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Building Societies Act 1997 (c. 32)

(The document as of February, 2008)

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Building Societies Act 1997

1997 CHAPTER 32

ARRANGEMENT OF SECTIONS

Content
  1. Part I

    Constitution and powers

    1. 1. Principal purpose and powers.

    2. 2. Membership and liability of members.

    3. 3. Capacity etc.

    4. 4. The lending limit.

    5. 5. Loans secured on land.

    6. 6. Loans fully secured on land.

    7. 7. Discharge of mortgages.

    8. 8. The funding limit.

    9. 9. Raising funds and borrowing.

    10. 10. Restrictions on certain transactions.

    11. 11. Restriction on creation of floating charges.

    12. 12. Superseded provisions of 1986 Act.

  2. Part II

    Powers of control of Commission

    1. 13. Power to direct restructuring of business etc.

    2. 14. Power to make prohibition orders.

    3. 15. Powers to petition for winding up etc.

    4. 16. Imposition or variation of conditions in urgent cases.

    5. 17. Power to direct transfers of engagements or business.

    6. 18. Notification and confirmation of transfer directions.

    7. 19. Revocation: supplementary directions.

    8. 20. Notification and confirmation of supplementary directions.

    9. 21. The criteria of prudent management.

    10. 22. Statements of principles etc. by Commission.

    11. 23. Rights of appeal.

    12. 24. Determination of appeals.

  3. Part III

    Accountability to members

    1. 25. Special meeting on members' requisition.

    2. 26. Failure to comply with members' requisition.

    3. 27. Election of directors: general.

    4. 28. Election of directors: supplementary.

    5. 29. Acquisition or establishment of a business.

    6. 30. Information about transfers or proposed transfers of business.

    7. 31. Transfers of business: increased remuneration etc.

  4. Part IV

    Protection of investors and investigation of complaints

    1. 32. Amalgamation of building society and banking protection schemes.

    2. 33. Liability of insolvent society in respect of payments made by Board.

    3. 34. Recognised schemes for investigation of complaints.

    4. 35. Persons entitled to have complaints investigated.

  5. Part V

    Miscellaneous and supplemental

    1. Miscellaneous

      1. 36. Registered and business names.

      2. 37. Access to registers of members.

      3. 38. Transactions with directors and persons connected with them.

      4. 39. Application of certain insolvency legislation.

      5. 40. Abolition of priority liquidation distribution rights.

      6. 41. Protective provisions for specially formed successors.

      7. 42. Registration of charges by building societies.

      8. 43. Other amendments of 1986 Act.

    2. Supplemental

      1. 44. Financial provisions.

      2. 45. Minor and consequential amendments.

      3. 46. Transitional provisions, savings and repeals etc.

      4. 47. Short title, interpretation, commencement and extent.

  6. Schedules:

    1. Schedule 1

      Capacity of society and power of directors to bind it.

    2. Schedule 2

      Discharge of mortgages: supplementary provisions.

    3. Schedule 3

      Directions: supplementary provisions.

    4. Schedule 4

      Transfer directions: modifications of Part X.

      1. Part I

        Directions under section 42B(3).

      2. Part II

        Directions under section 42B(4).

    5. Schedule 5

      Information about transfers or proposed transfers of business.

      1. Part I

        Issue of statement or summary to members.

      2. Part II

        Notification of proposals for transfers of business.

    6. Schedule 6

      Application of other companies insolvency legislation to building societies.

      1. Part I

        General mode of application.

      2. Part II

        Modified Application of Parts I and II and Chapter I of Part III of Insolvency Act 1986.

      3. Part III

        Modified Application of Parts II, III and IV of Insolvency (Northern Ireland) Order 1989.

    7. Schedule 7

      Other amendments of 1986 Act.

    8. Schedule 8

      Transitional provisions and savings.

    9. Schedule 9

      Repeals and revocations.

