BSOG 2.5 Confirmation

No merger can take effect until it has been confirmed by the Authority. This section describes the form of application and public notice required and explains the Authoritys view of how the statutory Confirmation Criteria should be interpreted. Finally, it gives guidance on the procedure customarily followed by the Authority when considering confirmation applications and hearing representations. Section 93(2)(d) of the 1986 Act, on amalgamations, and Section 94(7)(a), on transfers of engagements, together with paragraph 7 of Schedule 16, provide that when the necessary Merger Resolutions have been passed the societies concerned must apply to the Authority for confirmation of the merger in such manner as the Authority may direct. The societies are also required, by paragraph 8 of Schedule 16, to publish notices of their applications in one or more of the London, Edinburgh and Belfast Gazettes as the Authority directs, and if it so directs, in one or more newspapers. The choice of official Gazettes and national or local newspapers will, of course, have regard to the area in which the societies members live.

The parties in an amalgamation should make a joint application for confirmation to the Authority, while the parties to a transfer of engagements should make separate applications for confirmation of the transfer. These applications should specify the date on which the merger is intended to take effect and should be accompanied by two authenticated copies of the Instrument of Transfer, or the amalgamation agreement, and of the Merger Document or separate Schedule 16 Statement. In addition, in the case of an amalgamation, three signed copies of the Memorandum and Rules of the successor to the amalgamating societies should be sent to the registration team. The scrutineers report described in paragraphsBSOG 2.4.38 G to BSOG 2.4.40 G, and a certified copy of the minutes of the general meeting at which the Merger Resolutions were moved, must be enclosed with each application.

A pro forma public notice of application, and pro forma letters of application are set out in Annex 2.

Section 95(3) and (4) of the 1986 Act provides that the Authority must confirm an amalgamation or transfer of engagements unless it considers that any one or more of the following Three Criteria apply:

1. (1)

   some information material to the members decision about the merger was not made available to all the members eligible to vote; or

2. (2)

   the vote on any resolution approving the merger does not represent the views of the members eligible to vote; or

3. (3)

   some relevant requirement of the 1986 Act or of the Rules of any of the societies was not fulfilled.

Section 95(5) then provides that the Authorityshall not be precluded from confirming a merger by virtue only of the non-fulfilment of some relevant requirement of the 1986 Act or the Rules (the Third Criterion in 2.5.4(3)) if it appears to the Authoritythat the failure could not have been material to the members decision about the merger, and the Authoritygives a direction under that sub-section that the failure is to be disregarded.

Where the Authority would be precluded from confirming a merger by reason of any of the defects specified in the Three Criteria, Section 95(6) provides that it may direct a society to remedy the defects. A direction under that sub-section may require a society to call a further meeting; for example, to vote again in the light of a revised Schedule 16 Statement containing material information previously omitted, or after correction of defects in the systems for sending notices of meeting and Statements and validation of votes. If the Authority is then satisfied, having considered evidence furnished by the society, that the defects have been substantially remedied, it must confirm the merger. If not, then confirmation must be refused.

The Authorityspowers in connection with applications for confirmation of a merger are confined to considerations of whether, in the light of the facts, any of the Three Criteria apply. It is not for the Authorityto consider, or make judgements about, the merits of a proposed merger or the fairness of its terms; these matters are first for the board of a society, and then for its members to decide. Once the members have approved the merger and its terms, the Authorityhas no powers to require a society to make any changes to those terms. The Authoritysdiscretionary powers are similarly confined to the matters described in paragraphsBSOG 2.5.4 G and BSOG 2.5.5 G.

The Authorityhas no general power to determine disputes between a society and its members. Disputes concerning the services provided by societies in the ordinary course of their business are generally a matter, in the first instance, for a society's internal complaints procedure. They may also fall within the jurisdiction of the Financial Services Ombudsman. Disputes between a building society and a member of the society, in his capacity as a member, in respect of any rights or obligations arising from the Rules of the society or the provisions of the 1986 Act, fall within the jurisdiction of the High Court or, in Scotland, the Court of Session (Section 85 of and Schedule 14 to the 1986 Act). However, the Authority does have power, on the written application of an eligible member, to direct that the member has the right to obtain names and addresses from the society's register of members. Before it gives such a direction, the Authority is required to be satisfied that the member requires that right for the purpose of communicating with members of the society on a subject relating to its affairs, and must have regard to the interests of the members as a whole and to all the other circumstances (Schedule 2, paragraph 15). A fee is payable by the applicant. Chapter 1A on applications for access to the register of members explains who is eligible to apply.

