2018 No. 1244
The Banks and Building Societies (Priorities on Insolvency) Order 2018
Made
Laid before Parliament
Coming into force
The Treasury are designated 1 for the purposes of section 2(2) of the European Communities Act 19722 in relation to financial services.
The Treasury make the following Order in exercise of the powers conferred by section 2(2) of the European Communities Act 1972.
PART 1Introductory Provisions
Citation and commencementI11
1
This Order may be cited as the Banks and Building Societies (Priorities on Insolvency) Order 2018.
2
This Order comes into force on 19th December 2018.
ExtentI22
The amendments made by this Order have the same extent as the enactments amended.
Transitional provisionI33
1
This Order has no effect in relation to insolvency proceedings which are commenced before the date on which this Order comes into force.
2
For this purpose—
a
“insolvency proceedings” means—
i
proceedings under the Insolvency Act 19863;
ii
proceedings under the Insolvency (Northern Ireland) Order 19894;
iii
proceedings under the Insolvent Partnerships Order 19945;
iv
proceedings under the Insolvent Partnerships Order (Northern Ireland) 19956;
v
vi
proceedings under the Investment Bank Special Administration Regulations 20119; or
vii
proceedings under the Bankruptcy (Scotland) Act 201610;
b
insolvency proceedings commence on—
i
the date of presentation of a petition for a winding-up order, bank insolvency order, special administration (bank insolvency) order, building society insolvency order, bankruptcy order or award of sequestration;
ii
the date on which an application is made for an administration order, bank administration order, investment bank special administration order, special administration (bank administration) order or building society special administration order;
iii
iv
the date on which a proposal is made by the directors of a company for a company voluntary arrangement under Part 1 of the Insolvency Act 1986 or Part 2 of the Insolvency (Northern Ireland) Order 1989 or by an individual debtor for an individual voluntary arrangement under Part 8 of the Insolvency Act 1986 or Part 8 of the Insolvency (Northern Ireland) Order 1989;
v
the date on which a resolution for voluntary winding-up is passed.
PART 2Amendments of the Insolvency Act 1986
IntroductionI44
The Insolvency Act 1986 is amended in accordance with this Part.
Non-preferential debts in company voluntary arrangementsI55
In section 4 (decisions of the company and its creditors)13, in subsection (4)—
a
in paragraph (b), omit the final “or”;
b
after paragraph (c) insert—
or
d
in the case of a company which is a relevant financial institution (see section 387A), any non-preferential debt is to be paid otherwise than in accordance with the rules in section 176AZA(2) or (3).
c
in the words after paragraph (c), omit “preferential”.
Non-preferential debts in winding up of companiesI66
After section 176 insert—
Non-preferential debts
Non-preferential debts of financial institutions176AZA
1
This section applies in the winding up of a company which is a relevant financial institution.
2
The company’s ordinary non-preferential debts shall be paid in priority to its secondary non-preferential debts.
3
The company’s secondary non-preferential debts—
a
shall be paid in priority to its tertiary non-preferential debts, and
b
rank equally among themselves after the ordinary non-preferential debts and shall be paid in full, unless the assets are insufficient to meet them, in which case they abate in equal proportions.
4
See section 387A for definitions relevant to this section.
Non-preferential debts in individual voluntary arrangementsI77
In section 258 (approval of debtors’ proposal)14, in subsection (5)—
a
in paragraph (b), omit the final “or”;
b
after paragraph (c) insert—
or
d
if the debtor is a relevant financial institution (see section 387A), any non-preferential debt is to be paid otherwise than in accordance with the rules in section 328(3A) (reading references to the bankrupt as references to the debtor),
c
in the words after paragraph (c), omit “preferential”.
Non-preferential debts in bankruptcy proceedingsI88
1
Section 328 (priority of debts)15 is amended as follows.
2
After subsection (3) insert—
3A
If the bankrupt is a relevant financial institution, subsection (3) does not apply but—
a
the bankrupt’s ordinary non-preferential debts shall be paid in priority to the bankrupt’s secondary non-preferential debts,
b
the bankrupt’s ordinary non-preferential debts rank equally among themselves after the secondary preferential debts and shall be paid in full, unless the bankrupt’s estate is insufficient to meet them, in which case they abate in equal proportions,
c
the bankrupt’s secondary non-preferential debts shall be paid in priority to the bankrupt’s tertiary non-preferential debts, and
d
the bankrupt’s secondary non-preferential debts rank equally among themselves after the ordinary non-preferential debts and shall be paid in full, unless the bankrupt’s estate is insufficient to meet them, in which case they abate in equal proportions.
