being an inadequate basis for considering the legal issues);
2. (f) a description, supported by opinions of the society’s auditors and legal advisers, of the terms of the proposed scheme of distributions of funds or shares to members, Trustee Account Holders and others, including the systems and procedures required to make the distributions and copies of the notices and other documents to be used;
3. (g) in the case of a specially formed company, the draft articles of association of the successor company (including the requisite protective provisions);
4. (h) the Rules of the society (six copies);
5. (i) the full accounts and auditors’ reports on which the financial information is based; and
6. (j) a checklist of the information required by the Transfer Regulations showing where each item may be found in the draft Transfer Statement.

4.99

Before approving a Transfer Statement the PRA is required to consult the FCA. The process of consideration will consist of discussions and correspondence between the PRA and the society, which are likely to lead to the production by the society of one or more redrafts of the Transfer Statement to take account of the PRA’s comments, and refinements proposed by the society, to improve the clarity, completeness and drafting of the Statement.

4.100

The time necessary to complete this process will depend upon the quality and completeness of the draft Statement submitted with the first application, the complexity of the proposed terms of the transfer and whether they include any novel features, and whether it proves necessary to apply to the High Court for the determination of any legal issues. The PRA will seek to deal with the process efficiently and expeditiously. However, its speed of response will necessarily be affected by the factors referred to above as well as the commitments and priorities of the PRA relevant resources. The draft Transfer Statement must also be fully verified, to the satisfaction of the board, which process may be expected to take up to 6 weeks.

4.101

The Fees Rules provide that a further fee is payable by the society each time it submits a revised draft Transfer Statement to the PRA for approval. However, the PRA may waive or reduce the additional fee where it is satisfied that the revisions to the original, or previous, draft are not substantial.

4.102

When the society has settled on the final draft of a Transfer Statement which the PRA is minded to approve, the society should submit two authenticated copies of the final draft Transfer Statement to the PRA with the following documents:

1. (a) a certified copy of the Transfer Agreement made between the society and the successor company;
2. (b) the Memorandum and articles of association of the successor company;
3. (c) a checklist of the information required to be included in the Transfer Statement pursuant to the Transfer Regulations;
4. (d) certified copy of an opinion from the society’s auditors pursuant to paragraph 17 of Part I of Schedule 1 to the Transfer Regulations;
5. (e) certified copies of any other experts’ reports or opinions which appear or are referred to in the Transfer Statement;
6. (f) certified copy of an opinion from the successor company’s auditors pursuant to paragraph 17 of Part I of Schedule 1 to the Transfer Regulations;
7. (g) statutory accounts of the society and its connected undertakings for the previous three financial years, together with a reconciliation between those accounts and the figures appearing in the Transfer Statement;
8. (h) in the case of an existing company, consolidated statutory accounts of the company/group for the previous three financial years, together with a reconciliation between those accounts and the figures appearing in the Transfer Statement;
9. (i) certified copy of a letter of consent from the society’s auditors relating to the issue of the Transfer Statement;
10. (j) in the case of an existing company, certified copy of a letter of consent from the successor company’s auditors relating to the issue of the Transfer Statement;
11. (k) certified copy of a letter of consent from the Banking Regulator relating to the issue of the Transfer Statement with the inclusion of a statement as to the willingness of the Banking Regulator to authorise or, as the case may be, to continue to authorise the successor company on terms which will enable it to carry on the business it will have as a result of the transfer;
12. (l) certified copies of letters of consent from any other experts relating to the issue of the Transfer Statement with the inclusion of any reports or opinions referred to in paragraph 4.102(e);
13. (m) certified copies of responsibility letters signed by the directors of the society (see paragraph 4.96);
14. (n) certified copies of responsibility letters signed by the directors of the successor company (see paragraph 4.96);
15. (o) certified copies of the minutes of the boards of the society and the successor company approving the Transfer Statement, the Transfer Agreement and related documents and approving the release of the responsibility letters mentioned in paragraphs 4.102(m) and 4.102(n) (respectively) to the PRA;
16. (p) an assurance from the directors of the society concerning the society’s register of members and its systems (see paragraph 4.102); and
17. (q) a declaration by the directors of the society, and a similar declaration (as appropriate) by the directors of the successor company, in accordance with the declaration in Appendix 1.

4.103

The PRA’s statement of approval of the Transfer Statement will be given as is set out in Appendix 1. The PRA’s approval of the Transfer Statement will be confirmed by returning to the society one authenticated copy of the Transfer Statement with the PRA’s certificate of approval signed by an authorised signatory for the PRA. The society will be asked to give 50 copies of the printed Transfer Document and Transfer Summary, if any, to the PRA when they are available. There is no statutory requirement for copies of the Transfer Statement and Transfer Summary to be placed on the public file of a society but, because they are both public documents, the PRA will arrange for copies of the Transfer Document and Transfer Statement, if printed separately, to be placed on the public file.

4.104

4.105

The number of copies of the Transfer Statement to be printed will, of course, depend upon whether a society intends to distribute a Transfer Summary to its members with the notice of the general meeting. In that case, the society must make its own judgement about the number of copies of the full Transfer Statement to be printed, bearing in mind the requirements of paragraph 4(2) of Schedule 17 that sufficient copies must be available at every office or branch of the society and for despatch by mail.

4.106

A Transfer Document is bound to be lengthy and somewhat complex. It has to contain a lot of information, but its complexity will depend to a large extent on the terms of the transfer, particularly the transfer distribution scheme, proposed by the board. Bearing in mind that the purpose of the Transfer Statement is to provide information to the generality of members, it should be written in a clear and concise style and, so far as possible, in plain English. The PRA expects that, because the statutory Transfer Statement is largely concerned with matters of fact, those matters are presented clearly and unambiguously.

4.107

To the extent that it is necessary to include statements of the opinion or belief of the board, those statements should be clearly identified as such in the Transfer Statement. The board’s views on the fairness and merits of the proposed transfer and its terms will form a separate part of the Transfer Document, as discussed in paragraph 4.95.

4.108

Appendix 1 suggests a structure for the Transfer Document which is designed to present its readers with a clear and logical sequence of topics. The PRA suggests that one of the main tasks of the society’s project manager (see paragraph 4.34) should be to ensure that the Transfer Document is drafted in a clear and concise style. This will be a great help in achieving the PRA approval of the Transfer Statement, and the board’s verification of the whole Transfer Document, without undue difficulty and within a reasonable timescale.

4.109

This section describes the requirements of the 1986 Act concerning members’ entitlement to vote, the register of members and the sending of notices of meetings. It also discusses general meeting arrangements, the resolutions and majorities required and the counting of votes.

