Home Repossession (Protection) Bill

The bill has been dropped.  I commented on the introduction of this bill in February of this year and the implications for lenders.  The bill would have amended the Law of Property Act 1925 to require a mortgagee to obtain the court’s permission before exercising the power of sale on residential property.  It was dropped from the Parliamentary process on 5 November 2009.

Constructive trusteeship in complex restructurings

An Australian restructuring case, despite minor differences of law, has relevance for banks taking security under English law for borrowing from complex corporate structures.  The case shows how much care banks should exercise to avoid liability as constructive trustees.  The judgment runs to 2,643 pages and I don’t pretend to have read it.  But you might like to be aware of some commentary by Australian law firms, Dibbs Barker and Allens Arthur Robinson, that show banks should stick to their existing routines in bank lending practices, get proper minutes from companies, scrutinise benefit and security arrangements and be aware of directors’ responsibilities when their company is on the brink of insolvency.  One gem to emerge from this is an attempted description of insolvency: “insurmountable endemic liquidity”.

Some recent issues

At a recent “round table”, I gave an overview of legal developments of interest to bank lawyers. Here is a summary:

Regulatory Reform

Is a perfect maelstrom of activity for obvious reasons, as banks are being handed birch twigs to beat themselves penitentially for not counting the pennies. Events have been moving faster than I can blog, and now in the FT we have talk of a turf war between the Bank of England and the FSA cuminating today in the threat of yet another Banking Act.  A few weeks ago, the House of Lords put the boot into the FSA by recommending reform of the tripartite system of FSA/BoE/HMT regulation. They want to reverse history and return supervisory powers to the BoE. You could feel sorry for the FSA. The BBA threw themselves into the job of replying to the FSA consultation “A regulatory response to the global banking crisis” and asked for much more thought to be put into the proposals. The BBA challenge the assumption that any additional regulatory requirement can be justified because “it can’t cost as much as the crisis”.  The FSA propose to take on enforcement of what used to be the BBA’s voluntary Banking Code in November, to levy fines on errant banks. And they have set out the final rules of BCOBS affecting retail banking for consumers and small businesses and requiring banks to help consumers to switch accounts promptly and efficiently.  On top of all this, the OFT are consulting on its Financial Services Strategy, in order to promote fairness and responsibility in the credit industry and its customers. The FSA, not being very busy, have also published a paper on Consumer Responsibility: consumers and lenders are expected to show responsibility, in lending, borrowing, mortgaging, using credit cards and when discussing the EU Responsible Lending Directive.  This hasn’t gone down well with consumer groups.

Registration of company charges

You will soon need to dust off your old files because the consultation is going to start up again in 2010. We will revisit the brave new world of electronic registration and start talking knowledgeably about New Zealand and Canadian personal property security law again as if we were all old hands.

Banking Act 2009

Then there is the Banking Act 2009 and its importance to financial stability. The continuity of banking services is now enshrined in law with a special insolvency position for banks: the special resolution regime. The Safeguards Order has posed some difficulty with its carve outs to the safeguards creating a lack of legal certainty that affected unqualified legal opinions for set off and netting arrangements. This is the “one bad apple” problem – if a failing bank undergoes a partial transfer of assets, the government should be able (to continue the fruity analogy) to cherry-pick assets from a netting arrangement with the Bank and avoid the bad apple. The concern was that the Safeguards Order as drafted would have lead to whole ISDA Master Agreements being taken down in a partial transfer of assets. The drafting problem was where assets in the netting arrangement were to be “solely” “financial instruments” – as defined in MIFID, which automatically excluded forwards, commodity derivatives, life insurance derivatives, spot and forward FX. Despite a few Parliamentary distractions recently, HMT laid a revised draft before Parliament for approval and the drafting error has been rectified. Considering the Order for approval under the affirmative resolution procedure will make a welcome relief from choosing a floating duck house that no duck wants to live in.

Payment Services Directive

The Payment Services Regulations, implementing the PSD nationally to harmonise payment systems across the EU will be thoroughly embedded in banks’ activities by now. The PSD will be implemented in November 2009, the FSA handbook will be amended and banks are well up on changing their payment systems to comply. Perimeter guidance has been issued by the FSA to help banks decide if their activities fall in the scope of the PSD.

Reform of OTC derivatives regulation

And finally, the US have proposed regulatory reform of OTC derivatives to prevent activities in the OTC derivatives markets from posing risk to the financial system; to promote the efficiency and transparency of the OTC derivatives markets; to prevent market manipulation, fraud, and other market abuses; and to ensure that OTC derivatives are not marketed inappropriately to unsophisticated parties.  Sonnenschein’s have a good note on it.