An Act to amend the Building Societies Act 1986; to make provision for amalgamating the Building Societies Investor Protection Board and the Deposit Protection Board into a single board and the Building Societies Investor Protection Fund and the Deposit Protection Fund into a single fund; and for connected purposes.

[21st March 1997]

Be it enacted by the Queen's most Excellent Majesty, by and with the advice and consent of the Lords Spiritual and Temporal, and Commons, in this present Parliament assembled, and by the authority of the same, as follows:--



Part I Constitution and powers

1 Principal purpose and powers

(1) For subsection (1) of section 5 (establishment, constitution and powers) of the [1986 c. 53.] Building Societies Act 1986 ("the 1986 Act") there shall be substituted the following subsection--

" (1) A society may be established under this Act if (and only if) it complies with the following requirements, namely--

(a) its purpose or principal purpose is that of making loans which are secured on residential property and are funded substantially by its members; and

(b) its principal office is in the United Kingdom. "

(2) After subsection (4) of that section there shall be inserted the following subsection--

" (4A) If, after its establishment, a building society fails to comply with the requirements imposed by subsection (1)(a) or (b) above--

(a) the powers conferred on the Commission by section 36 or 37 shall become exercisable in relation to the society; but

(b) the failure shall not affect the validity of any transaction or other act. "

(3) For subsections (5) to (7) of that section there shall be substituted the following subsection--

" (5) Subject to the provisions of this Act, a building society shall have the powers conferred on it by its memorandum. "

(4) For subsection (10) of that section there shall be substituted the following subsection--

" (10) In this Act "residential property" means land at least 40 per cent of which--

(a) is normally used as, or in connection with, one or more dwellings; or

(b) has been, is being or is to be developed or adapted for such use;

and for the purposes of this subsection, the area of any land which comprises a building or other structure containing two or more storeys shall be taken to be the aggregate of the floor areas of each of those storeys. "

2 Membership and liability of members

(1) In paragraph 5 of Schedule 2 to the 1986 Act (membership), for sub-paragraphs (1) and (2) there shall be substituted the following sub-paragraphs--

" (1) The rules of a building society shall provide that no person shall be a member of the society unless he is a shareholding member or a borrowing member or both.

(2) In this Act, in relation to a building society--

  • "borrowing member" means, subject to sub-paragraphs (2A) and (2B) and paragraph 29(2) below, an individual who is indebted to the society--

    (a)

    in respect of a loan which is fully secured on land; or

    (b)

    if the rules of the society so provide, in respect of a loan which is (within the meaning of the rules) substantially secured on land;

  • "shareholding member" means a person who holds a share in the society.

(2A) If the rules of a building society so provide, an individual shall cease to be a borrowing member at any time if at that time the society--

(a) takes possession of, or exercises its power of sale in relation to, the whole or any part of the land on which the loan is secured; or

(b) obtains an order for foreclosure absolute or, in Scotland, foreclosure in respect of the whole or any part of that land.

(2B) Unless the rules of a building society so provide, an individual shall not be a borrowing member at any time if at that time the loan is owed to the society in equity rather than at law. "

(2) In sub-paragraph (3) of that paragraph--

(a) in paragraph (b), after the words "may not" there shall be inserted the words "propose a resolution,"; and

(b) in paragraph (c), after the words "may not" there shall be inserted the words "join in requisitioning a special meeting or".

(3) For paragraph 6 of that Schedule there shall be substituted the following paragraph--

" 6 (1) The liability at any time of a shareholding member of a building society shall be limited to the amount which, at that time, has been actually paid, or is in arrear, on his shares in the society.

