Clause 2

Part of Financial Mutuals Arrangements Bill – in a Public Bill Committee am 9:45 am ar 25 Ebrill 2007.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of Edward Balls Edward Balls The Economic Secretary to the Treasury 9:45, 25 Ebrill 2007

New clause 2 will give the Treasury the power to amend the Building Societies Act 1986 to ensure that, in the event of a building society insolvency, any assets available are distributed equally between creditors and members. That will change the current position, in which creditors have priority over members. The power may also be used to make transitional provisions to cover, for example, debts entered into before the changes take effect. The power will be exercised under the affirmative procedure—again, for the reasons that I outlined when I introduced clause 1 to the Committee.

The current position puts members at a disadvantage. In the event of insolvency, they are entitled to their deposits in savings accounts only when all creditors have been paid in full. That contrasts with bank customers, who, because they are creditors of the bank, rank equally with other creditors. The power to exclude categories of special liabilities will enable the Treasury to deal with them individually, which it was not practical to do in the Bill.

It is important that transitional provisions ensure that the rights of creditors in respect of debts entered into before the commencement of the order are unaffected by the change. The power is also exercisable under the affirmative procedure. As the use of the power would be a significant change to insolvency law, as applied to building societies, the views of the Insolvency Service and others will be sought before exercising the power.