Alliance & Leicester Plc & Anor, Re Financial Services & Markets Act 2000

When sanctioning a banking business transfer scheme under the Financial Services and Markets Act 2000, the court has an absolute discretion, but must recognise the commercial judgment entrusted to the directors. The court must consider whether any interested person or class will be adversely affected and whether the scheme as a whole is fair between the affected interests. Individual adverse effects do not necessarily require refusal. The court should give close attention to the regulator’s informed view. It is not the court’s function to devise the best possible scheme or improve individual provisions. Ancillary orders may be made where they are necessary for the scheme’s effective and commercially sensible implementation.

Alliance & Leicester plc and Santander UK plc sought sanction under Part VII of the Financial Services and Markets Act 2000 for the transfer of Alliance & Leicester’s banking, mortgage and other financial businesses to Santander, with the ISA manager function transferred to another group company. The application required consideration of customer objections, including reduced compensation-scheme protection for some depositors and enlarged rights of set-off after a transitional period.

The court also considered whether the statutory conditions and ancillary orders were satisfied, and the proper approach to the court’s discretion under section 111(3).

1. Jurisdiction and statutory conditions. The proposed transfer was a banking business transfer scheme within section 106 because the business included substantial deposit-taking activities and the statutory conditions concerning authorised persons were satisfied. The certificates and authorisation required by section 111(2) had been provided by the FSA.
2. Ancillary orders. The word “necessary” in section 112(1)(d) does not mean indispensable. Read in context, it includes steps falling between indispensable and desirable where they are needed to implement the scheme effectively and in a commercially sensible way.
3. Approach to sanction. By analogy with the principles governing transfers of long-term insurance business stated in Re London Life Association Limited and Re AXA Equity & Law Life Assurance Society and AXA Sun Life Plc [2001] 1 All ER (Comm) 1010, the court had an absolute discretion under section 111(3), exercised with due recognition of the directors’ commercial judgment. The court had to consider whether interested persons or classes would be adversely affected, while giving close attention to the FSA’s informed regulatory view.
4. The relevant question was whether the scheme as a whole was fair between the interests of the different affected classes. The existence of adverse effects did not necessarily require refusal. The court was not required to select the best possible scheme and would not amend individual provisions merely because they might be improved.
5. The objections concerning reduced compensation-scheme protection and enlarged rights of set-off were adequately addressed by the proposed arrangements, including penalty-free transfers, alternative products and a three-month transitional period. The statutory requirements were met, and the scheme was appropriate to sanction in all the circumstances. The scheme was sanctioned, together with the requested ancillary orders.