(2) The liability at any time of a borrowing member of a building society shall be limited to the amount which, at that time, is payable under the mortgage or other security by which his indebtedness to the society in respect of the loan is secured. "

(4) For sub-paragraph (2) of paragraph 29 of that Schedule (borrowing members' resolutions) there shall be substituted the following sub-paragraph--

" (2) For the purposes of this Part of this Schedule, an individual who is indebted to a building society in respect of a loan fully secured on land is not a borrowing member of the society at any time if at that time the amount of his mortgage debt is less than the prescribed amount. "

3 Capacity etc

(1) In subsection (8) of section 5 of the 1986 Act--

(a) for paragraph (b) there shall be substituted the following paragraph--

" (b) Part II makes provision with respect to the capacity of a society and the powers of its directors to bind it; and " ; and

(b) for the words from "and in this section" to the end there shall be substituted the words "and in this section "scheduled", with reference to requirements for establishment, means contained in that Schedule".

(2) For Part II of Schedule 2 to the 1986 Act there shall be substituted the provisions set out in Schedule 1 to this Act (capacity of society and power of directors to bind it).

4 The lending limit

For section 6 of the 1986 Act there shall be substituted the following section--



" Making loans

6 The lending limit

(1) A building society shall secure that the difference between--

(a) the value of X on any quarter day; and

(b) the value of Y on that day or the value of Y on the immediately preceding quarter day, whichever is the greater,

does not exceed 25 per cent of that value of X.

(2) For the purposes of subsection (1) above--

X = the difference between the total assets of the society and any subsidiary undertakings of the society as shown in the society's accounts and the aggregate of--

(a) the liquid assets of the society and any such undertakings as shown in those accounts in pursuance of regulations under section 73(7);

(b) the fixed assets of the society and any such undertakings as so shown; and

(c) where any such undertakings are insurance companies within the meaning of the [1982 c. 50.] Insurance Companies Act 1982, such of their assets as shown in those accounts as represent long term insurance funds; and

Y = the principal of, and interest accrued on, loans which are owed to the society or any subsidiary undertaking of the society and are fully secured on residential property;

and for the purposes of this subsection the total assets of a society and any subsidiary undertakings of the society shall be taken to be increased by the amount of any provision made for bad or doubtful debts of the society or any such undertaking.

(3) Any loans owed to the society or any subsidiary undertaking of the society shall be disregarded for the purposes of the definition of "Y" in subsection (2) above to the extent that they are not included in the total assets of the society and any such undertakings as shown in the society's accounts.

(4) Any reference in subsection (2) or (3) above to anything being shown in a society's accounts shall be construed--

(a) in relation to a quarter day on which a financial year of the society ends, as a reference to its being shown in the accounts prepared by the society for that year;

(b) in relation to any other quarter day, as a reference to its being shown in the accounts which would have been prepared by the society for the year ending on that day if that year were a financial year of the society.

(5) If a building society fails to comply with the requirement imposed by subsection (1) above--

(a) the powers conferred on the Commission by section 36 shall become exercisable in relation to the society; but

(b) the failure shall not affect the validity of any transaction or other act.

(6) The Treasury may by order substitute for the percentage specified in subsection (1) above such greater percentage (not greater than 40 per cent) as appears to them to be appropriate; and an order under this subsection may make such supplementary, transitional and saving provision as appears to the Treasury to be necessary or expedient.

(7) The Commission may, with the consent of the Treasury, by order--

(a) modify subsections (2) and (3) above in their application to assets of subsidiary undertakings;

(b) apply those subsections to corresponding assets of associated undertakings; or

(c) modify those subsections in their application to such assets.

(8) An order under subsection (7) above may make--

(a) different provision for different circumstances;

(b) provision for particular assets of undertakings to be disregarded; and

(c) such supplementary, transitional and saving provision as appears to the Commission to be necessary or expedient.

(9) The power to make an order under subsection (6) or (7) above is exercisable by statutory instrument.

(10) No order shall be made under subsection (6) above unless a draft of the order has been laid before and approved by a resolution of each House of Parliament.

(11) A statutory instrument containing an order under subsection (7) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(12) In this section "long term insurance funds", in relation to an insurance company within the meaning of the [1982 c. 50.] Insurance Companies Act 1982, means funds maintained by it--

(a) under section 28(1)(b) of that Act (assets attributable to long term business); or

(b) where it is incorporated in a country or territory outside the United Kingdom, under the corresponding provisions of the law of that country or territory.

