The Investment Bank Special Administration Regulations 2011

Citation and commencement

1.  These Regulations may be cited as the Investment Bank Special Administration Regulations 2011 and shall come into force on the day after the day on which they are made.

Interpretation

2.—(1) In these Regulations, except where the context otherwise requires—

“the Act” means the Banking Act 2009;

“administrator” has the meaning set out in regulation 4;

“Authorities” means the Bank of England, the Treasury and the FSA;

“business day” has the meaning set out in section 251 of the Insolvency Act;

“client” means a person for whom the investment bank has undertaken to receive or hold client assets (whether or not on trust and whether or not that undertaking has been complied with);

“contributory” has the meaning set out in section 79 of the Insolvency Act(1);

“court” means—

“deposit-taking bank” means an investment bank to which the definition set out either in section 2 or in section 91 of the Act applies;

“the Disqualification Act” means the Company Directors Disqualification Act 1986(2);

“enactment” includes—

and any EU Instrument (as defined in Part 2 of Schedule 1 of the European Communities Act 1972(3));

“fair” is to be construed in accordance with section 93(8) of the Act;

“FSA” means the Financial Services Authority;

“FSCS” means the scheme manager of the Financial Services Compensation Scheme (established under Part 15 of FSMA);

“FSMA” means the Financial Services and Markets Act 2000(4);

“the Insolvency Act” means the Insolvency Act 1986(5);

“insolvency rules” means rules made under section 411 of the Insolvency Act as applied and modified by regulation 15;

“market charge” means a charge to which Part 7 of the Companies Act 1989(6) applies as a result of the operation of section 173 of that Act(7);

“market contract” means a contract to which Part 7 of the Companies Act 1989 applies as a result of the operation of section 155 of that Act(8);

“market infrastructure body” means a recognised clearing house, recognised investment exchange, recognised overseas clearing house or recognised overseas investment exchange in relation to which the investment bank is a counterparty in a market contract or to a market charge or is a member or participant;

“Objective 1”, “Objective 2” and “Objective 3” have the meanings set out in regulation 10;

“prescribed” means prescribed by insolvency rules;

“recognised clearing house” has the meaning set out in section 285 of FSMA;

“recognised investment exchange” has the meaning set out in section 285 of FSMA;

“recognised overseas clearing house” means an overseas person in respect of whom the FSA has made a recognition order under section 292 of FSMA(9) declaring them to be a recognised clearing house;

“recognised overseas investment exchange” means an overseas person in respect of whom the FSA has made a recognition order under section 292 of FSMA declaring them to be a recognised investment exchange;

“Schedule B1” means Schedule B1 to the Insolvency Act(10);

“Schedule B1 administration” means the administration procedure set out in Schedule B1;

“securities” means financial instruments as defined in regulation 3 of the Financial Collateral Arrangements (No.2) Regulations 2003(11);

“security interest” means any legal or equitable interest or any other right in security (other than a title transfer financial collateral arrangement) created or otherwise arising by way of security including—

“special administration” has the meaning set out in regulation 3;

“special administration (bank insolvency)” has the meaning set out in paragraph 1 of Schedule 1;

“special administration (bank administration)” has the meaning set out in paragraph 1 of Schedule 2;

“special administration objectives” has the meaning set out in regulation 10;

“special administration order” has the meaning set out in regulation 4;

“statement of proposals” means the statement of proposals drawn up by the administrator in accordance with—

“title transfer financial collateral arrangement” has the meaning set out in regulation 3 of the Financial Collateral Arrangements (No.2) Regulations 2003.

(2) In the definition of “security interest”, in sub-paragraph (c), in its application to Scotland, “fixed charge” means a fixed security within the meaning given by section 47(1) of the Bankruptcy and Diligence etc. (Scotland) Act 2007(12).

(3) References in these Regulations to a regulated activity must be read with—

(a)section 22 of FSMA (classes of regulated activity and categories of investment);

(b)any relevant order under that section; and

(c)Schedule 2 to that Act (regulated activities).

