Lloyds Bank Plc, Re

In determining preliminary directions for a proposed ring-fencing transfer scheme, communication requirements should be assessed by reference to objective factors rather than the applicants’ subjective view of who is likely to be affected.

Individual notification is not invariably required. Where customers are not reasonably expected to suffer adverse effects, and a comprehensive programme of public, electronic and other communications is available, that programme may provide sufficient notice. The court must weigh the importance of effective communication against the risk of causing unjustified concern and may approve proportionate arrangements, including group-based or business-as-usual communications.

Preliminary directions may be provisional and subject to revision when further evidence, including the Skilled Person’s report, becomes available.

Lloyds Bank Plc and Bank of Scotland Plc sought preliminary directions concerning communications for a proposed ring-fencing transfer scheme under Part VII of the Financial Services and Markets Act 2000. The scheme was intended to separate retail banking from higher-risk activities.

The application was made before the formal scheme application could be issued and before the Skilled Person’s report was available. The court considered proposed communication arrangements for transferring customers, customers remaining with the existing ring-fenced entity, customers without a direct contractual relationship with the transferors, and future customers.

The central issue was whether the proposed combination of targeted communications, group notifications, business-as-usual correspondence and general publicity was sufficient to notify persons who might be adversely affected and enable them to participate at the eventual sanction hearing.

1. Preliminary and provisional directions. The court approved the proposed communications methods in principle. The directions were necessarily provisional and could be revisited at the later hearing, particularly if the final Skilled Person’s report or other material circumstances materially altered the assessment.
2. Objective assessment. The court applied the guidance given in the earlier procedural directions that the question whether persons might be adversely affected, and whether communication could be dispensed with, must be assessed by objective factors. The applicants’ own view was not determinative.
3. Proportionate communications. For customers transferring to another entity, nominated group recipients could be used instead of sending multiple individual notices, provided that the established communication process and relationship-manager contact supplied adequate protection against anachronisms or failed communication. Similar arrangements were acceptable for commercial customers remaining within the existing entity.
4. Customers remaining in place. Individual notification was not necessary for the identified cohort of Category 2 customers who were not presently expected to be materially affected, particularly because they would receive the benefit of extensive public, electronic, branch and website communications. The court rejected reliance merely on numerical or administrative difficulty; the justification had to be substantive.
5. Other categories and future customers. The proposed arrangements for Category 3 customers were sufficient on the stated premise that they would not transfer and were not reasonably expected to be adversely affected. Foreign-law arrangements and individual novations required further consideration. Future customers could not be individually identified, but general publicity was presently sufficient, subject to different treatment for future Category 1 customers.
6. The court was satisfied that the hearing itself had been adequately publicised and that the proposed balance between effective notice and avoiding misplaced concern was reasonable.

First-instance decision. The judgment records earlier procedural guidance given on 26 May 2017 concerning proposed ring-fencing transfer schemes, but no citation for that decision is stated.