The purpose of the confirmation process is to enable:

1. (1)

   interested parties to make representations with regard to the Three Criteria;

2. (2)

   the society to respond to those representations;

3. (3)

   the Authorityto make such enquiry as it considers necessary to reach informed conclusions on the Three Criteria.

The Authority, in reaching its view on each of the Three Criteria, has to assess not only the points made to it in representations, and the society's responses, but also to make such further enquiries as it considers necessary. In deciding how far it should pursue such enquiries, the Authorityhas to have regard to the role and effect of confirmation, and to the mischief which it is intended to prevent. The Authorityconsiders that one role of confirmation is to provide a protection to members against the provision to them by the society of information which is inadequate, obscure or misleading, and against voting irregularities: in other words to ensure that the vote represents the informed decision of the members. The Authoritywould hope that this safeguard would work in the majority of cases by raising relevant issues early by causing the board of a society to take care not to put confirmation at risk on this account rather than by the Authorityfinding that it needed to withhold confirmation at the last stage. In considering the First Criterion, the Authoritywill have regard to the totality of the information provided to the members by the board of a society and not exclusively to the Schedule 16 Statement.

The task of the Authorityis accordingly:

1. (1)

   to reach a considered view on each of the Three Criteria;

2. (2)

   if that view is that none applies, to confirm;

3. (3)

   if either of the First Two Criteria apply to direct the appropriate remedial action, or to refuse confirmation;

4. (4)

   if the Third Criterion applies, to consider whether it is appropriate to direct that any failure be disregarded: if not, to direct the appropriate remedial action or to refuse confirmation.

In considering the Three Criteria, the Authoritymay well have to look again at the Schedule 16 Statement, or at issues which were considered in connection with approving that Statement. In doing so, it has a duty to consider information and arguments put to it by representers and by the society, which of their nature were not available earlier, as well as those arising from its own further consideration of the criteria. The Authoritywould clearly only change the view reached at the time of approval of the Schedule 16 Statement if there were good reasons to do so. But it is under a duty to examine the Statement and connected issues at the time of confirmation in the light of any new information and arguments which become available. Accordingly, the Authoritycannot be bound at the confirmation stage to the view that was taken at the earlier stage as to whether further factual information should be included in the Schedule 16 Statement or as to the accuracy of its contents.

The task of considering each of the Three Criteria is still necessary even if there are no representations. Without such enquiry and consideration the confirmation process would not properly be carried out. The Authoritysview of how the Three Criteria should be interpreted and applied is given in the following paragraphs.

This criterion requires the Authorityto consider whether some material information was not made available to the members. The Authoritysown view, in which it concurs with the view developed by the Commission in its confirmation decisions, can be summed up as follows:

1. (1)

   the words made available to all the members eligible to vote mean that the criterion is mainly, if not exclusively, directed to the information provided by a society to the generality of its members;

2. (2)

   the extent of information not made available can reasonably be assessed by considering how far the totality of information made available falls short of what might be expected to be put to its members by a financial institution of standing and repute seeking to put sufficient information and a fair and balanced assessment of it, and the board's conclusions, to the members to enable them to take an informed decision;

3. (3)

   the words material to the members decision require the Authoritythen to focus on whether it is within the bounds of reasonable possibility that the members decision would have been different, had any deficiency in information been made good, i.e. whether it could have changed the decisions on voting of sufficient members to lead to a different conclusion. If it is within the bounds of reasonable possibility that the deficiency might have changed the outcome, it is not for the Authorityto determine whether it would actually have done so it should put the decision back to the members. This test requires the Authorityto take account both of the size of the vote and of the size of the majority within it;

4. (4)

   the relevance of a particular piece of information to an investor and to a borrower may well be different. Accordingly, it is necessary to consider materiality separately in relation to the shareholding members resolution and the borrowing members resolution.

The Authoritysapproach to determining whether this criterion is met will accordingly be:

1. (1)

   to review the material put to members, in the light of the members representations made and the society's responses, but also taking points of its own accord;

2. (2)

   to consider, on the basis of that review, what information relevant to the decision of shareholders, or of borrowers, or both, might reasonably have been expected to be put to members by the board of a society of repute considering its fiduciary duty, and the extent to which (if at all) the information actually put falls short of that;

3. (3)

   to consider separately in relation to the shareholding members resolution and in relation to the borrowing members resolution, whether any deficiency so identified was sufficient to amount to information material to the members decision.