(4) For the purposes of a reference in these Regulations to inability to pay debts—

(a)an investment bank that is in default on an obligation to pay a sum due and payable under an agreement is to be treated as unable to pay its debts; and

(b)section 123 of the Insolvency Act (inability to pay debts) also applies,

and for the purposes of sub-paragraph (a), “agreement” means an agreement the making or performance of which constitutes or is part of a regulated activity carried on by the investment bank.

(5) Expressions used in these Regulations and in the Insolvency Act have the same meaning as in that Act, and the provision made by paragraphs 100 and 101 of Schedule B1 (as applied by regulation 15) in respect of the effect of the references in that Schedule also apply in respect of the same references where used in these Regulations.

(6) Expressions used in these Regulations and in the Companies Act 2006(13) have the same meaning as in that Act.

(7) Regulation 26 applies with respect to the application of these Regulations to Northern Ireland.

Overview

3.—(1) These Regulations provide for a procedure to be known as investment bank special administration (“special administration”).

(2) The main features of special administration are that—

(a)an investment bank enters the procedure by court order;

(b)the order appoints an administrator;

(c)the administrator is to pursue the special administration objectives in accordance with the statement of proposals approved by the meeting of creditors and clients and, in certain circumstances, the FSA; and

(d)in other respects the procedure is the same as for Schedule B1 administration under the Insolvency Act, subject to specific modifications, and the inclusion of certain liquidation provisions of the Insolvency Act.

(3) Where the investment bank is a deposit-taking bank with eligible depositors (within the meaning of section 93(3) of the Act)—

(a)regulations 4 to 8 do not apply; and

(b)in addition to the insolvency procedures established under Parts 2 and 3 of the Act, the Bank of England or, as the case may be, the FSA, may apply for an order to put the bank into—

(c)special administration (bank insolvency) as set out in Schedule 1 (as applied by regulation 9); or

(d)special administration (bank administration) as set out in Schedule 2 (as applied by regulation 9).

(4) Where the investment bank is a deposit-taking bank but has no eligible depositors, the investment bank must not be put into special administration (bank insolvency); instead the investment bank may be put into either—

(a)special administration (bank administration), (in which case regulations 4 to 8 do not apply); or

(b)special administration.

Special administration order

4.—(1) An investment bank special administration order (“special administration order”) is an order appointing a person as the investment bank administrator (“administrator”) of an investment bank.

(2) A person is eligible for appointment as administrator under a special administration order if qualified to act as an insolvency practitioner.

(3) An appointment may be made only if the person has consented to act.

(4) For the purpose of these Regulations—

(a)an investment bank is “in special administration” while the appointment of the administrator has effect;

(b)an investment bank “enters special administration” when the appointment of the administrator takes effect;

(c)an investment bank ceases to be in special administration when the appointment of the administrator ceases to have effect in accordance with these Regulations; and

(d)an investment bank does not cease to be in special administration merely because an administrator vacates office (by reason of resignation, death or otherwise) or is removed from office.

Application

5.—(1) An application to the court for a special administration order may be made to the court by—

(a)the investment bank;

(b)the directors of the investment bank;

(c)one or more creditors of the investment bank;

(d)the designated officer for a magistrates’ court in the exercise of the power conferred by section 87A of the Magistrates’ Courts Act 1980(14) (fines imposed on companies);

(e)(subject to paragraph (7)), a contributory of the investment bank;

(f)a combination of persons listed in sub-paragraphs (a) to (e);

(g)the Secretary of State; or

(h)the FSA.

(2) Where an application is made by a person other than the FSA, the FSA is entitled to be heard at—

(a)the hearing of the application for special administration; and

(b)any other hearing of the court in relation to the investment bank under these Regulations.

(3) An application must nominate a person to be appointed as the administrator.

(4) As soon as is reasonably practicable after making the application, the applicant shall notify—

(a)a person who gave notice to the FSA in accordance with Condition 1 of regulation 8; and

(b)such other persons as may be prescribed.

(5) An application may not be withdrawn without the permission of the court.

(6) In sub-paragraph (1)(c), “creditor” includes a contingent creditor and a prospective creditor.

(7) A contributory (“C”) is not entitled to make an application for special administration unless either—

(a)the number of members is reduced below 2; or

(b)the shares in respect of which C is a contributory, or some of them, either were originally allotted to C, or have been held by C and registered in C’s name, for at least 6 months during the 18 months before the commencement of the special administration, or have devolved on C through the death of a former holder.