(13) Where a loan is owed to a lending syndicate of which a building society or connected undertaking of a building society is a member, so much of the loan as is referable to the society's or undertaking's participation in the syndicate shall be treated for the purposes of this section and sections 6A and 6B as a loan owed to the society or undertaking.

(14) In this section and section 7--

  • "accounts"--

    (a)

    in relation to a building society without subsidiary undertakings, means individual accounts under subsection (1) of section 72;

    (b)

    in relation to such a society with such undertakings, means group accounts under subsection (2) of that section;

  • "quarter day", in relation to a building society, means a day on which a financial year of the society ends, or a day which is three months, six months or nine months after such a day;

and references to any value on a quarter day are references to that value at the close of business on that day.

(15) If an agreement between the Commission and a building society so provides, the definition of "quarter day" in subsection (14) above shall have effect in relation to the society as if for any reference to a number of months there were substituted a reference to a number of days specified in the agreement. "

5 Loans secured on land

After section 6 of the 1986 Act there shall be inserted the following section--

" 6A Loans secured on land

(1) For the purposes of this Act a loan is secured on land if it is secured by--

(a) a mortgage of a legal estate in land in England and Wales or Northern Ireland;

(b) a heritable security over land in Scotland; or

(c) a qualifying security over land in an EEA country or territory other than the United Kingdom.

(2) For the purposes of this Act a loan is also secured on land if--

(a) it is secured by a mortgage of an equitable interest in land in England and Wales or Northern Ireland;

(b) the equitable interest is an equitable interest in land of a description, and is created in circumstances, prescribed in an order made by the Commission with the consent of the Treasury; and

(c) any conditions prescribed in the order are complied with;

and an order under this subsection may apply in relation to securities held by or on behalf of building societies or connected undertakings of a description specified in the order, or securities held by or on behalf of all such societies or undertakings other than those of a description so specified.

(3) For the purposes of this Act--

(a) a loan shall be treated as secured by a mortgage of a legal estate in registered land in England and Wales or Northern Ireland notwithstanding that the loan is made before the mortgagor is registered as proprietor of the estate; and

(b) a loan shall be treated as secured by a heritable security over land in Scotland notwithstanding that the loan is made before title to that land has been transferred to the debtor in the heritable security.

(4) The Commission may, with the consent of the Treasury, by order provide for any provisions of this Act to have effect in relation to loans secured on land outside the European Economic Area with such modifications as appear to the Commission to be appropriate.

(5) An order under subsection (2) or (4) above may make such incidental, supplementary and transitional provision as appears to the Commission to be necessary or expedient.

(6) The power to make an order under subsection (2) or (4) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(7) In this section and section 6B--

  • "EEA country or territory" means a country or territory in the European Economic Area;

  • "qualifying security", in relation to land in an EEA country or territory other than the United Kingdom and a loan, means a security over the land which--

    (a)

    acknowledges, and requires repayment of, the loan; and

    (b)

    secures repayment of the loan on the land;

    and for the purposes of this section and that section, the Channel Islands, the Isle of Man and Gibraltar shall be treated as included in the European Economic Area.

(8) In this Act "land", in the expression "loan secured on land", means--

(a) land in an EEA country or territory; and

(b) in so far as land in any other country or territory is, under any provision of this Act, land on which loans may be secured, land in that other country or territory. "

6 Loans fully secured on land

After section 6A of the 1986 Act there shall be inserted the following section--

" 6B Loans fully secured on land

(1) For the purposes of this Act a loan which is owed to a building society or a subsidiary undertaking of a building society and is secured on residential property or other land is fully secured on the land if--

(a) the principal of, and interest accrued on, the loan does not exceed the value of the requisite security; and

(b) no, or no more than one, mortgage of the land which has priority over the society's or undertaking's mortgage is outstanding in favour of an outside person.