See section 387A for definitions relevant to this subsection.
3
In subsection (4), for the words from “that” to “subsection (3)” substitute—
—
a
where subsection (3) applies, that are preferential or rank equally under that subsection, or
b
where subsection (3A) applies, that are preferential or are referred to in that subsection,
I99
In section 329 (debts to spouse or civil partner)16, in subsection (2)(a)—
a
omit “debts and”;
b
for “328(3) and (4)” substitute “328(4)”.
InterpretationI1010
In the heading of Part 1217, after “Preferential” insert “and non-preferential”.
I1111
After section 387 insert—
Financial institutions and their non-preferential debts387A
1
In this Act “relevant financial institution” means any of the following—
a
a credit institution,
b
an investment firm,
c
a financial holding company,
d
a mixed financial holding company,
e
a financial institution which is—
i
a subsidiary of an entity referred to in sub-paragraphs (a) to (d), and
ii
covered by the supervision of that entity on a consolidated basis in accordance with Articles 6 to 17 of Regulation (EU) No 575/201318, or
f
a mixed-activity holding company.
2
The definitions in Article 4 of Regulation (EU) No. 575/201319 apply for the purposes of subsection (1).
3
In this Act, in relation to a relevant financial institution—
a
“ordinary non-preferential debts” means non-preferential debts which are neither secondary non-preferential debts nor tertiary non-preferential debts;
b
“secondary non-preferential debts” means non-preferential debts issued under an instrument where—
i
the original contractual maturity of the instrument is of at least one year,
ii
the instrument is not a derivative and contains no embedded derivative, and
iii
the relevant contractual documentation and where applicable the prospectus related to the issue of the debts explain the priority of the debts under this Act, and
c
“tertiary non-preferential debts” means all subordinated debts, including (but not limited to) debts under Common Equity Tier 1 instruments, Additional Tier 1 instruments and Tier 2 instruments (all within the meaning of Part 1 of the Banking Act 2009).
4
In subsection (3)(b), “derivative” has the same meaning as in Article 2(5) of Regulation (EU) No 648/201220.
5
For the purposes of subsection (3)(b)(ii) an instrument does not contain an embedded derivative merely because—
a
it provides for a variable interest rate derived from a broadly used reference rate, or
b
it is not denominated in the domestic currency of the person issuing the debt (provided that the principal, repayment and interest are denominated in the same currency).
Moratorium where directors propose voluntary arrangementI1212
1
Schedule A1 (moratorium where directors propose voluntary arrangement), paragraph 31 (approval of voluntary arrangement)21 is amended as follows.
2
In sub-paragraph (5) —
a
in paragraph (b), omit the final “or”;
b
after paragraph (c) insert—
or
d
if the company is a relevant financial institution (see section 387A), any non-preferential debt is to be paid otherwise than in accordance with the rules in section 176AZA(2) or (3).
3
In sub-paragraph (6), omit “preferential”.
Administration and secondary non-preferential debtsI1313
1
Schedule B1 (administration)22 is amended as follows.
2
In paragraph 65 (distribution), in sub-paragraph (2)—
a
for “Section 175” substitute “Sections 175 and 176AZA”; and
b
for “it applies” substitute “they apply”.
3
In paragraph 73 (protection for secured or preferential creditor)—
a
in the heading, for “secured or preferential” substitute “priority”;
b
in sub-paragraph (1), in paragraph (c), omit the final “or”;
c
in that sub-paragraph, after paragraph (d) insert—
or
e
if the company is a relevant financial institution (see section 387A), would result in any non-preferential debt being paid otherwise than in accordance with the rules in section 176AZA(2) or (3).
PART 3Amendments of the Banking Act 2009
Amendments of the Banking Act 2009I1414
In section 103 of the Banking Act 2009 (general powers, duties and effect), in the Table of applied provisions of the Insolvency Act 1986—
1
after the entry for section 176 insert:
Section 176AZA
Non-preferential debts of financial institutions
2
before the entry for section 389, insert:
Section 387A
Financial institutions and their non-preferential debts
PART 4Amendments of the Insolvent Partnerships Order 1994
Amendments of the Insolvent Partnerships Order 1994I1515
The Insolvent Partnerships Order 1994 is amended in accordance with this Part.