Grounds for applying

6.—(1) In this regulation—

(a)Ground A is that the investment bank is, or is likely to become, unable to pay its debts;

(b)Ground B is that it would be fair to put the investment bank into special administration; and

(c)Ground C is that it is expedient in the public interest to put the investment bank into special administration.

(2) The FSA or the persons listed in regulation 5(1)(a) to (e) may apply for a special administration order only if they consider that Ground A or Ground B is met.

(3) The Secretary of State may apply for a special administration order only if it appears to the Secretary of State that Grounds B and C are met.

(4) The sources of information on the basis of which the Secretary of State may reach a decision on Ground C include those listed in section 124A(1)(15) of the Insolvency Act (petition for winding up on grounds of public interest).

Powers of the court

7.—(1) On an application for a special administration order the court may—

(a)grant the application in accordance with paragraph (2);

(b)dismiss the application;

(c)adjourn the hearing (generally or to a specified date);

(d)make an interim order;

(e)on the application of the FSA, treat the application as an administration application by the FSA under Schedule B1 in accordance with section 359(1) of FSMA(16); or

(f)make any other order which the court thinks appropriate.

(2) The court may make a special administration order if it is satisfied that the company is an investment bank and—

(a)(on the application of persons listed in regulation 5(1)(a) to (e) or the FSA) that Ground A or Ground B in regulation 6 is satisfied;

(b)(on the application of the Secretary of State) if satisfied that Grounds B and C in regulation 6 are satisfied.

(3) Where the application for a special administration order is made by members of the investment bank as contributories on the basis that Ground B in regulation 6 is satisfied, the court, if it is of the opinion that—

(a)the applicants are entitled to relief either by a special administration order being made in respect of the investment bank or by some other means; and

(b)in the absence of any other remedy it would be fair that the special administration order be made in respect of the investment bank,

shall make a special administration order; but this does not apply if the court is also of the opinion that an alternative remedy is available to the applicants and that they are acting unreasonably in applying for a special administration order instead of pursuing that other remedy.

(4) A special administration order takes effect in accordance with its terms.

Notice to FSA of preliminary steps to other insolvency proceedings

8.—(1) An application for an administration order in respect of an investment bank may not be made unless the conditions in paragraph (5) are satisfied.

(2) A petition for a winding up order in respect of an investment bank may not be made unless the conditions in paragraph (5) are satisfied.

(3) A resolution for the voluntary winding up of an investment bank may not be made unless the conditions in paragraph (5) are satisfied.

(4) An administrator of an investment bank may not be appointed unless the conditions in paragraph (5) are satisfied.

(5) The conditions are as follows—

(a)Condition 1 is that the FSA has been notified of the preliminary steps taken in respect of an insolvency procedure;

(b)Condition 2 is that a copy of the notice complying with Condition 1 has been filed (in Scotland, lodged) with the court (and made available for public inspection by the court);

(c)Condition 3 is that —

(i)the period of 2 weeks, beginning with the day on which the notice is received by the FSA, has ended, or

(ii)the FSA has informed the person who gave the notice that it consents to the insolvency procedure to which the notice relates going ahead; and

(d)Condition 4 is that no application for a special administration order is pending.

(6) Where the FSA receives notice under Condition 1, it shall inform the person who gave the notice, within the period in Condition 3—

(a)whether or not it consents to the insolvency procedure to which the notice relates going ahead;

(b)whether or not it intends to apply for that (or an alternative) insolvency procedure itself; or

(c)whether it intends to apply for a special administration order.

(7) Arranging for the giving of the notice in order to satisfy Condition 1 may be treated as a step with a view to minimising the potential loss to the investment bank’s creditors for the purpose of section 214 of the Insolvency Act (as applied by regulation 15).

(8) In this regulation—

“investment bank” does not include an investment bank that is a deposit-taking bank; and

“preliminary steps taken in respect of an insolvency procedure” means that—

Application where investment bank is a deposit-taking bank

9.  Subject to regulation 3(4), where the investment bank is a deposit-taking bank then Schedule 1 (Special administration (bank insolvency)) and Schedule 2 (Special administration (bank administration)) apply.