(2) Where a mortgage of the residential property or other land which has priority over the society's or undertaking's mortgage is outstanding, the principal of the loan secured or, in the case of a loan by instalments, intended to be secured by that mortgage shall be deducted from the value of the requisite security for the purposes of subsection (1)(a) above.

(3) Where the loan is secured on residential property or other land in the United Kingdom, any outstanding charge over the land which--

(a) in the case of land in England and Wales, is registered in the appropriate local land charges register;

(b) in the case of land in Scotland, is recorded in the Register of Sasines, or registered in the Land Register, under section 108 of the [1982 c. 45.] Civic Government (Scotland) Act 1982 or Schedule 9 to the [1987 c. 26.] Housing (Scotland) Act 1987;

(c) in the case of land in Northern Ireland, is registered in the statutory charges register under section 87 of, and Schedule 11 to, the [1970 c. 18 (N.I.).] Land Registration Act (Northern Ireland) 1970,

shall be disregarded for the purposes of subsections (1)(b) and (2) above.

(4) Where, on the occasion on which a building society or a subsidiary undertaking of a building society makes or acquires a loan which is secured on land, the society or undertaking is satisfied that the loan is--

(a) a loan which is fully secured on residential property;

(b) a loan which is not so secured but is fully secured on land; or

(c) a loan which is not fully secured on land,

the loan shall be treated as such a loan for the purposes of this Act until such time (if any) as subsection (7) below applies.

(5) Subsection (4) above shall have effect in relation to a loan which the society or undertaking makes by two or more payments on different dates as if--

(a) the reference to the occasion on which the society or undertaking makes the loan were a reference to the occasion on which it makes the first of the payments;

(b) other references to the loan were references to it in its intended maximum amount; and

(c) the value of any security for the loan were its expected maximum value.

(6) Where a building society or a subsidiary undertaking of a building society makes or acquires a loan which is secured on land, the society or undertaking shall be deemed to be satisfied as mentioned in paragraph (c) of subsection (4) above until such time (if any) as it is satisfied as mentioned in paragraph (a) or (b) of that subsection.

(7) Where at any time, in the case of a loan treated as falling within paragraph (a), (b) or (c) of subsection (4) above, the society or undertaking--

(a) is satisfied--

(i) on a revaluation that the value of the requisite security has changed;

(ii) on notice given to it by the borrower that there has been a change in the use of the land;

(iii) that so much of the mortgage debt as represents the principal of the loan has changed;

(iv) that the principal of the loan secured by a prior mortgage has changed or has been repaid; or

(v) that the relative priority of the mortgage of the land on which the loan is secured has changed;

(b) is also satisfied that the change or repayment is such that, if it were to make a loan equal to the mortgage debt at that time, the loan would instead be a loan falling within another of those paragraphs; and

(c) in a case falling within paragraph (a)(i) above, elects that this subsection shall apply,

the loan shall be treated as such a loan for the purposes of this Act until such time (if any) as this subsection again applies.

(8) In this section--

  • "outside person", in relation to a building society or a subsidiary undertaking of a building society, means any person other than the following, namely--

    (a)

    the society;

    (b)

    a subsidiary undertaking of the society;

    (c)

    a lending syndicate of which the society or such an undertaking is a member; and

    (d)

    trustees of a trust under which the society or such an undertaking is a beneficiary;

  • "the requisite security", in relation to a loan secured on residential property or other land, means--

    (a)

    the security constituted by the legal estate in, or the heritable or qualifying security over, the land; or

    (b)

    in a case where an equitable interest in land in England and Wales or Northern Ireland is or is also taken as security, that constituted by that security or, as the case may be, the combined securities;

  • "trust" includes arrangements--

    (a)

    which have effect under the law of a country or territory outside the United Kingdom; and

    (b)

    under which persons acting in a fiduciary capacity hold and administer property on behalf of other persons,

    and "beneficiary" and "trustees", in relation to such arrangements, shall be construed accordingly.