I1616
In paragraph (3) of Article 4 (Voluntary arrangement of insolvent partnership)23, before paragraph (a) insert:
za
section 176AZA in Part IV,
I1717
In paragraph (5) of Article 6 (Administration in relation to insolvent partnership)24, before paragraph (a) insert:
za
section 176AZA in Part IV,
I1818
1
Schedule 1 (modified provisions of Part 1 of, and Schedule A1 to, the Insolvency Act 1986 (company voluntary arrangements) as applied by Article 4)25, is amended as follows.
2
In modified section 4(4) (Decisions of the members of the partnership and its creditors)—
a
in paragraph (b) at the end omit the final “or”;
b
after paragraph (c) insert—
or
d
in the case of a company which is a relevant financial institution (see section 387A), any non-preferential debt is to be paid otherwise than in accordance with the rules in section 176AZA(2) or (3).
c
in the words after paragraph (c), omit “preferential”.
I1919
1
Schedule 2 to the Insolvent Partnerships Order 1994 (modified provisions of Schedule B1 to the Insolvency Act 1986 (Administration) as applied by Article 6)26, is amended as follows.
2
In paragraph 23, in modified paragraph 65(2), for “Section 175(1) and (2)(a)” substitute “Section 175(1), (1A), (1B), and (3) and section 176AZA”.
3
In paragraph 25, in modified section 73(1)—
a
in paragraph (c) at the end omit “or”;
b
in paragraph (d) at the end insert—
or
e
if the company is a relevant financial institution (see section 387A), any non-preferential debt is to be paid otherwise than in accordance with the rules in section 176AZA(2) or (3).
I2020
1
Paragraph 23 of Schedule 4 (provisions of the Insolvency Act 1986 which apply with modifications for the purposes of Article 8 to winding up of insolvent partnership on creditor’s petition where concurrent petitions are presented against one or more members)27, is amended as follows.
2
In the opening words, after “Sections 175” insert “, 176AZA”.
3
In modified section 175A(2) (Priority of debts in joint estate), for paragraph (b) substitute—
b
the ordinary non-preferential debts;
ba
the secondary non-preferential debts;
bb
the tertiary non-preferential debts;
4
in modified section 175A(4), for “paragraphs (a), (aa) and (b)” substitute “paragraphs (a) to (ba)”.
5
After modified section 175A(5) insert—
5A
Where the joint estate is not sufficient for the payment of the secondary non-preferential debts in accordance with paragraph (ba) of subsection (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which–
a
shall be a debt provable by the responsible insolvency practitioner in each such estate, and
b
shall rank equally with the debts of the member referred to in section 175B(1)(ba) below.
5B
Where the joint estate is not sufficient for the payment of the tertiary non-preferential debts in accordance with paragraph (bb) of subsection (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which–
a
shall be a debt provable by the responsible insolvency practitioner in each such estate, and
b
shall rank as a debt of the member in accordance with section 175B(1)(bc) below.
6
In modified section 175A(6), for “paragraphs (a), (aa) and (b)” substitute “paragraphs (a) to (bb)”.
7
In modified section 175A(9), after “(5),” insert “(5A), (5B),”.
8
In modified section 175B(1) (Priority of debts in separate estate), for paragraph (b) substitute—
b
the ordinary non-preferential debts (including any debt referred to in section 175A(5)(a));
ba
the secondary non-preferential debts (including any debt referred to in section 175A(5A)(a));
bb
the tertiary non-preferential debts;
bc
the debt referred to in section 175A(5B)(a);
9
In modified section 175B(2), for “paragraphs (a), (aa) and (b)” substitute “paragraphs (a) to (ba)”.
10
In modified section 175C(3), after “175A(5)(a)” insert “, (5A)(a), (5B)(a)”.
11
In modified section 175C(4), for “debts which are neither preferential nor postponed debts” substitute “ordinary non-preferential debts, secondary non-preferential debts and tertiary non-preferential debts”.
12
In modified section 175C(8)(b), after “175A(5),” insert “(5A), (5B),”.
I2121
1
Paragraph 21 of Schedule 7 (provisions of the Insolvency Act 1986 which apply with modifications for the purposes of Article 11 where joint bankruptcy petition presented by individual members without winding up partnership as unregistered company)28, is amended as follows.
2
In modified section 328A(2) (Priority of debts in joint estate), for paragraph (b) substitute—
b
the ordinary non-preferential debts;
ba
the secondary non-preferential debts;
bb
the tertiary non-preferential debts;
3
In modified section 328A(4) for “paragraphs (a), (aa) and (b)” substitute “paragraphs (a) to (ba)”.