4.110

The directors of a society must satisfy themselves that they observe the general law on meetings, the relevant provisions of the 1986 Act and the society’s own Rules. The 1986 Act provides that a transfer must be approved by the requisite Transfer Resolutions in accordance with paragraph 30 of Schedule 2 (Section 97(4)(c)) as follows:

1. (a) a borrowing members’ resolution passed on a poll by a simple majority of borrowing members qualified to vote and voting (see paragraph 29(1) of Schedule 2 for the definition of a borrowing members’ resolution); and
2. (b) a shareholding members’ resolution (see definition in paragraph 27A of Schedule 2) passed on a poll by a majority of at least 75% of shareholders qualified to vote and voting, and on which:
   
   1. (i) in the case of a conversion, not less than 50% of shareholders qualified to vote on a shareholding members’ resolution voted; or
   2. (ii) in the case of a takeover, not less than 50% of shareholders qualified to vote on a shareholding members’ resolution (or shareholders so eligible who held not less than 90% of the total share balances held on the voting date by all shareholders qualified to vote) voted in favour;
   provided that, in each case, notice has been duly given that the resolution is to be moved as a shareholding members’ resolution or a borrowing members’ resolution, as the case may be, and, in the case of the shareholding members’ resolution, that the resolution will not be effective unless it satisfies the requirements specified in 3.5.1 (2) A member may vote either in person at the meeting or by appointing a proxy, and paragraphs 33(1) and 33A of Schedule 2 provides that the voting on Transfer Resolutions may not be conducted by postal ballot or by electronic ballot.

4.111

Section 99(2) of the 1986 Act provides (see paragraph 4.79) that, where a society proposes to pay compensation to directors or other officers for loss of office or diminution of emoluments, attributable to the transfer, such compensation must be approved by a special resolution of the society’s members; that is, a resolution passed by a majority of at least 75% of members (both shareholding and borrowing members together) qualified to vote and voting (paragraph 27 of Schedule 2 to the 1986 Act).

4.112

This resolution is separate from the Transfer Resolutions required to approve the other terms of transfer. The Treasury has not made regulations under Section 99(3) of the 1986 Act to set limits below which compensation may be paid without the authority of a special resolution. Therefore, in every case where compensation is proposed, the members must vote on the proposal as a separate issue from whether they approve the proposed transfer itself. ‘Other officers’ include, in addition to the Chief Executive and Secretary, any persons who exercise managerial functions under the immediate authority of a director or the Chief Executive of a society (see ‘manager’ and ‘officer’ in Section 119 of the 1986 Act).

4.113

As is described in paragraphs 4.82 and 4.83, if the terms of a transfer include provision for increased emoluments of directors or other officers in consequence of the transfer, an ordinary resolution approving any such provision must be put before a meeting of the society. An ordinary resolution is passed by a simple majority of members (both shareholding and borrowing members voting together) qualified to vote and voting. However, it is not required that the resolution must be put to the same meeting as the Transfer Resolutions, neither is approval of the ordinary resolution required to authorise such increased emoluments which, as terms of the transfer, are authorised by the passage of the Transfer Resolutions. The purpose of Section 99A of the 1986 Act is to give the members an opportunity to express their views on these matters separately from their decision on whether or not to approve the transfer and its terms.

4.114

Paragraph 22 of Schedule 2 to the 1986 Act requires that notice of a meeting shall be given to every member of a society who would be eligible to vote at the meeting. The notice is also to be given to every member who will attain the age of 18 years on or before the date of the meeting, and to every person who becomes a shareholding or borrowing member of the society after the date of the notice but before the date specified by the society as the final date for the receipt of proxy voting forms. Note also that the Transfer Statement or the Transfer Summary, as the case may be, must also be sent to every member entitled to notice of the meeting (paragraphs 2 and 4(1) of Schedule 17 to the 1986 Act).

4.115

Paragraph 5 of Schedule 2 to the 1986 Act provides that no person may be a member of a building society unless he or she is a shareholding member or a borrowing member. A shareholding member is a person who holds a share in the society (that is, an investment in a share account or CCDS, PPDS or PIBS). A borrowing member is a person who is indebted to the society in respect of a loan fully secured on land. However, the Rules may provide that borrowing membership is conferred by a loan substantially secured on land, or shall cease if the loan is foreclosed or the land is taken into possession by the society. A minor (that is a person under 18 years of age) may be a member, but may not vote on any resolution.

4.116

The mandatory provisions of Schedule 2 to the 1986 Act concerning a member’s entitlement to vote on a resolution, which must be reflected in societies’ Rules, are that the member must be a member on the voting date, must have been a member at the end of the last financial year before the voting date (paragraph 23(1) of Schedule 2) and must have attained the age of 18 years (paragraphs 5(3) and 34(2) of Schedule 2) on or before the date of the meeting. So far as borrowing members are concerned, the member is not entitled to vote in that capacity if his indebtedness to the society at any relevant time is less than £100 (paragraphs 29(2) and 36 of Schedule 2).

4.117

However, Schedule 2 specifies the following further provisions, some, none or all of which may be included in a society’s Rules with respect to the entitlement of shareholding members to vote on any resolution; a person must (see Schedule 2 paragraphs 23(3) to (5) and 36):

1. (a) have a qualifying shareholding (which must not be set higher than £100), in one or more share accounts or CCDS, PPDS or PIBS, on the ‘qualifying shareholding date’;
2. (b) hold shares on the voting date; and
3. (c) have held shares continuously between those two dates.

4.118

The ‘qualifying shareholding date’ is either: the last day of the financial year preceding the voting date; or, if the voting date falls during that part of a financial year which follows the conclusion of the society’s AGM commenced in that year, the first day of the period beginning 56 days before the date of the meeting. Therefore, if a society’s Rules, following the BSA Model Rules (Sixth Edition), include the provisions concerning shareholding and continuity of membership, described in paragraph 4.117, and if the voting date is later than the AGM in that year, a person to be entitled to vote on a shareholding members’ resolution must:

1. (a) have been a shareholding member on the last day of the previous financial year;
2. (b) have held shares to the value of at least £100 on the day 56 days before the date of the meeting;
3. (c) have held shares continuously from the 56th day through to the voting date; and
4. (d) hold shares on the voting date.
   But note that there is no requirement for continuity of shareholding between 4.118(a) and (b) (In contrast, in the case of an ordinary or special resolution, membership at 4.118(a) may be satisfied by either borrowing or shareholding membership provided the shareholding member satisfies the other conditions of (b) to (d) in order to vote in his or her capacity as a shareholder.) A person cannot meet a requirement for ‘holding shares’ on a given date, or during a given period, by relying on his holding of a share account with an overdrawn balance; and a person cannot meet a requirement for being a ‘member’ on a given date (for example, at 4.118(a)) by relying on his holding of such a share account.

    

4.119

The mandatory provisions of Schedule 2 concerning entitlement to vote on a borrowing members’ resolution are, as noted above, that the member must have been, and be, indebted to the society for at least £100 (whether on one or more accounts) at the end of the last financial year before the voting date, and on the voting date, in respect of an advance fully secured (or, if the Rules permit, substantially secured) on land (paragraphs 5(2), 23(1), 29(2) and 36 of Schedule 2) and have attained the age of 18 years by the date of the meeting (paragraphs 5(3) and 34(2) of Schedule 2). There is however no dispensation in the 1986 Act for the Rules to reduce the qualifying amount below £100, nor to provide for a continuity of membership qualification.

4.120

Schedule 2 makes provision in respect of joint shareholders (paragraph 7) and joint borrowers (paragraph 8). The only person entitled to exercise the right to vote on behalf of the joint shareholders or joint borrowers is the one who is named first in the records of the society, described respectively as the ‘representative joint holder’ or the ‘representative joint borrower’.

4.121

A member may vote once only on any resolution, irrespective of the number of accounts he or she may hold. The amount of the balance(s) held on account(s) is not material, except to qualify to vote — see paragraphs 3.109 to 3.112. Thus, a member with several share accounts and/or several mortgage accounts, whether as sole and/or representative joint holder, may vote once only on any resolution.