Special administration objectives

10.—(1) The administrator has three special administration objectives (“the special administration objectives”)—

(a)Objective 1 is to ensure the return of client assets as soon as is reasonably practicable;

(b)Objective 2 is to ensure timely engagement with market infrastructure bodies and the Authorities pursuant to regulation 13; and

(c)Objective 3 is to either—

(i)rescue the investment bank as a going concern, or

(ii)wind it up in the best interests of the creditors.

(2) In relation to sub-paragraph (1)(a), the administrator is entitled to deal with and return client assets in whatever order the administrator thinks best achieves Objective 1.

(3) The order in which the special administration objectives are listed in this regulation is not significant: subject to regulation 16, the administrator must—

(a)commence work on each objective immediately after appointment, prioritising the order of work on each objective as the administrator thinks fit, in order to achieve the best result overall for clients and creditors; and

(b)set out, in the statement of proposals made under paragraph 49 of Schedule B1 (as applied by regulation 15), the order in which the administrator intends to pursue the objectives once the statement has been approved.

(4) The administrator must work to achieve each objective, in accordance with the priority afforded to the objective as provided in paragraph (3), as quickly and efficiently as is reasonably practicable.

(5) For the purposes of Objective 1, “return of client assets” or where the client assets are “returned” to the client means that the investment bank relinquishes full control over the assets for the benefit of the client to the extent of—

(a)the client’s beneficial entitlement to those assets (where the assets in question have been held on trust by the investment bank); or

(b)the client’s right to those assets as bailor or otherwise (where the investment bank has been holding those assets as bailee (in Scotland, as custodier of those assets) or by some other means to the order of the client);

having taken into account any entitlement the investment bank might have, or a third party might have, in respect of those assets, of which the administrator is aware at the time the assets are returned to the client.

(6) In relation to paragraph (5)—

(a)where client assets are returned to a person other than the client, for “client” substitute “claimant”; and

(b)where the claimant is the investment bank, for “relinquishes control over the assets for the benefit of the client” substitute “takes full title to the assets for its benefit”.

Objective 1 – distribution of client assets

11.—(1) If the administrator thinks it necessary in order to expedite the return of client assets, the administrator may set a bar date for the submission of—

(a)claims to the beneficial ownership, or other form of ownership, of the client assets; or

(b)claims of persons in relation to a security interest asserted over, or other entitlement to, those assets.

(2) Claims under paragraph (1) include claims that are contingent or disputed.

(3) In setting a bar date, the administrator must allow a reasonable time after notice of the special administration has been published (in accordance with insolvency rules) for persons to be able to calculate and submit their claims.

(4) Where the administrator sets a bar date—

(a)the administrator shall return client assets in accordance with the procedure set down by insolvency rules; but

(b)no client assets shall be returned after the bar date has been set without the approval of the court in accordance with the procedure set down in insolvency rules.

(5) Where the administrator, after setting a bar date, has returned client assets, if the administrator then receives a late claim of a type described in paragraph (1) in respect of assets that have been returned—

(a)there shall be no disruption to those client assets that have already been returned;

(b)the person to whom the assets have been returned acquires good title to them as against the late-claiming claimant,

and insolvency rules shall prescribe how the late claim is to be treated by the administrator.

(6) The restrictions in paragraph (5) shall not apply where—

(a)the client assets were returned to a person (“P”) by the administrator in bad faith in which P was complicit; or

(b)P is later found to have made a false claim to those assets.

(7) In this regulation, “bar date” means a date by which claims as described in paragraph (1) must be submitted.

(8) This regulation does not apply to client assets received or held, or which should have been held, by the investment bank in accordance with rules made by virtue of section 139 of FSMA (clients’ money).

Objective 1 - shortfall in client assets held in omnibus account

12.—(1) This regulation applies if—

(a)the administrator becomes aware that there is a shortfall in the amount available for distribution of securities of a particular description held by the investment bank as client assets in a client omnibus account;

(b)the shortfall cannot be remedied following the resolution of on-going disputes; and

(c)the assets in question are not ones which are received or held, or should have been held, by the investment bank in accordance with rules made by virtue of section 139 of FSMA (clients’ money).