4
After modified section 328A(5) insert—
5A
Where the joint estate is not sufficient for the payment of the secondary non-preferential debts in accordance with paragraph (ba) of subsection (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which–
a
shall be a debt provable by the responsible insolvency practitioner in each such estate, and
b
shall rank equally with the debts of the member referred to in section 328B(1)(ba) below.
5B
Where the joint estate is not sufficient for the payment of the tertiary non-preferential debts in accordance with paragraph (bb) of subsection (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which–
a
shall be a debt provable by the responsible insolvency practitioner in each such estate, and
b
shall rank as a debt of the member in accordance with section 328B(1)(bc) below.
5
In modified section 328A(6) for “paragraphs (a), (aa) and (b)” substitute “paragraphs (a) to (bb)”.
6
In modified section 328A(9), after “(5),” insert “(5A), (5B),”.
7
In modified section 328B(1) (Priority of debts in separate estate), for paragraph (b) substitute—
b
the ordinary non-preferential debts (including any debt referred to in section 328A(5)(a));
ba
the secondary non-preferential debts (including any debt referred to in section 328A(5A)(a));
bb
the tertiary non-preferential debts;
bc
the debt referred to in section 175A(5B)(a);
8
In modified section 328B(2) for “paragraphs (a), (aa) and (b)” substitute “paragraphs (a) to (ba)”.
9
In modified section 328C(3), after “328A(5)(a)” insert “, (5A)(a), (5B)(a)”.
10
In modified section 328C(4), for “debts which are neither preferential nor postponed debts” substitute “ordinary non-preferential debts, secondary non-preferential debts and tertiary non-preferential debts”.
11
In modified section 328C(8)(b), after “328A(5),” insert “(5A), (5B),”.
PART 5Amendments of the Insolvency (Northern Ireland) Order 1989
IntroductionI2222
The Insolvency (Northern Ireland) Order 198929 is amended in accordance with this Part.
Non-preferential debts in company voluntary arrangementsI2323
In Article 17 (decisions of meetings), in paragraph (4)30—
a
in the words before paragraph (a) omit “preferential”,
b
in sub-paragraph (b), omit the final “or”;
c
after sub-paragraph (c) insert—
or
d
in the case of a company which is a relevant financial institution (see Article 347A), any non-preferential debt is to be paid otherwise than in accordance with the rules in Article 150ZZA(2) or (3).
Non-preferential debts in winding up of companiesI2424
After Article 150 insert—
Non-preferential debts
Non-preferential debts of financial institutions150ZZA
1
This Article applies in the winding up of a company that is a relevant financial institution.
2
The company’s ordinary non-preferential debts are to be paid in priority to its secondary non-preferential debts.
3
The company’s secondary non-preferential debts—
a
are to be paid in priority to its tertiary non-preferential debts, and
b
rank equally among themselves after the ordinary non-preferential debts and are to be paid in full, unless the assets are insufficient to meet them, in which case they abate in equal proportions.
4
See Article 347A for definitions relevant to this Article.
Non-preferential debts in individual voluntary arrangementsI2525
1
Article 232 (decisions of creditors’ meeting)31 is amended as follows.
2
In paragraph (6)—
a
in sub-paragraph (b), omit the final “or”;
b
after sub-paragraph (c) insert—
or
d
if the debtor is a relevant financial institution (see Article 347A), any non-preferential debt is to be paid otherwise than in accordance with the rules in Article 300(3A) (reading references to the bankrupt as references to the debtor).
3
In paragraph (7), omit “preferential”.
Non-preferential debts in bankruptcy proceedingsI2626
1
Article 300 (priority of debts)32 is amended as follows.
2
After paragraph (3) insert—
3A
If the bankrupt is a relevant financial institution, paragraph (3) does not apply but—
a
the bankrupt’s ordinary non-preferential debts are to be paid in priority to the bankrupt’s secondary non-preferential debts,
b
the bankrupt’s ordinary non-preferential debts rank equally among themselves after the secondary preferential debts and are to be paid in full, unless the bankrupt’s estate is insufficient to meet them, in which case they abate in equal proportions,
c
the bankrupt’s secondary non-preferential debts are to be paid in priority to the bankrupt’s tertiary non-preferential debts, and
d
the bankrupt’s secondary non-preferential debts rank equally among themselves after the ordinary non-preferential debts and are to be paid in full, unless the bankrupt’s estate is insufficient to meet them, in which case they abate in equal proportions.
See Article 347A for definitions relevant to this paragraph.