Bills: bank accounts and Scottish banknotes

A bill that proposes to require banks and building societies to offer retail customers a current and a savings account for no charge is going through Parliament.  It has already received its first (perfunctory) reading and the substantive, second reading will be held on 19 June.  The bill does stipulate that the accounts must be in credit for them to remain a free banking service.  It was presented by Frank Field, and as a private members bill, not one brought in by the government, it stands a high chance of being talked out of time.  This was the fate of the Scottish Banknotes (Acceptability in United Kingdom) Bill on 6 March.  That bill wants to require businesses not to distinguish between Scottish and Bank of England banknotes  as acceptable payment for goods and services and to give the OFT investigative powers in relation to breaches of the requirement.  A new date has been set for resuming the debate on 24 April 2009.

Bank charges case – to the House of Lords

The House of Lords have allowed the banks to appeal to them against the Court of Appeal’s decision that the issue of fairness of bank charges falls within the Unfair Terms in Consumer Contract Regulations.  See the most recent post by Bank Law Blogger on this.  Permission has been granted to appeal although we don’t have any dates for the actual hearing yet.

Banking Bill

The Banking Bill is on its final parliamentary stretch and in theory expects to receive Royal Assent by tomorrow, 12 February 2009.  It is now in the process of debate quaintly called “ping-pong”.  Both Houses must agree on the text of the Bill and there are still issues to resolve before they can agree on every word.  You can see the arguments on e.g., issues relating to the use of public money to fund the banks and on the definition of the insolvency of investment banks set out on Hansard. 

The current version of the Bill can be found here.

Home Repossession (Protection) Bill

Andrew Dismore MP introduced this Private Members’ Bill on 3 February 2009 in reaction to the case last year of Horsham v Clark.  The Bill proposes to amend the Law of Property Act 1925 so as to require a mortgagee to obtain the court’s permission before exercising the power of sale over a dwelling-house. The Bill is designed to make certain powers available to the court in actions by mortgagees for possession of a dwelling-house. The Bill was introduced in the first reading on 3 February and the second reading, when it will be debated properly, is scheduled for 26 June 2009. 

Main UK clearing banks and non-bank lenders may differ in their approach to repossessions. The law in E&W gives the lender the right to repossession of a secured property in the event of non-repayment of the home loan. The clearing banks are free to act more sensitively than simply seeking repossession on the first default, and they openly publish policies that are more generous. However, lenders need only stick to the letter of the law. This Bill has been introduced as a reaction to anxiety that unscrupulous lenders will act precipitately to require a sale of a home. 

See Andrew Dismore’s comment on introducing the Bill to Parliament.

Bank charges – latest judgment

The test case in the High Court as to whether the Unfair Terms in Consumer Contracts Regulations apply to questions of fairness as to the level and application of unarranged overdraft charges continues.   The judgment in the hearing on 9 December 2008 has been published (21 January 2009) and looks at whether some historical terms allowing the banks to charge are capable of amounting to penalties at common law. There was a judgment on 8 October 2008 that decided most of the banks’ terms did not amount to penalties. A further hearing was then ordered of outstanding issues in relation to some terms of three particular banks. All of the terms except one were held not to amount to penalties at common law. As to the remaining term, the court remained “unpersuaded that the relevant term … was not capable of being penal”.  The next step is to wait for the outcome of the banks’ appeal against the court’s decision that the terms are capable of being assessed under the Unfair Terms in Consumer Contracts Regulations.

OFT v Abbey & ors [2009] EWHC 36

Pre-packaged administration

A new rule affects “pre-packaged sales” or “pre-packs” - arrangements to sell a company’s business or assets to a buyer before an administrator is appointed. The administrator effects the sale on his appointment. Unsecured creditors have no chance for involvement in the sale of the business or assets before it takes place. The method has been in vogue for some time but is contentious.

To try to remedy one of the perceived evils, a new Statement of Insolvency Practice addressed to administrators involved in pre-packaged sales aims to require administrators to provide creditors with information about the sale such as the name of the buyer of the business and the price paid.

The new guidelines require practitioners to:

· Keep a detailed record of the reasons why a pre-packaged sale has been chosen as the best course of action for creditors.

· Make it clear to the directors of the company that they have been appointed to advise the company, and not the directors on their personal positions, where that is the case.

· Encourage the directors of the company to take independent advice, in particular if any of the directors proposes to acquire assets in the sale.

The Statement of Insolvency Practice 16 (E&W) (SIP 16) took effect on 1st January 2009.

Twitter Updates

I’ve added a Twitter update to the Bank Law Blog, so that now anyone who wishes to can follow me on Twitter either by subscribing to the RSS feed or by following me on Twitter itself. For anyone not familiar with Twitter the following is a great introduction to the service.