(9) In the application of subsections (1), (2) and (7) above to residential property or other land in Scotland or an EEA country or territory other than the United Kingdom, references to a mortgage of the land shall be construed as references to a heritable or, as the case may require, qualifying security over the land. "

7 Discharge of mortgages

(1) After section 6B of the 1986 Act there shall be inserted the following section--

" 6C Discharge of mortgages

Schedule 2A to this Act, which contains supplementary provisions as to the discharge of mortgages, shall have effect. "

(2) After Schedule 2 to the 1986 Act there shall be inserted, as Schedule 2A, the provisions set out in Schedule 2 to this Act (supplementary provisions as to the discharge of mortgages).

8 The funding limit

For section 7 of the 1986 Act there shall be substituted the following section--

" 7 The funding limit

(1) A building society shall secure that the difference between--

(a) the value of X on any quarter day; and

(b) the value of Y on that day or the value of Y on the immediately preceding quarter day, whichever is the greater,

does not exceed 50 per cent of that value of X.

(2) For the purposes of subsection (1) above--

X = the aggregate of the following, namely--

(a) the principal value of, and interest accrued on, shares in the society;

(b) the principal of, and interest accrued on, sums deposited with the society or any subsidiary undertaking of the society; and

(c) the principal value of, and interest accrued under, bills of exchange, instruments or agreements creating or acknowledging indebtedness and accepted, made, issued or entered into by the society or any such undertaking; and

Y = the principal value of, and interest accrued on, shares in the society held by individuals otherwise than as bare trustees (or, in Scotland, simple trustees) for bodies corporate or for persons who include bodies corporate.

(3) The following shall be disregarded for the purposes of subsection (2) above, namely--

(a) any sums or amounts which are own funds; and

(b) to the extent that they are not included in the total liabilities of the society and any subsidiary undertakings of the society as shown in the society's accounts--

(i) any sums deposited with the society or any such undertaking; and

(ii) any indebtedness created or acknowledged by bills of exchange, instruments or agreements accepted, made, issued or entered into by the society or any such undertaking.

(4) The reference in subsection (3) above to anything being shown in a society's accounts shall be construed--

(a) in relation to a quarter day on which a financial year of the society ends, as a reference to its being shown in the accounts prepared by the society for that year;

(b) in relation to any other quarter day, as a reference to its being shown in the accounts which would have been prepared by the society for the year ending on that day if that year were a financial year of the society.

(5) If a building society fails to comply with the requirement imposed by subsection (1) above--

(a) the powers conferred on the Commission by section 36 shall become exercisable in relation to the society; but

(b) the failure shall not affect the validity of any transaction or other act.

(6) Where an individual declares that he is acquiring any shares in a building society otherwise than as a bare trustee (or, in Scotland, a simple trustee) for a body corporate, or for persons who include a body corporate, he shall, unless the contrary is shown, be conclusively presumed for the purposes of this section to hold the shares otherwise than as such a trustee.

(7) The Commission may, with the consent of the Treasury, by order--

(a) modify subsections (2) and (3) above in their application to liabilities of subsidiary undertakings;

(b) apply those subsections to corresponding liabilities of associated undertakings; or

(c) modify those subsections in their application to such liabilities.

(8) An order under subsection (7) above may make--

(a) different provision for different circumstances;

(b) provision for particular liabilities of undertakings to be disregarded; and

(c) such supplementary, transitional and saving provision as appears to the Commission to be necessary or expedient.

(9) The power to make an order under subsection (7) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament. "

9 Raising funds and borrowing

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For section 8 of the 1986 Act there shall be substituted the following section--

" 8 Raising funds and borrowing

(1) Subject to subsection (2) below, a building society shall not do any of the following things, namely--

(a) accept a deposit from an individual;

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