1This chapter ultimately derives from the Merger Procedures Guidance Note issued by the Commission in May 1999. It gives guidance on the requirements of the 1986 Act, as amended. Under the Act2 certain functions of the Commission were transferred to the Financial Services Authority and subsequently, to the FCA and PRA2. This chapter is not intended to be exhaustive and is not a substitute for looking at the 1986 Act as amended2 and the Mergers Regulations 1987 (SI 1987/2005) as amended by the Mergers (Amendment) Regulations 1995 (SI 1995/1874), the Merger Notification Statement Regulations 1999 (SI 1999/1215), where applicable, and a society's own Rules. Nor is it a substitute for the society seeking its own legal advice. It gives a description of the relevant provisions of the 1986 Act, of the information which must be made available to the Prudential Regulator2 and to societies' members, together with an outline of the procedures to be followed at general meetings, and the voting majorities required to pass the Merger Resolutions which the members are to be asked to approve. This chapter describes the role of the Prudential Regulator2 in approving the statements to members under Schedule 16 to the 1986 Act, in its prudential supervision of mergers, and in confirmation hearings. It also gives a broad indication of the way in which the Prudential Regulator2 may be expected to exercise its discretionary powers. Except as described in section 6, to which section 7 of this chapter also applies, this chapter is concerned only with voluntary mergers under Sections 93 and 94 of the 1986 Act.

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2The 1986 Act assigns most of the functions relating to Merger Procedures to "the appropriate authority". In order to clarify this the term "Prudential Regulator" is used throughout this chapter, including where guidance is being given.

The terms negotiated between the parties in a merger will be set out in a formal agreement. In the case of a transfer of engagements, Section 94(6) of the 1986 Act requires the extent of the transfer, and in practice the other agreed terms, to be recorded in an Instrument of Transfer. For an amalgamation, Section 93(2) of the 1986 Act requires the parties to agree on a Memorandum and Rules for the successor society, and each to approve the terms of the amalgamation by Merger Resolutions, so that there must be agreement on the terms. The Prudential Regulator1 will expect the Instrument of Transfer or amalgamation agreement to be signed before the Prudential Regulator1 approves the Schedule 16 statement, although it will be conditional on, among other things, approval by members and confirmation by the Prudential Regulator1. In both cases the boards of the societies will have approved the Instrument or agreement and the Schedule 16 statement and, in the case of an amalgamation, the Memorandum and Rules of the successor society. Before such approval by the boards, drafts of the proposed Memorandum and Rules should have been cleared with the FCA and the Prudential Regulator1. The Rules of transferee societies should provide that members of transferor societies are not disenfranchised for any period after the merger is effected (see BSOG 2.3.16 G and rule 4(9) of the BSA Model Rules 5th edition).

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A society's formal application to the Prudential Regulator1 for approval of a Schedule 16 Statement is likely to be the culmination of many weeks of discussion with the Prudential Regulator's1 staff who will have reviewed and commented upon a draft or successive drafts of the Statement, having had regard also to drafts of the Instrument of Transfer (or amalgamation agreement) and the prudential information described in BSOG 2.2.1Societies should also have cleared any proposed Rule changes or, in the case of an amalgamation, the proposed Memorandum and Rules of the successor society, with the FCA and the Prudential Regulator1. The probable sequence of events is described more fully in BSOG 2.81. The case where the Prudential Regulator1 has consented to a transferee society proceeding by board resolution, and thereby exempting it from the requirement to put Merger Resolutions, and sending a Schedule 16 Statement, to its members, is described in BSOG 2.4.41 G and BSOG 2.4.42 G.

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1Per section 93(2)(d) of the 1986 Act, in the case of an amalgamation, three copies of the proposed Memorandum and Rules of the successor society must also be sent to the FCA.

The parties in an amalgamation should make a joint application for confirmation to the Prudential Regulator2, 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 Prudential Regulator and the FCA2. The scrutineers report described in BSOG 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.

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2However, the FCA 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 FCA 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 Prudential Regulator will 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 Prudential Regulator usually asks the registration team to place copies on the public files of the participating societies.

When the Prudential Regulator has confirmed a merger (whether voluntary or under direction) it will notify the FCA and the societies concerned.

In the case of an amalgamation, the FCA1 is required to be satisfied as regards the proposed Rules, Memorandum and name of the successor society. The amalgamating societies are, therefore, advised to clear drafts of the proposed Rules and Memorandum with the FCA1 at an early stage (see BSOG 2.3.28 G). When they apply to the Prudential Regulator1 for confirmation under Section 93(2) of the 1986 Act, the amalgamating societies must send three signed copies of the Rules and Memorandum to the Prudential Regulator and the FCA1 (Section 93(2)(d)). If the FCA1 is satisfied on these matters it will, upon confirmation by the Prudential Regulator1, register the successor society and issue to it a certificate of incorporation specifying the date (the specified date) from which the incorporation takes effect, and will return to it one copy each of the Rules and Memorandum together with a certificate of registration. Copies are placed on the public file of the successor society.

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On the specified date of the amalgamation, all the property, rights and liabilities of the amalgamating societies are transferred to the successor society, the successor is given such permission under Part 4A1 of the Act as the Prudential Regulator1 considers appropriate, and the amalgamated societies are dissolved and their registrations cancelled by the FCA, having consulted the PRA1 (Section 93, sub-sections (4), (5) and (6) and Section 103(1) of the 1986 Act). In deciding on the appropriate terms of the permission for the successor society, the Prudential Regulator1 will have regard to the terms of the permissions of the amalgamating societies, including any limitations or requirements. It will also have regard to the business plan for the successor society.

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In the case of a transfer of engagements, the FCA1 will register a copy of the Instrument of Transfer and issue a registration certificate to the transferee society. A copy of the Instrument of Transfer and the registration certificate are placed on the public file of the transferee society. On the date specified in the registration certificate, the property, rights and liabilities of the transferor society are transferred to the transferee society, by virtue of Section 94(8) of the 1986 Act, the transferor society's authorisation is revoked by the FCA1, and the society itself is dissolved (Section 94(10)). The transferor society's registration is subsequently cancelled by the FCA, having consulted the PRA,1 under Section 103(1).

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The time taken to complete a merger will vary from case to case. As a general rule of thumb, it is unlikely that a merger can proceed from board decision through approval of the Schedule 16 Statement, general meeting and confirmation hearing, to the effective date, in less than 6 months. It is essential to the good and orderly management of a merger that the societies concerned meet with the Prudential Regulator's staff as soon as their boards have resolved to seek a merger, and agree upon a provisional timetable. This can then be fixed by the time the Schedule 16 Statement is approved. The members can then be notified, as they must be, of the date provisionally set for the confirmation hearing and of the proposed date of completion of the merger in the Merger Document.

Notes:

1. (1)

   Within the above timetable prudential information to be submitted.

2. (2)

   A significant amount of financial information needs to be assessed by the Prudential Regulator2 prior to approval of Schedule 16 Statement.

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3. (3)

   Prior to approval of Schedule 16 Statement a plan/timetable for integration of systems to be drawn up. Auditors sign off required prior to effective date.

4. (4)

   Where the Prudential Regulator is the PRA it is under a statutory obligation to consult the FCA (see section 95(6A) of the 1986 Act). This consultation will take place within the above timetable.2