3
In paragraph (4)—
a
for the words from “that” to “paragraph (3)” substitute—
—
a
where paragraph (3) applies, that are preferential or rank equally under that paragraph, or
b
where paragraph (3A) applies, that are preferential or are referred to in that paragraph,
b
for “period” substitute “periods”.
I2727
In Article 302 (debts to spouse or civil partner)33, in paragraph (2)(a)—
a
omit “debts and”;
b
for “300(3) and (4)” substitute “300(4)”.
InterpretationI2828
In the heading of Part 11, after “Preferential” insert “and non-preferential”.
I2929
After Article 347 insert—
Financial institutions and their non-preferential debts347A
1
In this Order “relevant financial institution” means any of the following—
a
a credit institution,
b
an investment firm,
c
a financial holding company,
d
a mixed financial holding company.
e
a financial institution which is—
i
a subsidiary of an entity referred to in sub-paragraphs (a) to (d), and
ii
covered by the supervision of that entity on a consolidated basis in accordance with Articles 6 to 17 of Regulation (EU) No 575/201334, or
f
a mixed-activity holding company.
2
The definitions in Article 4 of Regulation (EU) No. 575/201335 apply for the purposes of paragraph (1).
3
In this Order, in relation to a relevant financial institution—
a
“ordinary non-preferential debts” means non-preferential debts which are neither secondary non-preferential debts nor tertiary non-preferential debts;
b
“secondary non-preferential debts” means non-preferential debts issued under an instrument where—
i
the original contractual maturity of the instrument is of at least one year,
ii
the instrument is not a derivative and contains no embedded derivative, and
iii
the relevant contractual documentation and where applicable the prospectus related to the issue of the debts explain the priority of the debts under this Order, and
c
“tertiary non-preferential debts” means all subordinated debts, including (but not limited to) debts under Common Equity Tier 1 instruments, Additional Tier 1 instruments and Tier 2 instruments (all within the meaning of Part 1 of the Banking Act 2009).
4
In paragraph(3)(b), “derivative” has the same meaning as in Article 2(5) of Regulation (EU) No 648/201236.
5
For the purposes of paragraph (3)(b)(ii) an instrument does not contain an embedded derivative merely because—
a
it provides for a variable interest rate derived from a broadly used reference rate, or
b
it is not denominated in the domestic currency of the person issuing the debt (provided that the principal, repayment and interest are denominated in the same currency).
Moratorium where directors propose voluntary arrangementI3030
1
In Schedule A1 (moratorium where directors propose voluntary arrangement), paragraph 41 (approval of voluntary arrangement)37 is amended as follows.
2
In sub-paragraph (5)(b)38, omit the final “or”.
3
After sub-paragraph (5)(c) insert—
or
d
if the company is a relevant financial institution (see Article 347A), any non-preferential debt is to be paid otherwise than in accordance with the rules in Article 150ZZA(2) or (3).
4
In sub-paragraph (6), omit “preferential”.
Administration and secondary non-preferential debtsI3131
1
Schedule B1 (administration)39 is amended as follows.
2
In paragraph 66 (distribution)40, in sub-paragraph (2)—
a
for “Article 149” substitute “Articles 149 and 150ZZA”, and
b
for “it applies” substitute “they apply”.
3
In paragraph 74 (protection for secured or preferential creditor)41—
a
in the heading, for “secured or preferential” substitute “priority”;
b
in sub-paragraph (1)(c), omit the final “or”;
c
after sub-paragraph (1)(d) insert—
or
e
if the company is a relevant financial institution (see Article 347A), would result in any non-preferential debt being paid otherwise than in accordance with the rules in Article 150ZZA(2) or (3).
PART 6Amendments of Insolvent Partnerships Order (Northern Ireland) 1995
Amendments to the Insolvent Partnerships Order (Northern Ireland) 1995I3232
The Insolvent Partnerships Order (Northern Ireland) 199542 is amended in accordance with this Part.
I3333
In paragraph (3) of Article 4 (voluntary arrangement of insolvent partnership)43, after sub-paragraph (a) insert:
za
Article 150ZZA in Part 5,
I3434
In paragraph (3) of Article 6 (administration in relation to insolvent partnership)44, after sub-paragraph (a) insert:
za
Article 150ZZA in Part 5,
I3535
In Schedule 1 (modified provisions of Part II of, and Schedule A1 to, the 1989 Order (company voluntary arrangements) as applied by Article 4)45, in modified Article 17(4) (decisions of meetings)—
a
in the words before paragraph (a), omit “preferential”;
b
in paragraph (b) omit the final “or”;
c
after paragraph (c) insert—
or
d
in the case of a company which is a relevant financial institution (see Article 347A), any non-preferential debt is to be paid otherwise than in accordance with the rules in Article 150ZZA(2) or (3).