This criterion requires the Authorityto consider whether the votes on the Merger Resolutions do not represent the views of the members. The main mischief to which it appears to be directed is a merger approved by a small and unrepresentative vote. However, a very low turnout, of itself, does not necessarily mean that the criterion applies. It has to be considered in the context of the other criteria, and of any other factors which may have affected the turnout: for example, whether all the members entitled to vote were fully and clearly informed of the terms of the merger proposal and its consequences; whether the members were afforded adequate facilities and opportunity to cast their votes; and the scrutineers report on the conduct and counting of votes, including the number of, and reasons for, invalid proxy votes.

This criterion requires the Authorityto consider whether the relevant requirements of the 1986 Act and the Rules have been fulfilled. The phrase some relevant requirement of this Act or the rules of the society appears explicitly three times in Section 95 of the 1986 Act:

1. (1)

   sub-section (4)(c) in the specification of this criterion;

2. (2)

   sub-section (5) which gives the Authoritypower to disregard certain non-fulfilments;

3. (3)

   sub-section (10) which provides that a failure to meet such a relevant requirement shall not invalidate a transfer of engagements, although such failure by a society without a reasonable excuse is a criminal offence.

The interpretation of the phrase is also directly relevant to sub-section (6) the power of the Authorityto give the society a direction to remedy defects specified in paragraphs (a) to (c) of sub-section (4).

Sub-section (11) defines relevant requirement:

In this section relevant requirement, with reference to this Act or the rules of a society, means a requirement of section 93 or 94 or this section or of Schedule 16 to this Act or of any rules prescribing the procedure to be followed by the society in approving or effecting an amalgamation or transfer of engagements.

The Authorityconsiders that this sub-section should be read naturally. The words prescribing the procedure to be followed by the society in approving or effecting a merger apply only to the Rules, in order to specify which of the Rules of the society are relevant requirements. They do not apply as a matter of normal construction of the sentence to the applicable provisions of this Act: nor is it necessary that they should do so, since those provisions are specified in the sub-section.

The Authorityrecognises that the interpretation of relevant requirement of the Act, which it considers stems from the natural construction of Section 95(11) of the 1986 Act and which is necessary to give effect to Parliaments intentions for Section 95(6) and (10), does not quite fit Section 95(5). The test which the Authorityhas to apply in the case of sub-section (5) to a non-fulfilment of a relevant requirement of the 1986 Act is:

if it appears to the Authoritythat it could not have been material to the members decision about the amalgamation or transfer.

That test clearly is designed to relate to a failure to meet a procedural requirement or to some other failure which might have an effect on the voting.

The wording of Section 95 of the 1986 Act is such that no construction of the phrase is entirely free from difficulty. The Authoritysview is that the wording, and the intentions of Parliament, are best met by following the natural construction of sub-section (11), as a result applying a wide interpretation in sub-sections (4), (6) and (10), but only considering that it is open to the Authority to make a direction under sub-section (5) in relation to non-fulfilment of a procedural requirement or other failure to which the test in that sub-section is apposite.

The Authorityconsiders that the relevant requirements of the Rules are those which prescribe the procedure to be followed that is, in particular, the Rules concerning membership, special meetings, notice of meetings, procedure at meetings, entitlement of members to vote on resolutions, appointment of proxies and joint shareholders and borrowers.

The procedure to be followed in the confirmation process is prescribed by Part III, paragraphs 7 to 9, of Schedule 16 to the 1986 Act. Any interested party has the right to make written representations, and/or to give notice of intention to make oral representations to the Authoritywith respect to a society's application for confirmation. Written representations are to be copied to the participating societies, which are to be afforded the opportunity to comment on them in writing or orally at the hearing of their applications. (The Authoritywill in general be prepared to use electronic rather than paper-based communication if requested by the society or a prospective representer and some of the following procedures may have to be adapted accordingly.)

