Cheques – or passing cows?

“Cows”  – a hat tip to my old colleagues, Graham and Clive, who commented on the sad news about cheques on Linked In.  Clive:  ”I guess you can always use the side of a passing cow, in extremis…”.  And what explains Graham’s turning to AP Herbert (also author of “The Water Gipsies”)?  Well, hey, it’s Christmas: take a look at Wikipedia’s  ”case summary” of the Board of Inland Revenue v Haddock.

If you are, like me, fascinated by the practical implications of the possible abolition of cheques, you can express your concerns or make constructive suggestions to the Payments Council at cheques@paymentscouncil.org.uk.  They do promise to take account of comments.

Second reading of Financial Services Bill

The Financial Services Bill was presented for its second reading in Parliament on Monday, 30 November.  Hansard reports that the Chancellor, Alistair Darling was questioned on the absence of consumer protection provisions in the Bill, particularly as regards pre-payment of goods.  Mr Darling replied that he was conscious more consumer legislation is needed but that he aimed to keep this Bill short (so that it can make it through Parliament before the election).  The main purpose of the Bill, he said, is to strengthen financial regulation.  It is to manage system-wide risks and “tighten” the powers available to the FSA on the remuneration of banks.  The discussion went on for some hours.  “Living wills” were touched on lightly, with a criticism from an MP that there was not enough detail about them in the Bill.  This was brushed aside by the Minister that such detail would be dealt with in the Public Bill Committee (which starts on a day yet to be announced but has to conclude by 14 January 2010).  The Bill got through the second reading on Monday night with a majority of 276 to 152.

Financial Services Bill

The Queen delivered the legislative programme for Parliament for the next session this morning in Westminster.  There has been huge media interest in the Queen’s speech as the Labour government throws down the gauntlet to its rival parties in the run up to the General Election next year.

The Financial Services Bill is one of 14 and applies to the whole of the UK.  If implemented as the Government intend, it would:

• Establish a Council for Financial Stability. 
• Strengthen the FSA’s powers to curb bankers’ pay. 
• Force banks to set up a “living will” to make them easier to wind down if necessary.
• Ban unsolicited credit card cheques.
• Allow groups to bring court actions against financial institutions.

Another bill you might be interested in, is the (re-incarnation of the) Bribery Bill that makes it illegal to bribe a foreign official to obtain or retain business.  A business that fails to prevent a bribe being paid by their employees will incur a penalty, if the Bill is passed as proposed.   The Bribery Bill extends to England, Wales and Northern Ireland.

The BBC have a summary of all the Bills as do the FT.  General coverage of the Queen’s Speech at BBC and FT.

New Acts

It has been interesting to watch the progress of bills going through Parliament this month.  Both Houses of Parliament officially prorogued on 12 November, marking the formal end to the parliamentary year and will meet again for the State Opening of Parliament on 18 November.  During the past month, nearly 40 bills have lapsed or been dropped.  The Government appears to be clearing the table to concentrate on the bills that are important to them.  During the prorogation announcement on 12 November, 13 Bills became Acts:

• Apprenticeships, Skills, Children and Learning Bill
• Autism Bill
• Coroners and Justice Bill
• Driving Instruction (Suspension and Exemption Powers) Bill
• Green Energy (Definition and Promotion) Bill
• Health Bill
• Holocaust (Return of  Cultural Objects) Bill
• Law Commission Bill
• Local Democracy, Economic Development and Construction Bill
• Marine and Coastal Access Bill
• Perpetuities and Accumulations Bill
• Policing and Crime Bill
• Welfare Reform Bill

A couple of bills, the Equality Bill and the Constitutional Reform and Governance Bill have the benefit of carry-over provisions so that, not having completed by the end of this Parliamentary session, they can continue their progress in the next session.  Other bills will have to be re-presented in the next session.  There is a bit more detail in my “Tracker“.

Rescue financing abandoned

The Government have dropped the idea of introducing rescue finance, with super-priority for new lenders to troubled companies, for the time being.

The Insolvency Service announced this today in response to the consultation, “Encouraging Company Rescue”.  You can see the range of replies to the consultation here; (name-check my firm, CMS Cameron McKenna ).

It seems there was a more positive reaction to the suggestion of a moratorium for companies that need a breathing space in order to agree restructuring proposals with their creditors.  We can expect more detailed proposals to be published in due course.

An article with more detail will shortly be published on www.law-now.com .