I3636
1
Schedule 2 (modified provisions of Schedule B1 to the 1989 Order (administration) as applied by Article 6)46, is amended as follows.
2
In paragraph 31, in modified paragraph 66(2), for “Article 149(1) and (2)(a)” substitute “Article 149(1), (1A), (1B), and (3) and Article 150ZZA”.
3
In paragraph 35, in modified Article 74(1)—
a
in sub-paragraph (c) omit the final “or”;
b
in sub-paragraph (d) at the end insert—
or
e
if the company is a relevant financial institution (see Article 347A), any non-preferential debt is to be paid otherwise than in accordance with the rules in Article 150ZZA(2) or (3).
I3737
1
Paragraph 23 of Schedule 4 (provisions of the 1989 Order which apply with modifications for the purposes of Article 8 to winding up of insolvent partnership on creditor’s petition where concurrent petitions are presented against one or more members)47, is amended as follows.
2
In the opening words, after “Articles 149” insert “, 150ZZA”.
3
In modified Article 149A(2) (priority of debts in joint estate), for sub-paragraph (b) substitute—
b
the ordinary non-preferential debts;
ba
the secondary non-preferential debts;
bb
the tertiary non-preferential debts;
4
In modified Article 149A(4), for “sub-paragraphs (a), (aa) and (b)” substitute “sub-paragraphs (a) to (ba)”.
5
After modified Article149A(5) insert—
5A
Where the joint estate is not sufficient for the payment of the secondary non-preferential debts in accordance with sub-paragraph (ba) of paragraph (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which–
a
shall be a debt provable by the responsible insolvency practitioner in each such estate, and
b
shall rank equally with the debts of the member referred to in Article 149B(1)(ba);
5B
Where the joint estate is not sufficient for the payment of the tertiary non-preferential debts in accordance with sub-paragraph (bb) of paragraph (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and the aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which—
a
shall be a debt payable by the responsible insolvency practitioner in each such estate, and
b
shall rank as a debt of the member in accordance with Article 149B(1)(bc).
6
In modified Article 149A(6), for “sub-paragraphs (a), (aa) and (b)” substitute “sub-paragraphs (a) to (bb)”.
7
In modified Article 149A(9), after “(5),” insert “(5A), (5B),”.
8
In modified Article 149B(1) (priority of debts in separate estate), for sub-paragraph (b) substitute—
b
the ordinary non-preferential debts (including any debt referred to in Article 149A(5)(a));
ba
the secondary non-preferential debts (including any debt referred to in Article 149A(5A)(a));
bb
the tertiary non-preferential debts;
bc
the debt referred to in Article 149A(5B)(a);
9
In modified Article 149B(2), for “sub-paragraphs (a), (aa) and (b)” substitute “sub-paragraphs (a) to (ba)”.
10
In modified Article 149C(3), after “149A(5)(a)” insert “, (5A)(a), (5B)(a)”.
11
In modified Article 149C(4), for “debts which are neither preferential debts nor postponed debts” substitute “ordinary non-preferential debts, secondary non-preferential debts and tertiary non-preferential debts”.
12
In modified Article149C(8)(b), after “149A(5),” insert “(5A), (5B),”.
I3838
1
Paragraph 21 of Schedule 7 (provisions of the 1989 Order which apply with modifications for the purposes of Article 11 where joint bankruptcy petition is presented by individual members without winding up partnership as unregistered company)48, is amended as follows.
2
In paragraph (2) of modified Article 300A (priority of debts in joint estate), for sub-paragraph (b) substitute—
b
the ordinary non-preferential debts;
ba
the secondary non-preferential debts;
bb
the tertiary non-preferential debts;
3
In modified Article 300A(4), for “sub-paragraphs (a), (aa) and (b)” substitute “sub-paragraphs (a) to (ba)”.
4
After modified Article 300A(5) insert—
5A
Where the joint estate is not sufficient for the payment of the secondary non-preferential debts in accordance with sub-paragraph (ba) of paragraph (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which–
a
shall be a debt provable by the responsible insolvency practitioner in each such estate, and
b
shall rank equally with the debts of the member referred to in Article 300B(1)(ba).
