Barclays Bank Plc / Barclays Bank Ireland PLC (sanction)

The court considered an application under Part VII of the Financial Services and Markets Act 2000 to sanction a banking business transfer scheme transferring parts of the businesses of Barclays Bank PLC (BBPLC) and Barclays Capital Securities Limited (BCSL) to Barclays Bank Ireland plc (BBI) in anticipation of Brexit. The principal legal questions were whether the Scheme satisfied the statutory requirements of sections 106–112 FSMA for a banking business transfer scheme, whether the requisite regulatory certificates and authorisations were in place, and whether the court could use its ancillary power in section 112(1)(d) FSMA to give effect to transfers of BCSL business even though BCSL is not authorised to accept deposits.

The court held that (i) the Scheme met the statutory requirements so far as it related to BBPLC, with regulators' certificates and authorisations in place and BBI able to assume the transferred business; (ii) duplication of existing contractual frameworks and block transfer of trades and branch assets was an appropriate and recognised technique to implement the transfer, subject to limited, necessary amendments (including to tax, ratings and certain product features); and (iii) section 112(1)(d) could be used to transfer some of BCSL’s business, but only where a direct commercial connection to BBPLC’s transferring business made such transfer necessary to secure that the Scheme is fully and effectively carried out. The court required protective amendments to the Scheme (notably to the "Wrong Pockets" provision) and declined to permit an unfettered power to transfer BCSL-only contracts absent necessary commercial linkage.

Background and relief sought: BBPLC and BCSL applied for sanction of a Part VII FSMA banking business transfer scheme to transfer certain corporate, investment banking and private banking/overseas services business to BBI (an Irish credit institution). The commercial purpose was to mitigate the impact of a possible "no-deal" Brexit by enabling BBI to continue to service EEA clients using EU passporting.

Parties and scope: The transferring entities were BBPLC and BCSL; the transferee was BBI. The Scheme targeted approximately 5,000 "In-Scope Clients" (listed on a USB dataset) and an estimated €190 billion of external assets, with duplication of umbrella agreements (Terms of Business and Product Agreements), block transfer of existing trades and transfer of branch assets where appropriate.

Procedural posture: This was a first-instance sanction hearing in the Companies Court (Chancery Division). The evidence included regulatory certificates, client communications and detailed scheme drafting. There had been an earlier interlocutory determination on principle by Zacaroli J (Re Barclays Bank plc [2018] EWHC 2868 (Ch)).

Issues framed: (i) whether the Scheme satisfied the statutory and regulatory prerequisites under sections 106–112 FSMA and associated regulations; (ii) whether BBI had or would have necessary authorisations; (iii) whether the court could employ section 112(1)(d) FSMA to give effect to transfers of BCSL business even though BCSL could not itself bring a Part VII banking transfer (it cannot accept deposits); (iv) whether the duplication of contracts, recognition in overseas jurisdictions, tax, ratings and insolvency consequences were acceptable and fair to affected clients; and (v) whether particular Scheme drafting (including "Wrong Pockets" and the scope of Excluded Assets) required amendment.

Court’s reasoning and findings:

• The statutory requirements for sanctioning the banking business transfer scheme in respect of BBPLC were satisfied: required public notices, regulatory certificates (PRA, ECB), and evidence that BBI would have necessary authorisations to carry on the transferred business.
• On discretionary fairness under section 111(3) FSMA the court applied established Part VII/insurance-transfer analogies: give appropriate weight to directors' commercial judgment; assess whether classes of interested persons would be adversely affected and whether the scheme as a whole is fair. The Brexit context permits weighing the risk of prejudice from inaction against any detriment from the transfer.
• Duplication of umbrella contracts in the name of BBI and block transfer of trades and branch assets is an accepted technique to effect transfers; consequential amendments under section 112(1)(d) to operational, tax and ratings provisions were permissible where necessary to ensure continuity and effectiveness.
• As to BCSL, the court held that section 112(1)(d) could be used to transfer some of BCSL’s business, but only where there was a direct commercial connection between specific BCSL trades and the BBPLC business being transferred so that transfer was "necessary" to secure that the BBPLC scheme is effectively carried out. The court declined to permit an unfettered order to transfer BCSL-only business without such a nexus; many BCSL-only client arrangements should be addressed bilaterally or by targeted amendments to the Scheme.
• The court required an amendment to the "Wrong Pockets" clause to protect clients not previously consulted: transfers under that clause now require prior written notice and an objection period.

Outcome: The Scheme was sanctioned in respect of BBPLC. The court made ancillary orders under section 112(1)(d) to give effect to the transfer of certain BCSL business where necessary, but limited the scope of that power and declined to authorise wholesale transfer of BCSL-only contracts absent direct commercial necessity.

The court sanctioned the Part VII banking business transfer scheme in relation to Barclays Bank PLC and concluded that the scheme met the statutory requirements and was fair and effective for BBPLC. The court also held that it could, by exercising its ancillary power under section 112(1)(d) FSMA, order the transfer of some but not all of BCSL’s business, limiting such transfers to those trades or arrangements that are directly commercially connected to the BBPLC business being transferred and are necessary to secure the scheme's effectiveness. The court required amendments to protect clients (notably to the "Wrong Pockets" provision) and refused to permit an unrestricted power to transfer BCSL-only contracts absent necessity.