The banking world has changed. On 1 April 2013 the UK's Financial Services Authority was split into three separate entities: the Financial Conduct Authority, the Prudential Regulation Authority and the Financial Policy Committee. UK banks are still assessing this new "3 for 1" regulatory regime and a host of new financial services regulations. Liquidity and capital adequacy requirements remain high on the agenda. This may lead to strategic reorganisations of banking groups, including offshore subsidiaries and branches.

Until recently the options available for banking reorganisations were limited in Jersey – historically the most favoured option being the use of private laws, however, these were time-consuming and expensive. So, in 2008 the Banking Business (Jersey) Law 1991 (Banking Law) was amended to allow Jersey banking businesses (technically a deposit-taking business) to be transferred from one bank to another by means of a court sanctioned scheme. Transfers under the Banking Law are meant to be relatively quick and cost-effective – perhaps involving about half the time and cost of a private law.

Despite that, the Banking Law has not proved to be the most popular of laws. It has been used only once so far to effect the transfer of the accounts of the Jersey branch of Bank of Scotland to Lloyds TSB in 2011. But its use is bound to increase in the next year or so.

Scope

The Banking Law's provisions are aimed at the transfer of depositing-taking business. Other assets and liabilities may be transferred including deposits, loans, related security and all the property, assets and liabilities which are part of a bank's undertaking. This would include fixed assets, immoveable and moveable property and employment contracts. There is no equivalent to the UK's Transfer of Undertaking (TUPE) legislation in Jersey, so if employees are to be transferred from one bank to another then provision may be made in the scheme document to be sanctioned by court order.

The Banking Law does not expressly state that its provisions allow the transfer of other regulated activities such as investment business at the same time. We, however, would suggest that this is permissible. Separate legislative provision is made for insurance business.

Compulsory Nature

The transfer provisions of the Banking Law are obligatory. So where either the whole of the deposit-taking business, or a part, is to be transferred, the Banking Law must be used. Contractual assignment of relevant accounts and contracts is thus ruled out as an option. However, the use of a private law to effect a transfer remains an option under general statutory principles (as a law can always override an earlier piece of legislation).

Key Procedural Steps

Transfers under the Banking Law are subject to various procedural requirements set out in the schedule to that law. The procedural steps include:

  • Publication of notices in local newspapers at least 21 days before the court hearing at which the application to sanction the transfer is to be heard;
  • Notifications to customers and members of the transferor and transferee (unless derogations are obtained from the court at a directions hearing). These consist of a statement setting out the terms of the scheme and containing a summary of the auditor's report sufficient to indicate the opinion of the auditor on the likely effects of the scheme on the customers of both banks involved;
  • The obtaining of an auditor's report on the terms and likely effects of the scheme on the customers of both banks involved (a summary of which must be made available for inspection for not less than 21 days prior to the court sanctioning hearing and, unless the court otherwise directs, sent to every customer and shareholder);
  • Service of the court application on the regulator at least 21 days in advance of the court sanctioning hearing;
  • An opportunity for any interested parties including the regulator and any other person (including employees) at the court sanctioning hearing to be heard, and to object on the basis that they would be prejudiced by the carrying out of the scheme;
  • Court hearings, usually, following the practice in insurance transfer schemes; one initially for derogations from customer notices etc. and other directions and then subsequently followed by the sanctioning hearing itself; and,
  • Depositing two copies of the court order with the Jersey regulator within ten days of the court order being made.

Provided that the scheme involves no compromise or arrangement, the more complex provisions applicable to schemes of arrangement under Jersey company law will not apply. The key legal documents required include: the scheme document, an independent auditor's report; a summary of the scheme; legal notices for the Jersey Gazette; customer, member and creditor notifications (subject to court derogations); the representation (i.e. court application) and various affidavits.

SecurityCare needs to be taken to ensure that the validity and priority of security is not compromised by the proposed transfer, particularly with the new Security Interests (Jersey) Law 2012 due to come into force on 2 January 2014.

Separate foreign advice should be taken on the impact of the transfers on any related foreign security and any foreign situate collateral. A supplemental transfer agreement may be required to transfer, any foreign or other assets or liabilities which cannot be moved under a Banking Law scheme.

Regulatory ConsiderationsClearly the regulatory authorities in Jersey will need to approve the transfer arrangements. The detailed regulatory requirements may vary depending on the method and extent of the transfer and the nature of the existing licences and any conditions attached. Also, appropriate Jersey and foreign tax advice and clearances should be obtained.

Crown DependenciesThe Isle of Man has recently amended its Financial Services Act 2008 to introduce a similar court sanctioned scheme for the transfer of deposit-taking business. It has just issued draft regulations for public consultation. We can probably expect Guernsey to follow the Isle of Man and Jersey. The availability of similar court sanctioned schemes in all three islands would facilitate banking reorganisations across the Crown Dependencies.

The article originally appeared in the Jersey Evening Post – Finance Review Supplement in August 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.