5B
Where the joint estate is not sufficient for the payment of the tertiary non-preferential debts in accordance with paragraph (bb) of paragraph (2), the responsible insolvency practitioner shall aggregate the value of those debts to the extent that they have not been satisfied or are not capable of being satisfied, and that aggregate amount shall be a claim against the separate estate of each member of the partnership against whom an insolvency order has been made which—
a
shall be a debt provable by the responsible insolvency practitioner in each such estate, and
b
shall rank as a debt of the member in accordance with Article 300B(1)(bc).
5
In modified Article 300A(6), for “sub-paragraphs (a), (aa) and (b)” substitute “sub-paragraphs (a) to (bb)”.
6
In modified Article 300A(9), after “(5),” insert “(5A), (5B),”.
7
In modified Article 300B(1) (priority of debts in separate estate), for paragraph (b) substitute—
b
the ordinary non-preferential debts (including any debt referred on in Article 300A(5)(a));
ba
the secondary non-preferential debts (including any debt referred to in Article 300A(5A)(a));
bb
the tertiary non-preferential debts;
bc
the debt referred to in Article 300A(5B)(a);
8
In modified Article 300B(2) for “sub-paragraphs (a), (aa) and (b)” substitute “sub-paragraphs (a) to (ba)”.
9
In modified Article 300C(3), after “300A(5)(a)” insert “, (5A)(a), (5B)(a),”.
10
In modified Article 300C(4), for “debts which are neither preferential debts nor postponed debts” substitute “ordinary non-preferential debts, secondary non-preferential debts and tertiary non-preferential debts”.
11
In modified Article 300C(8)(b), after “300A(5),” insert “(5A), (5B),”.
PART 7Further Amendments relating to Parts 2 to 6
Housing Act 1996I3939
1
In section 44 of the Housing Act 1996 (proposals as to ownership and management of landlord’s land)49, subsection (4) is amended as follows.
2
In paragraph (b), omit the final “or”.
3
After paragraph (c), insert—
or
d
if the landlord is a relevant financial institution—
i
an ordinary non-preferential debt of the landlord is to be paid otherwise than in priority to any secondary non-preferential debts of the landlord,
ii
a secondary non-preferential debt of the landlord is to be paid otherwise than in priority to any tertiary non-preferential debts of the landlord, or
iii
a secondary non-preferential creditor is to be paid a smaller proportion of a secondary non-preferential debt of the landlord than another secondary non-preferential creditor, except with the concurrence of the creditor concerned.
4
In the final sentence, after “secondary preferential debts” insert “, ordinary non-preferential debts, secondary non-preferential debts, tertiary non-preferential debts, relevant financial institution”.
Housing and Regeneration Act 2008I4040
1
The Housing and Regeneration Act 200850 is amended as follows.
2
In section 152 (proposals)51, in subsection (4)—
a
in paragraph (b), omit the final “or”;
b
after paragraph (c), insert—
or
d
if the registered provider is a relevant financial institution—
i
an ordinary non-preferential debt being paid otherwise than in priority to a secondary non-preferential debt,
ii
a secondary non-preferential debt being paid otherwise than in priority to a tertiary non-preferential debt, or
iii
a secondary non-preferential creditor (Creditor 1) being paid a smaller proportion of a secondary non-preferential debt than another secondary non-preferential creditor (Creditor 2) (unless Creditor 1 consents).
3
In section 275 (general)52, for “and “secondary preferential debt”” substitute “, “ordinary non-preferential debt”, “secondary preferential debt”, “secondary non-preferential debt”, “tertiary non-preferential debt” and “relevant financial institution””.
4
In section 276 (index of defined terms)53, in the table, insert the following entries at the appropriate places—
Ordinary non-preferential debt
Section 275
Relevant financial institution
Section 275
Secondary non-preferential debt
Section 275
Tertiary non-preferential debt
Section 275
Housing (Scotland) Act 2010I4141
In section 80 of the Housing (Scotland) Act 2010 (proposals: formulation)54—
a
in subsection (5)—
i
omit the “or” after paragraph (b), and
ii
after paragraph (c), insert—
or
d
where the debtor is a relevant financial institution—
i
secondary non-preferential debts being paid before ordinary non-preferential debts,
ii
tertiary non-preferential debts being paid before secondary non-preferential debts, or
iii
creditors being paid different proportions of secondary non-preferential debts (except where affected creditors agree to be paid a smaller proportion).
b
after subsection (5) insert—
6
In this section—
“ordinary non-preferential debts” has the meaning given by section 129(1)(g) of the Bankruptcy (Scotland) Act 2016;
“secondary non-preferential debts” and “tertiary non-preferential debts” have the meanings given by section 129A of the Bankruptcy (Scotland) Act 2016.