4.122

When the membership votes as a whole on an ordinary or a special resolution, each member may vote only once, whether he or she is a shareholding or a borrowing member or both. Where shareholding members and borrowing members vote separately, as on the Transfer Resolutions, members entitled to vote may vote only once, if a shareholding member, on the shareholding members’ resolution and once, if a borrowing member, on the borrowing members’ resolution. A person entitled to vote both as a shareholding member and as a borrowing member may of course, vote once on each resolution.

4.123

The ‘voting date’ is defined by paragraph 23(6) of Schedule 2 as, for this purpose, either:

1. (a) for members who appoint a proxy, the last date specified by the society for the receipt of proxy voting forms, which may not be more than 7 days before the date of the meeting (paragraph 24(6) of Schedule 2). A proxy vote remains valid if the member ceases to be a member after the proxy voting date but before the date of the meeting (paragraph 24(2) of Schedule 2); or
2. (b) for all other members, the date of the meeting.

4.124

The information given in the foregoing paragraphs of this section is intended to give a general description of the provisions of the 1986 Act and of the Rules suggested by the BSA Model Rules. Societies are advised to satisfy themselves that they observe the specific provisions of the 1986 Act and of their own Rules.

4.125

Every society is required to maintain a register of the names and addresses of its members and whether each member is a shareholding member or a borrowing member or both (Schedule 2, paragraph 13). The register should, so far as possible, be ‘de-duplicated’; that is, multiple account holders should be identified and their names recorded once only in the register.

4.126

A society’s systems must also be capable of recognising those members who are eligible to vote by, for example, aggregating share account balances of multiple account holders to check that they have the requisite qualifying shareholding, by checking members’ continuity of shareholding, and by identifying minors (see paragraphs 3.108, 3.109 and 3.110). This information is required to ensure that the notice of the meeting is sent to all the members entitled to receive it, and that the scrutineers have adequate systems to validate the votes cast on the Transfer Resolutions.

4.127

The directors of a society contemplating a transfer must satisfy themselves, in consultation with their external auditors, or other advisers, that the society’s systems are capable of delivering the information described above. The PRA will require an assurance on this point when the society applies for approval of the Transfer Statement. One of the criteria which the PRA has to consider at the confirmation stage is whether some relevant requirement of the 1986 Act or the Rules was not fulfilled (see section ‘Confirmation’).

4.128

The problem of avoiding duplication in the register of members is significant for most societies of any size. Societies generally now seek to establish, when new accounts are opened, whether or not the applicant is an existing member and, if so, which accounts are relevant to voting and other membership rights. The task of identifying multiple account holders is complicated by confidentiality requirements. For example, if two accounts are held by a Mr A Smith and a Dr A Smith, both at the same address, the society cannot know (in the absence of other information such as date of birth) whether the two accounts belong to the same person, one opened before and one after he qualified, or by the doctor and his son.

4.129

A letter of enquiry to one asking about both accounts would risk breaching customer confidentiality. If it is the same person, there is a risk that he will be given the opportunity to vote twice or, if neither account holds more than £100 but they aggregate above that qualifying amount, be denied a vote to which he is entitled. It is good practice for a society, when it has announced its intention to transfer its business, to write to all its members individually setting out the information about them which it holds on its records, inviting them to confirm that the information is correct and to say whether they have received more than one such letter as a shareholder or as a borrower.

4.130

Where a society identifies a number of accounts which appear to be held by a single member, but it cannot be sure, then it must send separate meeting notices in respect of each account which satisfies the qualifying conditions for entitlement to vote. Where such accounts do not separately entitle the member to vote but would do so if aggregated (by satisfying the £100 minimum shareholding condition) the society may consider it advisable to send separate notices in respect of each account with the warning that, on the information available to it, the society believes that the member is not eligible to vote. However, its systems should identify the possible multiple holding so that, if more than one vote is received in respect of that group of accounts, the scrutineers are alerted to the possibility, and can check the proxy forms for evidence of invalid duplicate votes.

4.131

The voter’s declaration suggested by the BSA Model Rules, in conformity with paragraph 34 of Schedule 2 to the 1986 Act, provides some protection against votes being cast by minors, but none against duplicate votes. It is, however, the duty of each society to make sure that its register of members is reliable.

4.132

The statutory requirements concerning notices to members are in paragraph 22 of Schedule 2 to the 1986 Act. Notice of the meeting must be given to each shareholding and borrowing member of the society who would be eligible to vote at the meeting if the meeting were held on the date of the notice (a single date for all notices irrespective of when they are despatched). In addition, notice must also be given to any person who will attain the age of 18 years after the date of the notice but on or before the date of the meeting, and to every person who becomes a shareholding or borrowing member of the society after the date of the notice but before the final date for receipt of proxy voting forms, provided, in each case, that the member will be entitled to vote.

4.133

The Transfer Statement or Transfer Summary must be sent in or with the notice to every person entitled to receive it (paragraphs 2 and 4 of Schedule 17 to the 1986 Act). Accidental omission to give notice of a meeting to any person entitled to receive it does not invalidate the proceedings at the meeting. However, ‘accidental omission’ does not include a systemic failure to send notices (eg omitting to send notices to new shareholders or borrowers, or omission of a group or class of members from the mailing list arising from a fault in a computer programme), nor all cases of error by management – see also paragraph 4.153.

4.134

The 1986 Act also provides, in paragraph 21 of Schedule 2, for the length of notice to be given to members. The period of notice given must be not less than 21 days or such longer period as the society’s Rules prescribe. The precise procedures for sending notices, the way in which the days are to be counted, and presumed receipt of notices duly sent, will normally be set out in the Rules. Particular points to note are:

1. (a) the 21 days’ notice expires with the closing date for the receipt of proxy voting forms, not the date of the meeting;
2. (b) if reliance is to be placed on a provision in the Rules that notices can be deemed to be served 24 hours after posting, then first class post or equivalent means of delivery should be used. However, it is advisable to allow a margin of at least an extra day or two, but more if second class post is used;
3. (c) if a society contracts with a commercial mailing firm, it must ensure that the firm is comprehensively instructed about the society’s despatch and delivery requirements, and the society should carry out spot checks to satisfy itself that its instructions are being properly carried out. A failure by the contractor may invalidate the meeting, even if the society itself has used its best endeavours to police the operation.

4.135

The Transfer Statement or Transfer Summary is required, by paragraph 4(1) of Schedule 17 to the 1986 Act, to be sent ‘in or with’ the notice of the meeting to every member entitled to that notice.

4.136

Notices and Statements or Summaries need not be sent to any member in whose case the society has reason to believe that communications sent to him at his registered address are unlikely to be received by him (paragraph 14 of Schedule 2 to the 1986 Act). In those circumstances, a society is required to place notices of the meeting prominently in every branch office, or to place advertisements in newspapers circulating in the areas in which the society’s members live. Such notices or advertisements must be published at least 21 days before the date of the meeting, and must state where members can obtain copies of the Transfer Summary, the Transfer Statement, the Transfer Resolutions and proxy voting forms (paragraph 35 of Schedule 2 to the 1986 Act).

4.137

It should be noted, however, that a member’s ‘registered address’ may not be the address shown in the society’s register of members but a different address to which the member has requested that communications from the society be sent (paragraph 13(4) of Schedule 2 to the 1986 Act).