(2) The administrator, in making the distribution, shall ensure (subject to the treatment of late claims as described in regulation 11(5)) that the shortfall referred to in paragraph (1) be borne pro rata by all clients for whom the investment bank holds securities of that particular description in that same account in proportion to their beneficial interest in those securities.

(3) A person (including the investment bank) (“a security holder”) with a security interest over securities held in the client omnibus account on behalf of a particular client shall be entitled to participate in distributions and shortfall claims in respect of those securities in accordance with their entitlement as against that client (subject to the treatment of late claims as described in regulation 11(5)).

(4) Security holders shall not, at any time, be entitled to claim in aggregate in excess of the distribution which the client would have been entitled to if there had been no claim by that client.

(5) Any reduction of the client’s beneficial interest as a result of the application of paragraph (2) shall limit correspondingly the rights of the security holder in respect of the distribution, (but this shall not affect the right of the security holder in respect of the client’s shortfall claim as described in paragraph (7)).

(6) Where there is a dispute between persons as to their respective share of a distribution, the administrator may—

(a)make the distribution in accordance with an agreement drawn up between the parties in dispute; or

(b)lodge the securities that are the subject of the dispute with the court,

and if the administrator pursues either course of action, the administrator’s obligations in respect of Objective 1 with regard to these securities shall be deemed to be discharged.

(7) The shortfall borne by a client under paragraph (2) is that client’s shortfall claim against the investment bank (“shortfall claim”) and shall rank as an unsecured claim.

(8) The value of a client’s shortfall claim shall be based on the market price for those securities to which the shortfall claim relates on the date the investment bank entered special administration or, if that is not a business day, on the last business day prior to the investment bank entering special administration.

(9) In this regulation—

“client omnibus account” means an account held by the investment bank, or another institution in the name of the investment bank, made up of multiple accounts of clients of the investment bank;

“distribution” means the return of client assets that are securities of a particular description;

“market price” means—

“securities of a particular description” means securities issued by the same issuer which are of the same class of shares or stock; or in the case of securities other than shares or stock, which are of the same currency and denomination and treated as forming part of the same issue.

Objective 2 – engaging with market infrastructure bodies and the Authorities

13.—(1) The administrator shall work with—

(a)a market infrastructure body to—

(i)facilitate the operation of that body’s default rules or default arrangements,

(ii)resolve issues arising from the operation of those rules or arrangements, and

(iii)facilitate the settlement or prompt cancellation of non-settled market contracts or, as the case may be, of unsettled settlement instructions; and

(b)the Authorities, to facilitate any actions the Authorities propose to take to minimise the disruption of businesses and the markets as a consequence of a special administration order being made in respect of the investment bank.

(2) In paragraph (1), “work with” means to—

(a)comply, as soon as reasonably practicable, with a written request from such a body or from any of the Authorities for the provision of information or the production of documents (in hard copy or in electronic format) relating to the investment bank;

(b)allow that body or any of the Authorities, on reasonable request, access to the facilities, staff and premises of the investment bank for the purposes set out in paragraph (1),

but no action need be taken in accordance with this paragraph to the extent that, in the opinion of the administrator, such action would lead to a material reduction in the value of the property of the investment bank.

(3) In the event that the administrator receives a request under paragraph (2) from a market infrastructure body based overseas, no action needs to be taken in accordance with paragraph (2) if that request conflicts with a request from any of the Authorities.

(4) Where a market infrastructure body has made a request of the type referred to in paragraph (2), that body shall provide the administrator with such information as the administrator may reasonably require in pursuit of Objective 2.

(5) Under this regulation a person or body shall not be required to provide any information—

(a)which they would be entitled to refuse to provide on grounds of legal professional privilege in proceedings in the High Court or on grounds of confidentiality of communications in the Court of Session; or

(b)if such provision by the body holding it would be prohibited by or under any enactment.

(6) In this regulation—

“default arrangements” has the meaning set out in regulation 2(1) of the Financial Markets and Insolvency (Settlement Finality) Regulations 1999(17); and

“default rules” has the meaning set out in section 188 of the Companies Act 1989(18).