Persons making representations should state why they claim to be interested parties, for example their category of membership of the society, and the ground or grounds for their representations by reference to the Three Criteria discussed above. Written representations, or notice of a persons intention to make oral representations, or both, must be in writing. They must reach the Authorityat the address, and by the date, given in the Merger Document issued to members and subsequently published by notice in the official Gazettes and newspapers as required by the 1986 Act. Persons who make written representations and who subsequently decide also to make oral representations must, nevertheless, give notice of that intention in writing to the Authorityby the same date. Representations received out of time will not be considered unless, exceptionally and at the sole discretion of the Authority, they appear to the Authorityto raise matters of substance relevant to the Three Criteria which are not already under consideration.

Representations or notices to the Authoritywill fall into one of the following three categories:

1. (1)

   written representations only

2. (2)

   written representations with notice of intention to make oral representations

3. (3)

   notice of intention to make oral representations only.

The Authoritywill acknowledge the receipt of each representation or notice and will send a copy of annex 4 of this chapter, on merger confirmation procedures, to each representer. It will send copies of all written representations to the societies concerned and will afford them an opportunity to comment on them.

Copies of the society'scomments on representations in category 2.5.22(2)will be sent to those who made the representations so that they may concentrate their oral representations on the points which they consider to remain at issue. Persons making written representations who wish to see the society's response must, therefore, give notice of intention to make oral representations. The Authoritywill consider the written representations in category 2.5.22(1)and the societies responses to them in advance of the date set for hearing oral representations. The society may, exceptionally, apply to put to the Authorityin confidence documents which the society considers to be commercially sensitive: the Authoritywill decide on the merits of each case whether, and on what terms, to accept them as being confidential. Persons in category 2.5.22(3)will be asked to inform the Authority, in advance of the hearing, of the subject and general grounds of the representations they intend to make and their responses will be copied to the society.

Interested parties may join together in making collective representations and they may also appoint a person, either one of their number or another, to represent them at the hearing. They should notify the Authorityin advance if this is what they intend to do.

The Authoritymay appoint one or more persons to hear and decide applications on its behalf. In the absence of notices of intention to make oral representations the Authoritywould expect to decide the applications having regard to the written representations, the societies responses and other information available to it, without the need for an oral hearing.

The Authoritywill notify the societies and those making oral representations of the time and place of the hearing. If there are a significant number of persons wishing to make oral representations, then the hearing may extend beyond one day and may be adjourned from time to time and from place to place. The Authoritywill try to advise participants of the day when they may expect to make their representations and when the societies representatives may be expected to respond.

The Authorityexpects that hearings will be in public. Members of the general public and the press will be asked to wait outside at the outset of the hearing. The participants will then be asked if any of them has good reason to object to the admission of the general public and the press (such as, for example, the need to refer to personal financial affairs). The Authoritymay decide that parts of the hearing shall be in private if that appears to it to be desirable. If there are no reasonable objections, the general public and the press will then be admitted, within the limits of the space available.

The procedure will be informal. While all participants will be invited to speak concisely and to avoid repetition the Authoritywill be considerate towards those who are not professionally represented. The individual or panel taking the hearing on behalf of the Authoritymay question the participants as the hearing proceeds. The sequence of events will be broadly as follows:

1. (1)

   any preliminary matters (such as the admission of the public or other procedural questions) will be dealt with;

2. (2)

   the person(s) appointed to hear the applications will introduce the proceedings;

3. (3)

   the representatives of the societies will be invited to present their applications for confirmation, including a description of the events at the meetings at which the Merger Resolutions were put to the members, the statement of the voting on the resolutions, as well as any other matters which they wish to introduce at that stage;

4. (4)

   the other participants will be invited to make their representations; where appropriate the Authoritywould expect to call them in a list marshalled, so far as possible, by subject matter;

5. (5)

   the representatives of the societies (or of the relevant society) will be invited to reply to, or comment on, the points made by the other participants;

6. (6)

   the other participants will be invited to comment on the societies replies in so far as those replies raise new issues.

The above procedure may be varied according to the circumstances at the hearing, and is intended only as a guide to the probable order of events. The hearing may be adjourned if the Authorityconsiders that is necessary to enable facts to be checked or additional information to be obtained.

The Authoritywill not normally give an oral decision at the end of the hearing and may be expected to reserve its decision to be issued later in writing, setting out its reasons. Copies of the written decision will be sent to the participants and, on request, to any other person. The decision may also be published, and the Authorityusually asks the registration team to place copies on the public files of the participating societies.