4.138

The meeting should be held at a time and place considered by the board to be most convenient for the generality of the society’s members. This may not necessarily be the same as the traditional time and place for the AGM. In deciding on this, the board should take account of the geographical location of their members, and the probability that an unusually large number of members may wish to attend a meeting to consider a proposed transfer.

4.139

Subject to the society’s Rules, its chairman will normally chair the meeting. His function as chairman of the meeting is to ensure that all views may be presented and properly discussed. He is unlikely to be able to fulfil that role if he acts also as chief advocate of proposals which are controversial among members. In such cases it might be appropriate to give to another director the tasks of explaining the board’s recommendations and of responding to questions from members.

3.140

A Transfer Resolution cannot be amended at the meeting except in a way which does not change its substance at all. This is because an amendment to such a resolution has to be subject to the same procedure and period of notice to members as the resolution itself. If a board decides, after due notice of such a resolution has been sent to the members, that the resolution should be amended, then it will be necessary to submit the amended resolution, with due notice, to a general meeting at a later date, unless of course there is still time to fulfil the notice requirements.

4.141

The conduct of the voting must not only be fair but also be seen to be fair, otherwise the result may be called into question by representers at the confirmation stage. The votes must be counted by independent scrutineers. The board may ask the scrutineers, in advance of the meeting, for a running tally of the number of votes being cast if it thinks it might properly encourage more members to vote if the response is low. However, to ask the scrutineers how the votes are being cast, before the time comes at the meeting to instruct proxies, carries the risk of accusations, however unfounded they may be, and possible challenge at the confirmation stage on the grounds that the board suppressed proxy votes against the Resolutions, or unduly influenced members to vote in favour.

4.142

A board which asks the scrutineers for a running tally of votes, and which circulates its members with further exhortations to vote, must be prepared to argue its case in the face of such accusations at the confirmation hearing. Any circular to members sent after the Transfer Document was sent to them must, therefore, be very carefully considered.

4.143

Experience has demonstrated the need for societies to take the greatest care to ensure that they comply strictly with the statutory procedural requirements and their own Rules on meetings and resolutions. The person chairing the meeting should ensure that he or she is well briefed and aware of the Rules and the general law relating to procedural resolutions, such as resolutions to adjourn the meeting. The PRA will require a confirmatory report from the scrutineers on the validity of the voting procedures when the society applies for confirmation (see paragraph 3.143).

4.144

The procedures for the conduct of proxy voting will normally be provided for in the society’s Rules, in conformity with paragraphs 24 and 34 of Schedule 2. The 1986 Act requires that every proxy form sent by a society to its members must enable the member to direct the proxy how to vote (paragraph 24(4A)). In addition, to minimise the risk of the society’s proxy voting procedures being misunderstood, the PRA recommends that the design of the proxy form is carefully considered (preferably a self-contained form clearly to be returned intact) and that it should include:

1. (a) adequate space to insert the name of a proxy other than the chairman of the meeting, and a statement (which must also appear in the notice of the meeting) that the proxy appointed need not be a member of the society (a reminder that the voting member’s own name should not be inserted will also be helpful);
2. (b) an explicit statement that if the member does not instruct his proxy to vote for or against the resolution, then the proxy will cast the vote, or abstain, as he thinks fit;
3. (c) the declaration, as provided by the Rules, in accordance with paragraph 34 of Schedule 2;
4. (d) full recital of the text of the shareholding members’ or borrowing members’ resolution(s) or, if this is not practicable (eg because of space restrictions), a clear indication that the full text may be found in the notice of the meeting; and
5. (e) instructions as to the return of completed proxy forms, including the last effective date for receipt by the society or by the scrutineers. A pre-addressed and pre-paid envelope or other sealed means of return should be provided.

3.145

The 1986 Act does not require societies to send proxy voting forms to members with notices of meetings. However, the PRA believes that, on a matter as important as a transfer, and bearing in mind the 50% turnout (conversion) and 50% support (takeover) requirements on the shareholding members’ resolutions, societies would be well advised to send a proxy voting form to members with the meeting notice. If a society decides, nevertheless, not to send proxy forms to members entitled to vote, then it should make clear to the members that proxy voting forms can be obtained on demand from its branches and/or by application to a central point.

3.146

The arrangements for the collection of the proxy forms should be such as to secure confidentiality and to avoid the risk of loss, whether accidental or deliberate. The Rules may provide for return of proxy forms to the scrutineers either directly or to the society’s principal office. Where proxy forms are returned to the society’s offices, the PRA recommends that the procedures should incorporate the following features:

1. (a) the proxy form should be enveloped or otherwise sealed so that the members’ voting instructions are concealed;
2. (b) the envelope provided should be clearly marked so that the society can readily identify and separate it from other mail without the envelope being opened;
3. (c) staff responsible for receiving and sorting mail should be given specific instructions about the handling of proxy forms and the overriding importance of security;
4. (d) secure storage of proxy forms should be provided up to the point at which they are handed over to the scrutineers; and
5. (e) equivalent handling and security procedures should be applied to proxy forms handed in at branches.

4.147

The PRA expects proxy voting forms for shareholders and borrowers to be easily distinguishable, perhaps by colour coding, both as an aid to members who may be entitled to vote in each capacity, and as an aid to the scrutineers counting the votes.

4.148

Members may attend the meeting and vote in person. There must, therefore, be satisfactory systems in place in accordance with the Rules to identify and cancel any proxy votes they may previously have returned.

4.149

The scrutineers are responsible for checking the validity of votes cast in person and by proxy. The scrutineers must be independent of the society and not have a direct interest in the result of the voting. For example, they should not be officers expecting to receive compensation or appointments under the terms of the transfer. It will usually be appropriate to appoint the society’s auditors, and it is desirable that they should be appointed not just for the arithmetical count of votes but also to supervise the voting process as a whole so that they are in a position to confirm, after the vote, that all the requirements of the 1986 Act and the society’s Rules have been complied with. This would include:

1. (a) determining and validating member mailing lists for notices of the meeting and Transfer Statements or Transfer Summaries and for Trustee Account Holders (see paragraphs 4.63 and 4.114);
2. (b) despatch procedures;
3. (c) timing of notices and despatch of documents;
4. (d) form and content of proxy voting forms;
5. (e) receipt and custody of completed proxy voting forms;
6. (f) validation of completed proxy voting forms to establish that members are qualified to vote and that forms are properly completed;
7. (g) identification and validation of members attending and voting at the general meeting;
8. (h) voting procedures at the meeting including casting of proxy votes, count of votes cast in person and aggregation of proxy and personal votes cast on the Transfer Resolutions, and on any special resolution required to authorise the payment of compensation to directors or other officers; and
9. (i) voting procedures at the meeting, or at another meeting, as the case may be, and the count of votes on any ordinary resolution to approved increased emoluments of directors or other officers (if required).

4.150

To fulfil the duties outlined above, the PRA expects that the scrutineers would need to:

1. (a) examine the systems and procedures to be employed by the society, before they are implemented, to ensure that they are satisfactory;
2. (b) carry out such checks and tests as they consider necessary during the operation of the procedures as will enable them to be satisfied that the specified procedures are being carried out in practice;
3. (c) provide that where validation functions are carried out by the society’s staff this is done under the direction and supervision of the scrutineers; and
4. (d) direct and supervise the count of the votes cast both by proxy and personally at the meeting.