Continuity of supply

14.—(1) This regulation applies where, before the commencement of special administration, the investment bank had entered into arrangements with a supplier for the provision of a supply to the investment bank.

(2) After the commencement of special administration, the supplier—

(a)shall not terminate a supply unless—

(i)any charges in respect of the supply, being charges for a supply given after the commencement of special administration, remain unpaid for more than 28 days,

(ii)the administrator consents to the termination, or

(iii)the supplier has the permission of the court, which may be given if the supplier can show that the continued provision of the supply shall cause the supplier to suffer hardship; and

(b)shall not make it a condition of a supply, or do anything which has the effect of making it a condition of the giving of a supply, that any outstanding charges in respect of the supply, being charges for a supply given before the commencement of special administration, are paid.

(3) Where, before the commencement of special administration, a contractual right to terminate a supply has arisen but has not been exercised, then, for the purposes of this regulation, the commencement of special administration shall cause that right to lapse and the supply shall only be terminated if a ground in paragraph (2)(a) applies.

(4) Any provision in a contract between the investment bank and the supplier that purports to terminate the agreement if any action is taken to put the investment bank into special administration is void.

(5) Any expenses incurred by the investment bank on the provision of a supply after the commencement of special administration are to be treated as necessary disbursements in the course of the special administration.

(6) In this regulation—

“accredited network provider” means a person accredited with a relevant system who operates a secure data network through which the investment bank communicates with the relevant system;

“commencement of special administration” means the making of the special administration order;

“relevant system” has the meaning set out in regulation 2(1) of the Uncertificated Securities Regulations 2001(19);

“sponsoring system participant” has the meaning set out in regulation 3 of the Uncertificated Securities Regulations 2001 (in the definition of “system participant”);

“supplier” means the person controlling the provision of a supply to the investment bank under a licence, sub-licence or other arrangement, and includes a company that is a group undertaking (within the meaning of section 1161(5) of the Companies Act 2006) in respect of the investment bank, but does not include market infrastructure bodies; and

“supply” means a supply of—

but does not include any services provided for in the contract between the investment bank and the supplier beyond the provision of the supply.

General powers, duties and effect

15.—(1) Without prejudice to any specific powers conferred on an administrator by these Regulations, an administrator may do anything necessary or expedient for the pursuit of the special administration objectives.

(2) The administrator is an officer of the court.

(3) The following provisions of this regulation provide for —

(a)general powers and duties of administrators (by application of provisions about administrators in Schedule B1 administration); and

(b)the general process and effect of special administration (by application of provisions about Schedule B1 administration).

(4) The provisions of Schedule B1 and other provisions of the Insolvency Act set out in the Tables apply in relation to special administration as in relation to other insolvency proceedings with the modifications set out—

(a)in paragraph (5) (in respect of the provisions listed in Table 1);

(b)in paragraph (6) (in respect of the provisions listed in Table 2),

and any other modification specified in the Tables.

(5) The modifications in respect of the provisions referred to in Table 1 are that—

(a)a reference to the administrator is a reference to the administrator appointed under a special administration order;

(b)a reference to administration is a reference to special administration;

(c)a reference to an administration order is a reference to a special administration order;

(d)a reference to a company is a reference to an investment bank;

(e)a reference to the purpose of administration is a reference to the special administration objectives; and

(f)a reference to a provision of the Insolvency Act is a reference to that provision as applied by this regulation.

(6) The modifications in respect of the provisions referred to in Table 2 are that—

(a)a reference to the liquidator is a reference to the administrator appointed under a special administration order;

(b)a reference to winding up is a reference to special administration;

(c)a reference to winding up by the court is a reference to the imposition of special administration by order of the court;

(d)a reference to being wound up under Part 4 or 5 of the Insolvency Act is a reference to an investment bank being in special administration;

(e)a reference to the commencement of winding up is a reference to the commencement of special administration;

(f)a reference to going into liquidation is a reference to entering special administration;

(g)a reference to liquidation or to insolvent liquidation is a reference to special administration;

(h)a reference to a winding up order is a reference to a special administration order;

(i)a reference to a company is a reference to an investment bank; and

(j)a reference to a provision of the Insolvency Act is a reference to that provision as applied by this regulation.

