Explanatory note

These Regulations which are made under section 102 of, and paragraph 5 of Schedule 17 to, the Building Societies Act 1986 (“the Act”) prescribe certain matters connected with the transfer of the property, rights and liabilities of a building society to a company incorporated under the Companies Acts which may, by virtue of sections 97(3) and (12) of the Act, be either a company specially formed by the society (and by no others than its nominees) for the purpose of assuming and conducting its business in its place or an already existing company carrying on business as a going concern.

When a society proposes a transfer in either of these ways resolutions have to be voted upon by the investing members and separately by the borrowing members of the society and a transfer statement must be put before all those eligible to vote to inform them of the nature of the transfer. Regulation 3 and the Schedule to the Regulations prescribe the matters particulars of which must be included in any such transfer statement. In addition to the matters thus prescribed, such a statement must, as required by paragraph 3(b) of Schedule 17 to the Act, give particulars of any other matters required by the Building Societies Commission in the case of the particular transfer. Part I of the Schedule to the Regulations sets out the matters common to both kinds of transfer, Part II sets out matters which are relevant to a transfer to an existing company, Part III contains those matters specific to a transfer to a specially formed company and Part IV deals with those matters of which particulars are to be stated where shares or rights in relation to shares are to be offered in connection with a transfer.

Section 97(6) of the Act provides for the successor company to assume the property, rights and liabilities of the society and regulations 4 and 5 contain provisions enabling contracts and other documents to be read as referring to the successor company and as if it and the transferring society were, in law, the same person. Thus, provisions of contracts which would cause consequences to flow from a transfer of interest to a third party will not operate in the case of a transfer under the Act (except in a case where the contract specifically referred to the statutory transfer). Regulations 6 and 7 provide for the successor company to be substituted for the society in rights of action and in proceedings before courts and other tribunals.

Under section 22 of the Act a building society is under a statutory obligation to accept the liabilities of any subsidiary companies (and certain other associated bodies) which it may have, so far as they are not discharged by the subsidiary or associate. A public limited company is not under a corresponding statutory obligation but a successor company will, by taking on the liabilities of its predecessor society, succeed to any extant liability, whether present or contingent, under section 22. Regulation 8 provides that the obligation will not extend to cover new liabilities incurred after the transfer.

The members of a building society have certain rights not only to the return of their money deposited but also, so far as is specified in the society’s rules, to share in any surplus when the society is wound up (the Act, Schedule 2, paragraph 3(4), Table, item 14). The shareholdings of members are converted into deposits with the successor company; the Act also provides for those rights on winding up (which come to an end on transfer of business) to be replaced by a priority in the distribution if the successor company is wound up. The Act requires the regulations to prescribe the mode of calculation of that priority distribution and this is effected by regulation 9. Initially it would be calculated by reference to the actual amount deposited at the transfer date but as time goes by the amount will be reduced by withdrawals and the regulations provide alternative methods of calculating how the right reduces.

Those rights are required to be secured and regulation 10 prescribes the nature of the security as a floating charge on the company’s undertaking, to be vested in an independent trustee. It also provides that, unless the successor company’s board of directors furnishes a certificate, supported by the company’s auditors, that the floating charge is not rendered to any extent invalid by the effects of insolvency legislation, the transfer agreement must contain provision for the trustee to require other security in addition to the floating charge to secure the priority distribution.