4.151

Validation checks during the counting of votes may be expected to include the following:

1. (a) only proxy forms which comply with the 1986 Act and the society’s Rules have been used;
2. (b) the member is eligible to vote under the 1986 Act and under the society’s Rules (Note: a proxy vote may still be valid even though the member has ceased to be entitled to attend and vote at the meeting after the closing date for receipt of proxies — see paragraph 4.123(a));
3. (c) only one proxy form per member eligible to vote is included in the count (separate forms may be sent to and returned by a person eligible to vote on both the shareholding members’ resolution and the borrowing members’ resolution);
4. (d) minors are excluded and that there is an explicit confirmation by each member voting by proxy that he is aged 18 or over; and
5. (e) the proxy form is completed and signed and is otherwise valid (where a proxy form lacks a signature but is otherwise valid, it is usual, if time permits, for the scrutineers to return the form to the member for signature and return in a pre-paid envelope).

4.152

The scrutineers’ initial report will be made to the society at the meeting (which may be adjourned for this purpose). The PRA will require, in support of a society’s application for confirmation under Sections 97(4)(d) and 98 of the 1986 Act, a report from the scrutineers on the result of the vote on each Resolution (distinguishing between votes cast in person and by proxy), the total number of members eligible to vote (and the proportion of that number that the votes cast represent), the numbers of invalid votes cast and also confirmation that, in the opinion of the scrutineers, the arrangements for the conduct of the voting were such as to ensure that:

1. (a) notices of the meeting and Transfer Statements or Transfer Summaries were sent to all those entitled to receive them, in accordance with the 1986 Act and the Rules of the society having regard, inter alia, to the matters referred to in this chapter;
2. (b) the periods of notice given complied with the requirements of the 1986 Act and of the society’s Rules, taking into consideration established conventions for the counting of days;
3. (c) there were satisfactory procedures to ensure the security of proxy voting forms and to minimise the risk of loss or unauthorised access; and
4. (d) there were satisfactory procedures to ensure that the count of votes cast personally at the meeting included only votes cast by members eligible to vote and who had not mandated, or had withdrawn, a proxy vote.

4.153

In relation to the notice of the meeting, the scrutineers’ report may properly have regard to the provision of paragraph 22(3) of Schedule 2 to the 1986 Act that ‘accidental omission to give notice of a meeting to, or non-receipt of notice of a meeting by, any person entitled to receive notice of the meeting does not invalidate the proceedings at that meeting’. It should be noted, however, that there is authority to the effect that ‘accidental’ and ‘non-receipt’ would not cover all cases of ‘error’ on the part of the society, for example an erroneous decision of management not to send notices to particular persons or groups of persons.

4.154

The PRA expect the scrutineers’ report to comment upon any procedural difficulties encountered and, if the numbers of invalid votes appear to be significant, give an analysis of the reasons why votes were found to be invalid (see also section ‘Confirmation’).

4.155

No transfer can take effect until it has been confirmed by the PRA. This section first describes the form of application and public notice required. It then explains the PRA view of how the statutory Confirmation Criteria should be interpreted. Finally, it gives guidance on the procedure customarily followed by the PRA when considering confirmation applications and hearing representations. Sections 97(4)(d) and 98(2) of, together with Part II of Schedule 17 to the 1986 Act, provide that when the necessary Transfer Resolutions have been passed the society must apply to the PRA for confirmation of the transfer in such manner as the PRA may direct.

4.156

The society is also required, by paragraph 7 of Schedule 17, to publish notices of its application in one or more of the London, Edinburgh and Belfast Gazettes as the PRA directs and, if it so directs, in one or more newspapers. The choice of official Gazettes and national or local newspapers will, of course, have regard to the area in which the society’s members live.

4.157

The application should specify the date on which the transfer is intended to take effect and should be accompanied by two authenticated copies of the Transfer Agreement. The scrutineers’ report described in section ‘General meetings and resolutions’, and a certified copy of the minutes of the general meeting at which the Transfer Resolutions were moved, together with a transcript of the meeting, must also be enclosed with the application, together with ten copies each of the Transfer Document and the Transfer Summary (if sent), and copies of all other documents sent to members and any advertising material in connection with the proposed transfer. If a Transfer Summary was sent, the application should also be accompanied by a checklist of the information prescribed by Schedule 2 to the Transfer Regulations showing where each item may be found in the Transfer Summary.

4.158

A pro forma public notice of application, and pro forma letter of application are at Appendix 2. The appropriate fee is payable with the application, and a further fee is payable by the society if there is an oral hearing of the application, as prescribed by the Fees Rules.

4.159

Section 98(2) and (3) of the 1986 Act provides that the PRA must confirm a proposed transfer unless it considers that any one or more of the following four Confirmation Criteria apply:

1. (a) some information material to the members’ decision about the transfer was not made available to all the members eligible to vote; or
2. (b) the vote on any resolution approving the transfer does not represent the views of the members eligible to vote; or
3. (c) there is a substantial risk that the successor will not have:
   
   1. (i) such permission under Part 4A of FSMA or
   2. (ii) such permission under paragraph 15 of Schedule 3 to FSMA (as a result of qualifying for authorisation under paragraph 12 of that Schedule), as will enable it to carry on the business which it will have as a result of the transfer without being taken (by virtue of section 20 of FSMA) to have contravened a requirement imposed on it by the PRA under FSMA; or
4. (d) some relevant requirement of the 1986 Act or of the Rules of the society was not fulfilled.

4.160

Section 98(4) of the 1986 Act then provides that the PRA shall not be precluded from confirming a transfer of business by virtue only of the non-fulfilment of some relevant requirement of the 1986 Act or the Rules (the Fourth Criterion in paragraph 4.159(d)) if it appears to the PRA that the failure could not have been material to the members’ decision about the transfer, and the PRA gives a direction under that subsection that the failure is to be disregarded. Section 98(7) then provides that a failure to comply with a relevant requirement of the 1986 Act or the Rules shall not invalidate a transfer, once confirmed.

4.161

Where the PRA would be precluded from confirming a transfer by reason of any of the defects specified in the Confirmation Criteria, Section 98(5) and (6) of the 1986 Act provides that it may direct a society to remedy the defects. A direction under Section 98(5) may, amongst other things, require a society to:

1. (a) call a further meeting; for example, to vote again in the light of a revised Transfer Statement containing material information previously omitted or after correction of defects in the systems for sending meeting notices and Transfer Statements or Transfer Summaries and validation of votes;
2. (b) secure the variation of the Transfer Agreement; or
3. (c) secure the alteration of the protective provisions in the articles of association of a specially formed successor company.

4.162

If the PRA is then satisfied, having considered evidence furnished by the society, that the defects have been substantially remedied, it must confirm the transfer. If not, then confirmation must be refused. The PRA is required to consult the FCA before confirming a transfer.

4.163

The PRA powers in connection with applications for confirmation of a transfer are confined to considerations of whether, in the light of the facts, any of the Confirmation Criteria apply. It is not for the PRA to consider, or make judgements about, the merits of a proposed transfer or the fairness of its terms; these matters are first for the board of a society, and then for its members, to decide. Once the members have approved the transfer and its terms, the PRA has no powers to require a society to make any changes to those terms, although it may direct a society to remedy any failure to comply with a relevant requirement of the 1986 Act as a condition of confirmation.