FSA direction

16.—(1) The FSA may direct the administrator to prioritise one or more special administration objectives.

(2) A direction under paragraph (1) may only be given if the FSA is satisfied that the giving of the direction is necessary, having regard to the public interest in—

(a)the stability of the financial systems of the United Kingdom; or

(b)the maintenance of public confidence in the stability of the financial markets of the United Kingdom.

(3) A direction under paragraph (1) must be given in writing and should set out reasons for giving the direction.

(4) Before giving such a direction the FSA must consult the Treasury and the Bank of England.

(5) If the FSA thinks that the circumstances that gave rise to the need for it to give a direction have passed, it shall withdraw its direction.

(6) Paragraphs 49(1) to (3), 51, 53, 54 and 55 of Schedule B1 (as applied by regulation 15) shall not apply where the FSA has given a direction under this regulation and the direction has not been withdrawn.

Administrator’s proposals in the event of FSA direction

17.—(1) Where the FSA has given a direction under regulation 16, the administrator shall make a statement setting out proposals for achieving the special administration objectives in accordance with the FSA’s direction.

(2) The statement under paragraph (1) must deal with such matters as may be prescribed and may include—

(a)a proposal for a voluntary arrangement under Part 1 of the Insolvency Act (although this regulation is without prejudice to section 4(3) of that Act); or

(b)a proposal for a compromise or arrangement to be sanctioned under Part 26 of the Companies Act 2006 (arrangements and reconstructions).

(3) The statement shall be agreed with the FSA.

(4) If the administrator is unable to agree the statement with the FSA, the administrator may apply to the court for directions under paragraph 63 of Schedule B1 (as applied by regulation 15).

(5) Following an application under sub-paragraph (4), the court may—

(a)make an order dispensing with the need for agreement;

(b)adjourn the hearing conditionally or unconditionally; or

(c)make any other order that the court thinks appropriate.

(6) The court may make an order under sub-paragraph (5)(a) only if it considers that the proposals set out in the statement are reasonably likely to ensure that the administrator acts in accordance with the FSA’s direction.

(7) Where the court makes an order, the administrator shall as soon as possible send a copy of the order to the registrar of companies.

(8) After—

(a)the statement has been agreed with the FSA; or

(b)the court has made an order dispensing with the need for agreement,

paragraph 49(4) to (8) of Schedule B1 (as applied by regulation 15) shall then apply to the statement, but the administrator need not send the FSA a copy of the statement of proposals.

(9) Where, before the FSA gives its direction under regulation 16, a meeting of creditors has approved the statement of proposals in accordance with paragraph 53 of Schedule B1 (as applied by regulation 15), that statement of proposals shall be ignored for the purposes of regulation 16, this regulation and paragraph 68 of Schedule B1 (as applied by regulation 15).

Revision of proposals in the event of FSA direction

18.—(1) This regulation applies where—

(a)the administrator’s statement of proposals under regulation 17 has been agreed with the FSA (or the court has made an order dispensing with the need for agreement);

(b)the administrator proposes a revision to the proposals;

(c)the administrator thinks the revision is substantial; and

(d)the FSA has not withdrawn its direction given under regulation 16.

(2) The administrator shall agree the revised statement with the FSA.

(3) Regulation 17(4) to (7) shall apply where the administrator is unable to agree the revised statement with the FSA.

(4) After the revised statement has been agreed with the FSA (or the court has made an order dispensing with the need for agreement) the administrator shall send the revised statement to—

(a)every creditor of the investment bank of whose claim and address the administrator is aware;

(b)every client of the investment bank of whose claim the administrator is aware and has a means of contacting;

(c)every member of the investment bank of whose address the administrator is aware.

(5) The administrator shall be taken to have complied with paragraph (4)(c) if the administrator publishes a notice undertaking to provide a copy of the revised statement free of charge to any member of the investment bank who applies in writing to a specified address.

(6) A notice under paragraph (5) shall be published in the prescribed manner and within the prescribed period.

(7) The administrator shall send a copy of the revised statement to—

(a)the court; and

(b)the registrar of companies.