Bankruptcy (Scotland) Act 2016I4242
The Bankruptcy (Scotland) Act 2016 is amended in accordance with articles 43 to 45.
I4343
1
Section 129 (priority in distribution)55 is amended as follows.
2
In subsection (1)—
a
in paragraph (g), after “ordinary” insert “non-preferential”,
b
after paragraph (g) insert—
ga
secondary non-preferential debts,
gb
tertiary non-preferential debts,
c
in paragraph (h)—
i
omit the “and” after sub-paragraph (ii),
ii
in sub-paragraph (iii), after “ordinary” insert “non-preferential”, and
iii
after sub-paragraph (iii) insert—
iv
the secondary non-preferential debts, and
v
the tertiary non-preferential debts.
3
After subsection (3) insert—
3A
In subsection (1), “secondary non-preferential debts” and “tertiary non-preferential debts” have the meanings given by section 129A.
I4444
After section 129 insert—
129ASection 129: interpretation
1
In this Act, “secondary non-preferential debts” means non-preferential debts issued by a relevant financial institution under an instrument where—
a
the original contractual maturity of the instrument is of at least one year,
b
the instrument is not a derivative and contains no embedded derivative, and
c
the relevant contractual documentation and where applicable the prospectus related to the issue of the debts explain the priority of the debts under this Act.
2
In subsection (1)(b), “derivative” has the same meaning as in Article 2(5) of Regulation (EU) No 648/201256.
3
For the purposes of subsection (1)(b) an instrument does not contain an embedded derivative merely because—
a
it provides for a variable interest rate derived from a broadly used reference rate, or
b
it is not denominated in the domestic currency of the person issuing the debt (provided that the principal, repayment and interest are denominated in the same currency).
4
In this Act, “tertiary non-preferential debts” means all subordinated debts, including (but not limited to) debts under Common Equity Tier 1 instruments, Additional Tier 1 instruments and Tier 2 instruments (all within the meaning of Part 1 of the Banking Act 2009).
5
In this section, “relevant financial institution” means any of the following—
a
a credit institution,
b
an investment firm,
c
a financial holding company,
d
a mixed financial holding company,
e
a financial institution which is—
i
a subsidiary of an entity referred to in sub-paragraphs (a) to (d), and
ii
covered by the supervision of that entity on a consolidated basis in accordance with Articles 6 to 17 of Regulation (EU) No 575/201357, or
f
a mixed-activity holding company.
6
The definitions in Article 4 of Regulation (EU) No. 575/201358 apply for the purposes of subsection (5).
I4545
In section 228 (interpretation)59, in subsection (1), omit the definition of “ordinary debt”.
Amendment of the Investment Bank Special Administration Regulations 2011I4646
In the table in Schedule 5 (Table of enactments referred to in these Regulations together with the equivalent enactment having effect in relation to Northern Ireland) of the Investment Bank Special Administration Regulations 201160, insert the following entries at the appropriate places—
Section 176AZA
Article 150ZZA
Section 387A
Article 347A
PART 8Review
ReviewI4747
1
The Treasury must from time to time—
a
carry out a review of the regulatory provision contained in articles 4 to 46 of this Order, and
b
publish a report setting out the conclusions of the review.
2
In carrying out the review, the Treasury must, so far as is reasonable, have regard to how Article 1 of Directive (EU) 2017/2399 of the European Parliament and of the Council amending Directive 2014/59/EU as regards the ranking of unsecured debt instruments in insolvency hierarchy61 (which is implemented by means of articles 4 to 46 of this Order) is implemented in other EEA States.
3
The report must in particular—
a
set out the objectives intended to be achieved by the regulatory provision referred to in paragraph (1)(a);
b
assess the extent to which those objectives are achieved; and
c
assess whether those objectives remain appropriate, and, if so, the extent to which they could be achieved in another way which involves less onerous regulatory provision
4
The first report must be published before the end of a period of 5 years beginning with the day on which these Regulations come into force.
5
Subsequent reports must be published at intervals not exceeding 5 years.
6
In paragraph (1)(a), “regulatory provision” has the same meaning as in sections 28 to 32 of the Small Business, Enterprise and Employment Act 201562 (see section 32 of that Act).
(This note is not part of the Order)