4.164

The PRA has no general power to determine disputes between a society and its members, nor to seek to enforce other legislation or the general law. Disputes concerning services provided by societies in the ordinary course of their business are generally a matter, in the first instance, for a society’s internal complaints procedure. They may also fall within the jurisdiction of the Financial Services Ombudsman Scheme. Disputes between a building society and a member of the society, in his or her capacity as a member, in respect of any rights or obligations arising from the Rules of the society or the provisions of the 1986 Act, fall within the jurisdiction of the High Court or, in Scotland, the Court of Session (Section 85 of and Schedule 14 to the 1986 Act).

4.165

However, the FCA does have power, on the written application of certain members, to direct that the member has the right to obtain names and addresses from the society’s register of members. Before it gives such a direction, the FCA is required to be satisfied that the member requires that right for the purpose of communicating with other members of the society on a subject relating to its affairs, and must have regard to the interests of the members as a whole and to all the other circumstances (paragraph 15 of Schedule 2 to the 1986 Act). A fee is payable by the applicant. Chapter 1A of this supervisory statement gives guidance on applications for access to the register of members.

4.166

The purpose of the confirmation process is to enable:

1. (a) interested parties to make representations with regard to the Confirmation Criteria;
2. (b) the society to respond to those representations;
3. (c) the PRA to make such enquiry as it considers necessary to reach informed conclusions on each of the Confirmation Criteria.

4.167

The PRA, in reaching its view on each of the Confirmation Criteria, has not only to assess the points made to it in representations, and the society’s responses, but also to make such further enquiries as it considers necessary. In deciding how far it should pursue such enquiries, the PRA has to have regard to the role and effect of confirmation, and to the mischiefs which it is intended to prevent.

4.168

The PRA considers that one role of confirmation is to provide a protection to members against the provision to them by the society of information which is inadequate, obscure or misleading, and against voting irregularities: in other words to ensure that the vote represents the informed decision of the members. The PRA would hope that this safeguard would work in the majority of cases by causing the board of a society to take care during the preparation of the Transfer Statement not to put confirmation at risk on this account; otherwise the PRA might find that it had to withhold confirmation at the last stage. In considering the First Criterion, the PRA will have regard to the totality of the information provided to the members by the board of a society, and not exclusively to the Transfer Statement and Transfer Summary.

4.169

The task of the PRA is accordingly:

1. (a) to reach a considered view on each of the Confirmation Criteria;
2. (b) if that view is that none applies, to confirm;
3. (c) if one or more of the First Three Criteria apply, to direct the appropriate remedial action, or to refuse confirmation; and
4. (d) if the Fourth Criterion applies, to consider whether it is appropriate to direct that failure be disregarded; if not, to direct the appropriate remedial action or to refuse confirmation.

4.170

In considering the Confirmation Criteria, the PRA may well have to look again at the Transfer Statement, or at issues which were considered in connection with approving that Statement. It may also then have to consider the adequacy of the Transfer Summary. In doing so, it has a duty to consider information and arguments put to it by representers and by the society, which of their nature were not available earlier, as well as those arising from its own consideration of the Criteria.

4.171

The PRA would clearly only change the view reached at the time of approval of the Transfer Statement if there were good reason to do so. But it is under a duty to examine the Statement and connected issues at the time of confirmation in the light of any new information and arguments which become available. Accordingly, the PRA cannot be bound at the confirmation stage to the view that was taken at the earlier stage as to whether further factual information should be included in the Transfer Statement or as to the accuracy of its contents or the view taken as to the legality of the scheme.

4.172

The task of considering each of the Confirmation Criteria would still be necessary even if there were no representations. Without such enquiry and consideration the confirmation process would not properly be carried out. The PRA view of how the Confirmation Criteria should be interpreted and applied is given in the following paragraphs.

4.173

This criterion requires the PRA to consider whether some material information was not made available to the members. The PRA own view, in which it concurs with the view previously adopted by the Commission in its confirmation decisions, can be summarised as follows:

1. (a) the words ‘made available to all the members eligible to vote’ mean that the criterion is mainly, if not exclusively, directed to the information provided by a society to the generality of its members;
2. (b) the extent of ‘information… not made available’ can reasonably be assessed by considering how far the totality of information made available falls short of what might be expected to be put to its members by a financial institution of standing and repute seeking to put sufficient information and a fair and balanced assessment of it, and the board’s conclusions, to the members to enable them to take an informed decision;
3. (c) the words ‘material to the members’ decision’ require the PRA then to focus on whether it is within the bounds of reasonable possibility that the members’ decision would have been different had any deficiency in the information been made good, ie whether it could have changed the decisions on voting of sufficient members to lead to a different conclusion. If it is within the bounds of reasonable possibility that the deficiency might have changed the outcome, it is not for the PRA to determine whether it would actually have done so — it should put the decision back to the members. This test requires the PRA to take account both of the size of the vote and of the size of the majority within it; and
4. (d) the relevance of a particular piece of information to an investor and to a borrower may well be different. Accordingly, it is necessary to consider materiality separately in relation to the shareholding members’ resolution and the borrowing members’ resolution.

4.174

The PRA’s approach to determining whether this criterion is met is accordingly:

1. (a) to review the material put to members, in the light of the representations made and the society’s responses, but also taking points of its own accord;
2. (b) to consider, on the basis of that review, what information relevant to the decision of shareholders, or of borrowers, or both, might reasonably have been expected to be put to members by the board of a society of repute considering its fiduciary duty, and the extent to which (if at all) the information actually put falls short of that; and
3. (c) to consider separately in relation to the shareholding members’ resolution and in relation to the borrowing members’ resolution, whether any deficiency so identified was sufficient to amount to ‘information material to the members’ decision’.

4.175

This criterion requires the PRA to consider whether the votes on the Transfer Resolutions do not represent the views of the members. The main mischief to which it appears to be directed is a resolution approved by a small and unrepresentative vote.

4.176

This criterion is concerned with a matter of fact, to be established by reference to the Banking Regulator if a different body.

4.177

This criterion requires the PRA to consider whether the relevant requirements of the 1986 Act and the Rules have been fulfilled. The phrase ‘relevant requirement of this Act or the rules of the society’ appears explicitly three times in Section 98 of the 1986 Act:

1. (a) subsection (3)(d) in the specification of this criterion;
2. (b) subsection (4) which gives the PRA power to disregard certain non-fulfilments;
3. (c) subsection (7) which provides that a failure to meet such a relevant requirement shall not invalidate a transfer of business, although such failure by a society without a reasonable excuse is a criminal offence.

4.178

The interpretation of the phrase is also directly relevant to subsection (5) — the power of the PRA to give the society a direction to remedy defects specified in paragraphs (a) to (d) of subsection (3).

4.179

subsection (8) defines ‘relevant requirement’ as:

‘a requirement of the applicable provisions of this Act or of any rules prescribing the procedure to be followed by the society in approving the transfer and its terms.’

Section 97(2) in turn defines ‘the applicable provisions’ other than Section 97 as:

‘section 98, section 99, section 99A, section 100, section 101, section 102, sections 102B, 102C and 102D, paragraph 30 of Schedule 2 and Schedule 17.’