Emissions trading schemes

Emissions (or carbon) trading is the buying and selling of  the right to emit carbon dioxide.  It is a growing market, which worries both the Financial Markets Law Committee and Friends of the Earth although they make their arguments from, naturally, very different positions. 

The FMLC are concerned about legal uncertainties in the carbon emission allowances which underlie this market and have published a paper on this (October 2009).  The FMLC point out that in the European Union Emissions Trading Scheme (EU-ETS), the largest carbon markets scheme, nothing provides any indication of the legal nature of emission allowances. Emission allowances, they say, have aspects of administrative grants  or licences and of private property, and different conclusions as to their legal classification may already have been, or are in the course of being, reached in a number of Member States.

This matters because the legal nature of an emission allowance is relevant to decide which law govers the creation, transfer and cancellation of the allowance.  Are they capable of being stolen?  How do you treat them for tax and accounting purposes?  If the holder becomes insolvent, how should the allowance be dealt with?  If, as is happening, derivative interests in emissions are traded (allowances being recognised as a valuable financial commodity) should they be subject to regulation as an investment?

The FMLC believes that unless these issues are sorted out, they could slow down development of the market in carbon emission allowances.

Friends of the Earth, natuarally, have a different point of view in their report, “A dangerous obsession“.   They don’t want banks to risk a collapse in confidence in the market by trading in derivatives of carbon credits.  Taking a step back, in fact, they question whether carbon trading can reduce emissions levels effectively.  They want governments to use more direct tools, e.g, they say, investment and regulation.  The conclusion of their report demands the expansion of emission trading schemes to be halted globally, that the schemes be not linked, that offsets be removed from existing schemes and that schemes be reformed to avoid “abuse and profiteering by industry and finance”.  They draw a parallel with the uncertainty surrounding the trading of derivatives in emissions against the collapse of the sub-prime mortgage market.

The FSA has responsibility for regulation of the emissions derivatives markets.  It published a paper, “The emissions trading market: risks and challenges“ in March 2008.   The paper sets out some technical considerations for risk managment of the emissions market.  Personally, I think it is time they had another look at the topic, given this paper pre-dates the financial crisis.

The United Nations Climate Change conference is being held next month in Copenhagen. Iit is likely this issue will get more of an airing in the next few weeks.

Companies Act 2006

On 1 October 2009 virtually all sections of the Companies Act 2006 that had not been implemented earlier came into force.  This tour de force of UK legislation (the largest Act on the statute book, now)  has reached the end of its marathon along the implementation timetable.  The main areas of change are in relation to the formation of companies, the memorandum and articles, share capital, and directors’ home addresses.  This is a helpful note that is on Law-Now (my firm’s website) which sets out the detail of the new regime.

Debt buy-backs – not so popular?

The tax treatment of debt buy-backs has been changed with immediate effect.  A Ministerial Statement explaining this was published on Hansard  on 14 October.  This will affect any transaction that involves debt being bought back by a borrower group.  If a borrowing company is released from a liability and pays less than the amount borrowed in order to do so, the discount is normally subject to tax. Until now, the practice in such transactions was to rely on an exemption avoiding a tax liability.  Now, however, the rules have been tightened.  Are the reasons for this an underlying policy for all government departments to do what they can to swell the public coffers?  There was a perceived abuse of the exemption, e.g. by healthy companies buying back their listed debt at a discount without paying tax but surely overall, buying back debt should be encouraged? The Finance Bill, when published, will have details of the proposed legislation.

Limitation periods – proposals for reform

A bill is to be published later this year that will propose a “primary” 3-year period for contract (and other) claims starting from, broadly, the date on which the claimant knows of the facts which give rise to the action and a “longstop” 10-year period starting from, broadly, the date of accrual of the cause of action. 

The ‘Limitation Bill’ will be published in draft as part of the provisions of the Civil Law Reform Bill later this year (2009) for pre-legislative scrutiny.  The draft Limitation Bill is expected to follow the terms of the draft Bill that was published by the Law Commission in 2001 with their report, following their consultation on reform of the Limitation Act 1980.  There is a shorter, 31 page, executive summary from 2001.

Equality Bill

The Government introduced the Equality Bill to the House of Commons on 27 April 2009.  The Bill is to strengthen existing equality law and introduce new measures against discrimination. The Bill makes it unlawful to discriminate against someone aged 18 or over when providing services, which will include the provision of financial services.  The second reading is due on 11 May 2009.