FSA direction withdrawn

19.—(1) This regulation applies if, after the administrator’s statement of proposals has been agreed with the FSA or the court has made an order dispensing with the need for agreement under regulation 17, the FSA’s direction is then withdrawn.

(2) If the administrator proposes a revision to the statement of proposals and the administrator thinks that the proposed revision is substantial, then paragraphs 54 and 55 of Schedule B1 (as applied by regulation 15) apply.

Successful rescue

20.—(1) This regulation applies if the administrator has pursued the first part of Objective 3 (as set out in regulation 10(1)(c)(i)) and thinks that it has been sufficiently achieved.

(2) The administrator shall make an application under paragraph 79 of Schedule B1 (as applied by regulation 15).

(3) An administrator who makes an application in accordance with paragraph (2) must send a copy to the FSA.

Dissolution or voluntary arrangement

21.—(1) This section applies if—

(a)the administrator believes that Objectives 1 and 2 have been sufficiently achieved, and

(b)the administrator pursues the second part of Objective 3 (as set out in regulation 10(1)(c)(ii)).

(2) The administrator may—

(a)give a notice which is to be treated as a notice under paragraph 84 of Schedule B1 (as applied by regulation 15); or

(b)make a proposal in accordance with Part 1 of the Insolvency Act (company voluntary arrangement).

(3) Part 1 of the Insolvency Act shall apply to a proposal made by an administrator with the following modifications.

(4) In section 3 (summoning of meetings), subsection (2) (and not (1)) applies.

(5) The action that may be taken by a court under section 5(3)(21) (effect of approval) includes suspension of the special administration order.

(6) On the termination of a company voluntary arrangement the administrator may apply to the court to lift the suspension of the special administration order.

(7) For the purposes of this regulation, references in Part 1 of the Insolvency Act to “administration” include special administration.

Special administration order as an alternative order

22.—(1) On a petition for a winding up order or an application for an administration order in respect of an investment bank the court may instead make a special administration order.

(2) Paragraph (1) is subject to regulation 3.

(3) A special administration order may be made under paragraph (1) only on the application of the FSA.

Disqualification of directors

23.—(1) In the Disqualification Act—

(a)a reference to liquidation includes a reference to special administration;

(b)a reference to the winding up of a company includes a reference to an investment bank being subject to a special administration order;

(c)a reference to becoming insolvent includes a reference to becoming subject to a special administration order; and

(d)a reference to a liquidator includes a reference to an administrator.

(2) Section 6(2) is not applied.

(3) For the purpose of the application of section 7(3)(22) of the Disqualification Act (disqualification order or undertaking) to an investment bank which is in special administration, the responsible office-holder is the administrator.

(4) In section 21 of the Disqualification Act(23) (interaction with the Insolvency Act), the references to the provisions of the Insolvency Act include those provisions as applied by these Regulations.

Limited liability partnerships

24.  Where an investment bank is formed as a limited liability partnership, Schedule 3 (application of these Regulations to limited liability partnerships) has effect.

Partnerships

25.—(1) Where an investment bank is formed as a partnership, Schedule 4 (application of these Regulations to partnerships) has effect.

(2) This regulation does not apply to investment banks formed as a partnership constituted under the law of Scotland.

Northern Irish equivalent enactments

26.—(1) In the application of these Regulations to Northern Ireland, a reference to an enactment is to be treated as a reference to the equivalent enactment having effect in relation to Northern Ireland (“equivalent Northern Ireland enactment”).

(2) The table in Schedule 5 shows the enactments referred to in these Regulations together with the equivalent Northern Ireland enactments.

(3) Where these Regulations provide for an enactment to apply with an amendment or modification, the equivalent Northern Ireland enactment is to apply with an equivalent amendment or modification (with any necessary modification being made and subject to what is said in relation to that enactment in the third column of the table in Schedule 5).

Modifications and consequential amendments to legislation

27.  Schedule 6 (modifications and consequential amendments) applies as follows—

(a)Parts 1 and 2 apply in relation to a case where an investment bank which is a company is in special administration; and

(b)Part 3 makes amendments to legislation in consequence of these Regulations.