Re Alliance & Leicester PLC

The court considered an application under Part VII of the Financial Services and Markets Act 2000 for sanctioning a banking business transfer scheme under section 111(1) transferring the banking, mortgage and related financial activities of Alliance & Leicester Plc to Santander UK plc, with the ISA manager role to be moved to Santander ISA Managers Ltd. Key legal questions were whether the statutory conditions in sections 106, 110, 111 and the certificate requirements in Schedule 12 were satisfied and whether, under section 111(3), it was appropriate in all the circumstances to sanction the scheme.

The judge concluded that the FSA had provided the requisite certificates and had been closely involved, that statutory publicity and notice requirements had been exceeded, and that the transfer fell within the Act. The court gave weight to the FSA's position and the directors' commercial judgment, applied by analogy principles from long-term insurance transfer jurisprudence, and found that complaints from a small number of customers about reduced FSCS cover and prospective enlargement of set-off rights were not of sufficient substance to refuse sanction, particularly in view of transitional and mitigation arrangements (including a three month set-off transition and facilities via Cater Allen to preserve deposit interest rates). The scheme was therefore sanctioned under section 111(3).

Background and parties: Alliance & Leicester Plc, a wholly owned subsidiary of Santander UK plc (itself part of Banco Santander), applied by Part 8 claim for a court order under section 111(1) of the Financial Services and Markets Act 2000 to sanction a Part VII banking business transfer scheme transferring most of Alliance & Leicester's banking, mortgage and related activities to Santander, with the ISA manager role to be transferred to Santander ISA Managers Ltd. Ancillary orders under section 112 were also sought.

Nature of the application: Approval of a banking business transfer scheme and related consequential orders. The court was required to consider statutory prerequisites (including FSA certificates and authorisation) and whether, under section 111(3), it was appropriate to sanction the scheme.

Issues framed:

• Do the statutory conditions under the Financial Services and Markets Act 2000 (notably sections 106, 110, 111 and the certificate requirements in Schedule 12) and FSA authorisation requirements apply and have they been satisfied?
• Is it appropriate, in all the circumstances, to sanction the scheme under section 111(3), having regard to objections and the interests of affected customers?
• Are the proposed incidental and consequential orders within the court's jurisdiction under section 112?
• Have adequate arrangements been made to address reductions in Financial Services Compensation Scheme protection and prospective enlargement of set-off rights?

Court's reasoning: The judge accepted that all statutory conditions were met and that the FSA had provided the necessary certificates and had been closely involved, which was a material consideration. The court applied, by analogy, principles from the long-established jurisdiction to sanction transfers of long-term insurance business, emphasising that the court must assess fairness between classes of persons affected and give respect to directors' commercial judgment. Objections, principally about FSCS coverage reduction and later set-off rights, were examined: the court found the reduction in compensation protection affected a very small number of depositors and adequate mitigation arrangements (penalty-free transfers and an offer via Cater Allen to match rates) were in place; prospective enlargement of set-off rights was neutralised so far as possible and limited by a three-month transitional period allowing customers to move funds. The FSA's non-opposition and the compliance with publicity obligations were influential. Ancillary orders sought were within the scope of section 112 where necessary to effect the scheme.

Conclusion: The judge concluded that, in all the circumstances, it was appropriate to sanction the scheme under section 111(3) and made the requisite orders.

The court sanctioned the banking business transfer scheme. The judge held that all statutory conditions (including the FSA certificates and authorisation) had been satisfied, gave weight to the FSA's involvement and non-opposition, found that objections (notably relating to FSCS coverage and set-off) were not of sufficient substance in light of mitigation arrangements, and concluded that it was appropriate under section 111(3) to approve the scheme and make ancillary orders under section 112.