4.180

Section 102A (joint account holders) of the 1986 Act is not an applicable provision and, thus, not a relevant requirement. The PRA considers that subsection (8) of Section 98 should be read naturally. The words ‘prescribing the procedure to be followed by the society in approving the transfer and its terms’ apply only to the Rules, in order to specify which of the Rules of the society are ‘relevant requirements’. They do not apply as a matter of normal construction of the sentence to the ‘applicable provisions of this Act’; nor is it necessary that they should do so, since those provisions are specified in Section 97(2).

4.181

In the PRA’s view, the above interpretation of ‘relevant requirement of the 1986 Act’ stems from the natural construction of Sections 98(8) and 97(2) which, in turn, is necessary to give effect to Parliament’s intentions for Section 98(5), (6) and (7). The PRA recognises that this interpretation does not quite fit Section 98(4). The test which the PRA has to apply in the case of subsection (4) to a non-fulfilment of a relevant requirement of the 1986 Act is: ‘if it appears to the PRA that it could not have been material to the members’ decision about the transfer’.

4.182

That test is designed to relate to a failure to meet a procedural requirement or to some other failure which might have an effect on the voting. The wording of Section 98 is such that no construction of the phrase is entirely free from difficulty. The PRA view is that the wording, and the intentions of Parliament, are best met by following the natural construction of subsection (8), as a result applying a wide interpretation in subsections (3), (5) and (7), and implicitly in (6), but only considering that it is open to the PRA to make a direction under subsection (4) in relation to non-fulfilment of a procedural requirement or other failure to which the test in that subsection is apposite.

4.183

The PRA accordingly considers that the relevant requirements are those in:

1. (a) sections 97 to 102, and 102B to D of, together with paragraph 30 of Schedule 2 to and Schedule 17 to the 1986 Act;
2. (b) the Transfer Regulations; and
3. (c) the Rules which prescribe the procedure to be followed; that is, in particular, the Rules concerning: membership; special meetings; notice of meetings; procedure at meetings; entitlement of members to vote on resolutions; appointment of proxies; and joint shareholders and borrowers.

4.184

The procedure to be followed in confirmation proceedings is prescribed by Part II of Schedule 17 to the 1986 Act. Any interested party has the right to make written and/or oral representations to the PRA with respect to a society’s application for confirmation. Written representations are to be copied to the society, which is to be afforded the opportunity to comment on them orally at the hearing of its application or in writing. (The PRA will in general be prepared to use electronic rather than paper-based communication if requested by the society or a prospective representer and some of the following procedures may have to be adapted accordingly.)

4.185

Persons making representations should state why they claim to be interested parties, for example, their category of membership of the society, and the ground or grounds for their representations by reference to the Confirmation Criteria discussed above. Notice of a person’s intention to make oral representations must be in writing.

4.186

Such notices and written representations must reach the PRA at the address, and by the specified date customarily given in the Transfer Document issued to members and subsequently confirmed by notice published in the official Gazettes and newspapers as required by the 1986 Act. Persons who make written representations but subsequently decide also to make oral representations must, nevertheless, give notice of that intention in writing to the PRA by the same date. Representations received out of time will not be considered unless, exceptionally and at the sole discretion of the PRA, they appear to the PRA to raise matters of substance relevant to the Confirmation Criteria which are not already under consideration.

4.187

Representations or notices to the PRA will fall into one of the following three categories:

1. (a) written representations only;
2. (b) written representations with notice of intention to make oral representations;
3. (c) notice of intention to make oral representations only.

4.188

The PRA will acknowledge the receipt of each representation or notice and will send a copy of the chapter of this Supervisory Statement on confirmation procedures to each representer. It will send copies of all written representations and notices to the society and will afford it an opportunity to comment on the written representations.

4.189

The PRA will consider the written representations in the category set out in paragraph 4.187(a) and the society’s responses to them in advance of the date set for hearing oral representations. Copies of the society’s comments on representations in the category set out in paragraph 4.187(b) will be sent to those who made the representations so that they may concentrate their oral representations on the points which they consider to remain at issue. A person making written representations who also wishes to see the society’s response must, therefore, also give notice of intention to make oral representations.

4.190

The society may, exceptionally, apply to put to the PRA in confidence documents which the society considers to be commercially sensitive: the PRA will decide on the merits of each case whether, and on what terms, to accept them as being confidential. Persons in the category set out in paragraph 4.187(c) will be asked to inform the PRA , in advance of the hearing, of the subject and general grounds of the representations they intend to make, and their responses will be copied to the Society.

4.191

Interested parties may join together in making collective representations and they may also appoint a person, either one of their number or another, to represent them at the hearing. They should notify the PRA in advance if this is what they intend to do.

4.192

The PRA will usually appoint one or more persons to hear and decide an application on its behalf. In the absence of notices of intention to make oral representations the PRA would expect to decide the application, having regard to the written representations, the society’s responses and other information available to it, without the need for a public hearing. If there is a public hearing, an additional fee is payable by the society.

4.193

The PRA will notify the society and those making oral representations of the time and place of the hearing. If there are a significant number of persons wishing to make oral representations, then the hearing may extend beyond one day and may be adjourned from time to time and from place to place. The PRA will try to advise participants of the day when they may expect to make their representations and of when the society’s representatives may be expected to respond.

4.194

The PRA expects that hearings will be in public. Members of the general public and the press will be asked to wait outside at the outset of the hearing. The participants will then be asked if any of them has good reason to object to the admission of the general public and the press (such as, for example, the need to refer to personal financial affairs). The PRA may decide that parts of the hearing shall be in private if that appears to it to be desirable. If there are no reasonable objections, the general public and the press will then be admitted, within the limits of the space available. Only the representatives of the society and those who have given due notice of intention to make oral representations may address the PRA.

4.195

The procedure will be informal. While all participants will be invited to speak concisely and to avoid repetition, the PRA will be considerate towards those who are not professionally represented. The panel taking the hearing on behalf of the PRA may question the participants as the hearing proceeds. The sequence of events will be broadly as follows:

1. (a) any preliminary matters (such as the admission of the public or other procedural questions) will be dealt with;
2. (b) the chairman of the PRA panel will introduce the proceedings;
3. (c) the representatives of the society will be invited to present the application for confirmation, including a description of the events at the meeting at which the Transfer Resolutions were put to the members, the voting on the Resolutions, and any other matters which they wish to introduce at that stage;
4. (d) the other participants will be invited to make their representations; where appropriate the PRA would expect to call them in a list marshalled, so far as possible, by subject matter;
5. (e) the representatives of the society will be invited to reply to, or comment on, the points made by the other participants; and
6. (f) the other participants will be invited to comment on the society’s replies insofar as those replies raised new issues.

4.196

This procedure may be varied according to the circumstances at the hearing, and is intended only as a guide to the probable order of events. The hearing may be adjourned if the PRA considers that necessary to enable facts to be checked or additional information to be obtained.

4.197

The PRA will not give an oral decision at the end of the hearing, and will reserve its decision to be issued later in writing, setting out its reasons. Copies of the written decision will be sent to the participants, and can be purchased by any other person. The PRA will ask the FCA to place a copy on the public file of the society.

4.198

This section describes the PRA’s powers to direct a society to transfer its business to a company, and to proceed by board resolution, and the modified transfer procedure consequently prescribed by the 1986 Act. Section 42B of the 1986 Act provides that, if the PRA considers it expedient to do so to protect the investments of shareholders or depositors, it may direct a society, inter alia, to transfer its business to a company within a specified time (subsection (1)(b)).

