Jersey Unreported Judgments

Banking - application to sanction a scheme.

[2019]JRC225A

Royal Court

(Samedi)

20 November 2019

Before     :		Sir Michael Birt, Commissioner, and Jurats Olsen and Averty
Between	(1)   Lloyds Bank International Limited (2)   Lloyds Bank Corporate Markets Plc, Jersey Branch		Representors

IN THE MATTER OF THE REPRESENTATION OF LLOYDS BANK INTERNATIONAL LIMITED AND LLOYDS BANK CORPORATE MARKETS PLC, JERSEY BRANCH

AND IN THE MATTER OF AN APPLICATION PURSUANT TO ARTICLE 48D AND THE SCHEDULE TO THE BANKING BUSINESS (JERSEY) LAW 1991. 

Advocate S. M. Gould for the Representors.  

judgment

the Commissioner:

1.        This is an application by Lloyds Bank International Limited and Lloyds Bank Corporate Markets PLC, Jersey branch for sanction under Article 48D and the Schedule to the Banking Business (Jersey) Law 1991 to a scheme ('the Scheme') to transfer certain deposit-taking business and ancillary business carried on from within Jersey by Lloyds Bank International Limited to the Jersey branch of Lloyds Bank Corporate Markets Plc.  We shall refer to Lloyds Bank International Limited as the Transferor and to Lloyds Bank Corporate Markets Plc as 'Corporate Markets', and to the Jersey branch of Corporate Markets as the Transferee. 

2.        As the names would suggest, this is an intra group transfer.  The Transferor is a Jersey incorporated company and Corporate Markets is a company incorporated in England and Wales, although of course the Transferee carries on business only in Jersey.  Corporate Markets is the indirect parent of the Transferor. 

3.        The commercial reasons for the Scheme are set out in the papers before us and we do not need to go into detail.  Similar transfers are taking place in Guernsey and the Isle of Man. 

4.        In considering schemes under the Banking Business Law, the Court must first consider whether the procedural requirements set out in the Schedule to the Law have been complied with.  The Court made an order on 30^th September, 2019, modifying those requirements in certain respects as is permitted pursuant to the Schedule.  We are satisfied from the affidavit evidence before us that the procedural requirements of the Schedule, as modified by the Court, have been complied with. 

5.        We turn therefore to consider the merits of the Scheme.  The approach which the Court adopts in relation to such Schemes is well established; see for example Re HSBC Bank International Limited and HSBC Bank Plc [2017] JRC 180 at paragraph 21.  The Court must consider whether any customers, employees or other interested persons will be adversely affected by the Scheme and whether the Scheme is fair overall.  However, it is not the function of the Court to produce what, in its view, is the best possible scheme as between different schemes, all of which the Court may deem fair.  Due recognition has to be given to the commercial judgment entrusted to the directors of the relevant companies. 

6.        Advocate Gould has helpfully taken us through the various issues to be considered.  For example, this is a case where the investment business of the Transferor is not being transferred.  However, the Transferor will now have to comply with the Financial Services (Investment Business) (Client Assets)) (Jersey) Order 2001.  The consequence is that cash held by the Transferor for its investment clients will no longer be held in the name of those investment clients with the Transferor as banker, but in a client bank account in the name of the Transferor with the Transferee, with the further consequence that the Jersey Depositors Compensation Scheme will no longer apply to such cash.  This will of course only affect accounts where the cash held does not exceed £50,000, which is approximately one half of the investment customers of the Transferor.  The Transferor's investment customers will however be in the same position as customers of any other non-bank investment business and monies held in such client accounts would not of course be available to creditors of the Transferor should there be an insolvency.  We are satisfied that the effect on continuing investment customers of the Transferor does not render the Scheme unfair. 

7.        In connection with our consideration of whether to give our sanction to the Scheme, we have noted the following matters:-

(i)        The required report from the independent auditor (in this case PWC) concludes that nothing has come to their attention which causes them to believe that:-

(a)       the proposed transfer of business would have a materially adverse effect on the financial position, liquidity or capital adequacy of the Transferor or Transferee, or that the Transferor or the Transferee would not have the ability to meet their liabilities after the proposed transfer of business between the Transferor and the Transferee in accordance with the terms of the Scheme; 

(b)       the proposed transfer of business in accordance with the terms of the Scheme would disadvantage the transferring and non-transferring customers and creditors of the Transferor and the customers and creditors of the Transferee; and 

(c)       the Depositor Compensation Scheme arrangements and creditor hierarchy considerations would have any material adverse effect on customers upon the Scheme taking effect. 

(ii)       There will be no noticeable change for transferring customers in that account numbers, mandates and all other practical details will remain unaltered as will the personnel who deal with customers.  There will also be no change in the sort code relating to their accounts. 

(iii)      Expert advice from Ernst & Young has been obtained on whether there are any tax implications of the Scheme in relation to customers resident in Jersey, Guernsey, the Isle of Man and the U.K.  The advice is to the effect that there will be no adverse tax consequences as a result of the Scheme.  Although no specific advice has been obtained in relation to customers resident elsewhere, there is no reason to think that there would be any adverse tax consequences for them either. 

(iv)      Although this a transfer from a Jersey incorporated entity to a branch of an entity incorporated in England and Wales, that aspect has been carefully considered and there do not seem to be any material adverse consequences.  There are several previous cases where the Royal        Court has granted approval to transfers from Jersey incorporated banks to Jersey branches     of foreign incorporated banks.  These include Re Standard Chartered (Jersey) Limited [2013] JRC 172; Re Abbey National International Limited and Santander UK Plc [2015] JRC 138 and         Re HSBC Bank International Limited Plc (supra).

(v)       Essentially all of the Transferor's business, with the exception of its investment business, is to be transferred but the Court is satisfied that the ancillary business to be transferred is integral to the deposit-taking business so that the Court has jurisdiction to approve the Scheme. 

(vi)      The Jersey Financial Services Commission has confirmed in writing and through its representative before us that it has no objection to the Scheme.

(vii)     No Jersey customers of the Transferor or the Transferee have objected to the Scheme.

(viii)    As already stated, this is an intra group transfer within the Lloyds Bank Group.  The Transferee is the Jersey branch of the indirect parent of the Transferor.

8.        Having considered all the matters helpfully set out in the papers before us and having regard to the above matters, we are content to grant our sanction to the Scheme in accordance with the draft Act produced to us.

Authorities

Banking Business (Jersey) Law 1991. 

Re HSBC Bank International Limited and HSBC Bank Plc [2017] JRC 180. 

Financial Services (Investment Business) (Client Assets)) (Jersey) Order 2001. 

Re Standard Chartered (Jersey) Limited [2013] JRC 172. 

Re Abbey National International Limited and Santander UK Plc [2015] JRC 138.