Explanatory note

This Order provides for the restructuring of Northern Rock plc, by the transfer of some of its business to a new company which is also wholly owned by the Treasury.

Article 2 contains definitions.

The business being transferred by the Order will be transferred from Northern Rock plc to Gosforth Subsidiary No.1 plc. However, the intention is for Northern Rock plc to be renamed Northern Rock (Asset Management) plc and for Gosforth Subsidiary No.1 plc to be renamed Northern Rock plc shortly before the transfer takes effect. In light of this, in the Order the generic names “ACo” and “BCo” are used to refer to Northern Rock plc and Gosforth Subsidiary No.1 plc respectively.

Article 3 (together with Schedule 1) effect the transfer, by identifying the categories and other descriptions of property, rights and liabilities that are to be transferred from ACo to BCo by operation of law.

In many cases reference is made to specific contracts or arrangements which are to be transferred (or which are excluded from the transfer). Listing such contracts and arrangements in full in this Order would result in this Order being extremely lengthy. In light of this, these particulars are provided in or by virtue of a separate document, the transfer administration agreement. This is an agreement dated 7^th December 2009 made between ACo and BCo in connection with the provisions of this Order. The transfer takes effect, in part, by reference to the transfer administration agreement. This agreement and related documents are available for inspection on the Treasury’s website (http://www.hm-treasury.gov.uk). Copies can also be obtained from Victoria Tickle, Resolution Team, HM Treasury, 1 Horse Guards Road, London, SW1A 2HQ.

Articles 4 and 5 make provision consequent on the fact that the transfer is effected by operation of law.

Articles 6 and 7 make provision about third party rights and obligations. For example, article 6 provides that no third party is entitled to terminate a contract by virtue of the making of the Order or things done by, under, by virtue of or in consequence of the Order.

Article 8 (together with Schedule 2) applies the Credit Institutions (Reorganisation and Winding up) Regulations 2004 (S.I. 2004/1045) with modifications, in consequence of this Order constituting a reorganisation measure for the purposes of Directive 2001/24/EC on the reorganisation and winding up of credit institutions (OJ L125 5.5.2001 p.15).

Article 9 (together with Schedule 3) deems BCo to have certain permissions to carry out regulated activities for the purposes of the Financial Services and Markets Act 2000 (c. 8) (“FSMA 2000”). This provision operates for a short period (“the deemed authorisation period”).

Article 10 makes provision in relation to persons performing controlled functions (within the meaning of FSMA 2000) for or in relation to BCo. For a short period (“the deemed approval period”) the requirements of FSMA 2000 in relation to the performance of controlled functions are disapplied, so long as the Financial Services Authority (“FSA”) is satisfied of the matters set out in paragraph (2).

Article 11 makes provision for how documents are to be construed. For example, a reference in a contract to ACo is to be treated as a reference to BCo if that contract is transferred to BCo by the Order.

Article 12 makes provision in relation to the transfer of employees of ACo.

Article 13 (together with Schedule 4) provides that certain provisions of contracts and other arrangements which relate to ACo holding certain permissions to carry out regulated activities have no effect.

Articles 14 and 15 make provision about services. For example, BCo may use services provided to it for the benefit of ACo, even where this is not authorised by the contract between BCo and the service provider. By way of further example, ACo may discharge obligations to provide services to others through BCo, even where this is not authorised in the contract between ACo and the recipient of services. These provisions only apply during a transitional period which ends at the end of 31st December 2010.

Article 16 makes provision in respect of contracts and other arrangements in relation to the Bacs schemes (as defined in article 2). For a transitional period, any provision in those contracts and arrangements which requires BCo to hold any credit rating or which provides for a consequence should BCo cease to hold such a rating has no effect.

Article 17 provides that, for a transitional period which ends at the end of 31st December 2010, BCo may deal with payments made to ACo. For example, this provision would enable BCo to cash a cheque made out to ACo.

Article 18 (together with Schedule 5) provides that certain persons are not to be treated as shadow directors of BCo or any group undertaking of BCo, or as acting in certain other capacities, for certain purposes.

Article 19 makes provision about the application of the Freedom of Information Act 2000 (c. 36) while BCo is wholly owned by the Treasury.

Articles 20 and 21 modify the rule making powers of the FSA.

Article 22 enables ACo and BCo, with the consent of the Treasury, to modify this Order in accordance with the procedure set out in the article, so long as this Order could have originally be made with that modification under the Banking (Special Provisions) Act 2008.

An Impact Assessment has not been produced for this Order as no impact on the private or voluntary sectors is foreseen.