4.199

The PRA must consult the FCA before giving a direction under section 42B of the 1986 Act. In such a case, or where the PRA would have directed a transfer, but for the fact that negotiations were already under way, the PRA may also direct that the approval of the transfer shall be by board resolution rather than the Transfer Resolutions. In these circumstances, because neither a Transfer Statement nor Transfer Resolutions are required, the 1986 Act requires the society instead to send to every member entitled to notice of a meeting a statement (referred to below as a ‘transfer notification statement’) before it applies for confirmation of the transfer (paragraphs 9 and 10 of Schedule 8A to the 1986 Act).

4.200

Finally, in these circumstances, the first two Confirmation Criteria concerning information made available to, and the views of, the members (see section 6) are replaced by a single criterion:

‘the members or a proportion of them would be unreasonably prejudiced by the transfer;’ (set out in paragraph 11 of Schedule 8A to the 1986 Act.

4.201

Where a society is proceeding under a Section 42B direction by board resolution, the Transfer Statement is replaced by a transfer notification statement and a general meeting of the society is not required. The contents of the transfer notification statement are prescribed by Schedule 3 to the Transfer Regulations. In brief, the members are to be informed that the statement is issued on the responsibility of the directors of the society and the successor company, and:

1. (a) that the board, acting under direction of the PRA, has resolved to transfer the business;
2. (b) of the confirmation procedure, including the last date for receipt by the PRA of written representations and notices of intention to make oral representations and the expected date of the hearing of the society’s application;
3. (c) of the name, address and nature of the successor company, and the proposed vesting date;
4. (d) of the consequences for the members, including the loss of membership rights in the society, any changes in the terms and conditions of share and mortgage accounts, and deposit protection schemes;
5. (e) the terms of any distribution of funds or shares in the successor company and of the Statutory Cash Bonus; and
6. (f) of the interests of the directors and other officers of the society in the transfer, including any compensation or increase in emoluments to which the PRA has given its consent under paragraphs 7 and 8 of Schedule 8A to the 1986 Act.

4.202

The transfer notification statement must have been approved by the PRA before it is sent to the members. Applications for approval should, in general, follow the procedure described in paragraphs 4.97 to 4.103, and the final draft of the statement should be accompanied by the relevant documents listed in paragraph 4.102, but as appropriate to the particular case and the less extensive information the statement is required to contain.

4.203

Section ‘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 transfer notification statements, and notices under Section 102B (Trustee Account Holders) of the 1986 Act, to those to whom they must be sent if the society is to gain the protection of Section 102B(4).

4.204

When the board has resolved to transfer the business and transfer notification statements have been sent to its members, the society may apply to the PRA for confirmation of the transfer, but using an adaptation agreed with the PRA of the pro forma in Appendix 4. The procedure described in section ‘Confirmation’ is 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.

4.205

While a scrutineer’s report will not be required, the PRA will 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 transfer notification statements and notices to Trustee Account Holders. This is relevant to the PRA’s consideration of the Fourth Confirmation Criterion.

4.206

As is noted in paragraph 4.198–4.200, the First and Second Confirmation 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 PRA to make in the light of any representations made to it and its own enquiries in respect of the particular case. In making its judgement, the PRA will also have regard to the view it then takes as to whether it should exercise its discretion under Section 100(7) of the 1986 Act to direct that no Statutory Cash Bonus, or a reduced bonus, is to be paid ‘having regard to what is equitable between the members of the society’. It follows also that, in considering the Fourth Criterion, the PRA will take account of the modified procedure.

4.207

The Fees Rules provide that fees are to be paid to the PRA:

1. (a) with an application for approval of a transfer notification statement under paragraph 9(4) of Schedule 8A to the 1986 Act, and a further fee with any subsequent substantial revision;
2. (b) with an application for confirmation under Section 97(4)(d) of, paragraph 6 of Schedule 17 and Schedule 8A to, the 1986 Act; and a further fee if oral representations are to be heard.

4.208

When the PRA has confirmed a transfer (whether voluntary or under direction) it will notify the FCA and the society concerned. Section 97(8) of the 1986 Act requires the society to notify the PRA and the FCA of the vesting date, and it must do so no later than seven days before that date, and, unless a notice is given under subsection (10), subsection (9) provides that the society shall be dissolved on that date. Subsection (10) provides that, if necessary for the purpose of facilitating the disposal of its shares in its successor, the society may include, in the notice of the vesting date, notice of a later date for the dissolution of the society, and it is on this later date that the society is dissolved. A society which gives such a notice must cease to transact any business as from the notified vesting date, except such as may be necessary to dispose of its shares in its successor.

4.209

Section 97(7) of the 1986 Act provides that, where a society continues to hold shares in its successor after the vesting date, the consideration for the disposal of those shares, together with any other property, rights or liabilities of the society acquired or incurred after that date, shall be transferred to and vested in the successor company on the date specified for the society’s dissolution. All other property, rights and liabilities of the society are to be transferred to the successor company on the vesting date.

4.210

The FCA will record the relevant date, or dates, notified to the PRA and the FCA by the society. The society will be dissolved on the vesting date or on the later date for dissolution referred to in paragraph 4.198, and its registration will subsequently be cancelled by the FCA under the provisions of Section 103(1)(a) of the 1986 Act having consulted the PRA.

4.211

The PRA expects the society to draw up a project plan covering the key elements in the transfer process and the relationships between them, and specifying when it wishes to receive the necessary clearances from the PRA. The time needed for the process will depend, among other things, on the length of time it takes to settle the final terms of the distribution scheme, the complexity of those terms and whether the scheme raises new legal issues (perhaps requiring resolution by application to the High Court), and the time needed to verify the register of members and the record of Trustee Account Holders.

4.212

It will also be affected by the facility with which the society and its advisers can develop satisfactory documents and respond to enquiries and representations. The plan and the timetable will need to cover all that will be required of the society, and the successor company, in relation to the requirements of the Banking Regulator, and of the FCA concerning the listing of any shares in the successor company.

4.213

The PRA expects the society to discuss its plans with it during their formative stages, when the PRA will be prepared to give a view on their feasibility. However, although the PRA may agree that a planned timetable appears to be manageable, it cannot undertake to meet any deadlines set by the society. In particular, the PRA cannot be constrained in the proper performance of its statutory functions by, for example, the society’s wish to put the Transfer Resolutions to a SGM on or before the date of the AGM in that year, or the planned flotation date.

4.214

The PRA will be mindful of the need to ensure that there is adequate time, compatible with its other business and commitments, to:

1. (a) consider whether the proposed distribution scheme is in conformity with the 1986 Act;
2. (b) consider and approve the Transfer Statement, including time to deal with renewed applications if significant changes have to be made;
3. (c) give interested parties an opportunity to make considered representations at the confirmation stage, for the society to respond to those representations, and for the PRA to consider all the evidence and arguments, including making any necessary further enquiries of its own, and to meet any statutory requirement for consultation; and
4. (d) write a reasoned confirmation decision.

4.215

The likely sequence of events is shown on the table on page 62.

4.216

When considering the proposed vesting date, the society will no doubt consult its merchant bank advisers as to timing, particularly when shares are to be offered for subscription to raise new capital, having regard to other possible major share offers.

4.217

The PRA is required to consult the FCA before approving a merger. This will happen before Stage 17.