Re Barclays Bank PLC and Barclays Bank Ireland PLC

This was an application by Barclays Bank Plc and Barclays Bank Ireland Plc for directions in relation to a proposed Part VII Financial Services and Markets Act 2000 scheme to transfer parts of Barclays' EEA business to Barclays Bank Ireland Plc as Brexit contingency planning. The narrow jurisdictional issue decided was whether section 112(1)(d) of FSMA permits the court to make ancillary orders that have the effect of transferring the relevant part of the business of a non-deposit-taking group company (Barclays Capital Securities Ltd) where that company could not itself be the transferor under section 106.

The court held that section 112(1)(d) is sufficiently broad to permit orders which modify contractual and other rights as between clients and a third party (such as BCSL) so long as the order is incidental, consequential or supplementary to a scheme sanctioned under section 111 and is "necessary to secure that the scheme is fully and effectively carried out". The judge emphasised that whether to exercise the power in any particular case is a discretion for the sanction hearing, taking into account the evidence of interconnectedness between the transferring parties and client prejudice. The court granted the limited directions sought for notification and adjournment and gave prospective guidance on jurisdiction, expressly without prejudice to contrary arguments at the sanction hearing.

Background and parties: This was an application by Barclays Bank Plc (BB) and Barclays Bank Ireland Plc (BBI) under Part VII of the Financial Services and Markets Act 2000. The Scheme aimed to transfer parts of BB's and Barclays Capital Securities Ltd's (BCSL) business to BBI to preserve continuity of services in the European Economic Area after the United Kingdom's withdrawal from the European Union.

Nature of the application and relief sought: The applicants sought directions as to publication/notification of the proposed Scheme and for the adjournment of the sanction hearing to January 2019. The applicants also sought a preliminary view from the court on a jurisdictional question: whether the court could, under section 112(1)(d) FSMA, make an ancillary order that would have the effect of transferring the relevant part of BCSL's business to BBI, despite BCSL not being authorised to accept deposits and thus not being capable of being a transferor under section 106.

Issues framed:

• Whether section 112(1)(d) can be used to make orders that effectively transfer the business of a third-party, non-deposit-taking group company.
• Whether such an order could be "necessary to secure that the scheme is fully and effectively carried out".
• Whether any such order could be regarded as incidental, consequential or supplementary to the scheme sanctioned under section 111.

Facts and evidence: Evidence described a high degree of interconnectedness between BB and BCSL in providing investment banking services to EEA clients, with a substantial number of clients having concurrent relationships with both entities and some transactions depending on parallel performance. The practical difficulty and time required to novate thousands of contracts to achieve the same effect were emphasised.

Court's reasoning: The judge analysed the statutory scheme, noting that section 111 sets the conditions for sanction and section 112(1)(d) gives the court power to make incidental, consequential and supplementary provision to secure that a scheme is "fully and effectively carried out". The court reviewed prior authorities (including Re Hill Samuel, Re Norwich Union, Re Alliance & Leicester, Re Copenhagen Re and others) which demonstrate a history of making broad ancillary orders under equivalent provisions. The judge concluded that the limitation on orders under section 112(1)(d) is contained in the statutory language itself (necessity and the incidental/consequential/supplementary requirement) and that those limits do not preclude orders that modify third-party contractual rights where meeting those limits. On the facts (assuming sufficient evidence at sanction), the transfer of part of BCSL's business could be "necessary" to secure the effective and commercially sensible implementation of the Scheme and could be incidental, consequential or supplementary to it. The judge made the directions for publication sought and gave prospective guidance on jurisdiction, but reserved the discretionary decision whether to make such an order for the sanction hearing.

Disposition and consequence: The court gave the directions sought for notice publication (over and above the statutory minimum) and indicated that the jurisdictional point was answered in principle in favour of the applicants, without prejudicing contrary submissions at the sanction hearing. The court emphasised that whether it would exercise its discretion to make such an order depends on the facts and evidence to be adduced at the sanction hearing.

The court held that an order under section 112(1)(d) of the Financial Services and Markets Act 2000 is sufficiently broad to permit ancillary orders that modify contractual and other rights of third parties and thereby have the practical effect of transferring the relevant part of the business of a non-deposit-taking group company (BCSL) to a transferee (BBI), provided the order is incidental, consequential or supplementary to a scheme sanctioned under section 111 and is necessary to secure that the scheme is fully and effectively carried out. Whether the power should be exercised in this case is a matter for the sanction hearing. The court directed publication of notices as sought and granted the procedural directions requested, giving prospective guidance on jurisdiction without prejudice to contrary submissions at sanction.