BSOG 3.6 Confirmation

No transfer can take effect until it has been confirmed by the Authority. This section first describes the form of application and public notice required. It then explains the Authority'sview of how the statutory Confirmation Criteria should be interpreted. Finally, it gives guidance on the procedure customarily followed by the Authoritywhen considering confirmation applications and hearing representations. Sections 97(4)(d) and 98(2) of, together with Part II of Schedule 17 to the 1986 Act, provide that when the necessary Transfer Resolutions have been passed the society must apply to the Authority for confirmation of the transfer in such manner as the Authority may direct. The society is also required, by paragraph 7 of Schedule 17, to publish notices of its application 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 society's members live.

The application should specify the date on which the transfer is intended to take effect and should be accompanied by two authenticated copies of the Transfer Agreement. The scrutineers' report described in section 3.5, and a certified copy of the minutes of the general meeting at which the Transfer Resolutions were moved, together with a transcript of the meeting, must also be enclosed with the application, together with 10 copies each of the Transfer Document and the Transfer Summary (if sent), and copies of all other documents sent to members and any advertising material in connection with the proposed transfer. If a Transfer Summary was sent, the application should also be accompanied by a checklist of the information prescribed by Schedule 2 to the Transfer Regulations showing where each item may be found in the Transfer Summary.

A pro forma public notice of application, and pro forma letter of application are at Annex 2. The appropriate fee is payable with the application, and a further fee is payable by the society if there is an oral hearing of the application, as prescribed by the Fees Rules.

Section 98(2) and (3) of the 1986 Act provides that the Authoritymust confirm a proposed transfer unless it considers that any one or more of the following four Confirmation Criteria apply:

1. (1)

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

2. (2)

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

3. (3)

   there is a substantial risk that the successor will not have -

   1. (a)

      such permission under Part IVof the Act or

   2. (b)

      such permission under paragraph 15 of Schedule 3 to the Act (as a result of qualifying for authorisation under paragraph 12 of that Schedule), as will enable it to carry on the business which it will have as a result of the transfer without being taken (by virtue of section 20 of the Act) to have contravened a requirement imposed on it by the Authorityunder the Act; or

4. (4)

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

Section 98(4) of the 1986 Act then provides that the Authorityshall not be precluded from confirming a transfer of business by virtue only of the non-fulfilment of some relevant requirement of the 1986 Act or the Rules (the Fourth Criterion in 3.6.4(4)) if it appears to the Authoritythat the failure could not have been material to the members' decision about the transfer, and the Authoritygives a direction under that subsection that the failure is to be disregarded. Section 98(7) then provides that a failure to comply with a relevant requirement of the 1986 Act or the Rules shall not invalidate a transfer, once confirmed.

Where the Authoritywould be precluded from confirming a transfer by reason of any of the defects specified in the Confirmation Criteria, Section 98(5) and (6) of the 1986 Act provides that it may direct a society to remedy the defects. A direction under Section 98(5) may, amongst other things, require a society to:

1. (1)

   call a further meeting; for example, to vote again in the light of a revised Transfer Statement containing material information previously omitted or after correction of defects in the systems for sending meeting notices and Transfer Statements or Transfer Summaries and validation of votes;

2. (2)

   secure the variation of the Transfer Agreement; or

3. (3)

   secure the alteration of the protective provisions in the articles of association of a specially formed successor company.

If the Authorityis then satisfied, having considered evidence furnished by the society, that the defects have been substantially remedied, it must confirm the transfer. If not, then confirmation must be refused.

The Authority'spowers in connection with applications for confirmation of a transfer are confined to considerations of whether, in the light of the facts, any of the Confirmation Criteria apply. It is not for the Authorityto consider, or make judgements about, the merits of a proposed transfer 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 transfer and its terms, the Authorityhas no powers to require a society to make any changes to those terms, although it may direct a society to remedy any failure to comply with a relevant requirement of the 1986 Act as a condition of confirmation.

The Authorityhas no general power to determine disputes between a society and its members, nor to seek to enforce other legislation or the general law. Disputes concerning 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 Scheme. Disputes between a building society and a member of the society, in his or her 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 certain members, 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 other 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 (paragraph 15 of Schedule 2 to the 1986 Act). A fee is payable by the applicant. Chapter 1A of this Guide gives guidance on applications for access to the register of members.

The purpose of the confirmation process is to enable:

1. (1)

   interested parties to make representations with regard to the Confirmation 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 each of the Confirmation Criteria.

The Authority, in reaching its view on each of the Confirmation Criteria, has not only to assess 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 mischiefs 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 causing the board of a society to take care during the preparation of the Transfer Statement not to put confirmation at risk on this account; otherwise the Authoritymight find that it had 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 Transfer Statement and Transfer Summary.

The task of the Authorityis accordingly:

1. (1)

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

2. (2)

   if that view is that none applies, to confirm;

3. (3)

   if one or more of the First Three Criteria apply, to direct the appropriate remedial action, or to refuse confirmation;

4. (4)

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

In considering the Confirmation Criteria, the Authoritymay well have to look again at the Transfer Statement, or at issues which were considered in connection with approving that Statement. It may also then have to consider the adequacy of the Transfer Summary. 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 consideration of the Criteria. The Authority would clearly only change the view reached at the time of approval of the Transfer Statement if there were good reason 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 Authority cannot 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 Transfer Statement or as to the accuracy of its contents or the view taken as to the legality of the scheme.

The task of considering each of the Confirmation Criteria would still be necessary even if there were no representations. Without such enquiry and consideration the confirmation process would not properly be carried out. The Authority'sview of how the Confirmation 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 Authority'sown view, in which it concurs with the view previously adopted by the Commission in its confirmation decisions, can be summarised 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 the 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 Authority'sapproach to determining whether this criterion is met is accordingly:

1. (1)

   to review the material put to members, in the light of the 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 Transfer Resolutions do not represent the views of the members. The main mischief to which it appears to be directed is a resolution approved by a small and unrepresentative vote.

This criterion is concerned with a matter of fact, to be established by reference to the Banking Regulator if a different body.

This criterion requires the Authority to consider whether the relevant requirements of the 1986 Act and the Rules have been fulfilled. The phrase "relevant requirement of this Act or the rules of the society" appears explicitly three times in Section 98 of the 1986 Act:

1. (1)

   sub-section (3)(d) in the specification of this criterion;

2. (2)

   sub-section (4) which gives the Authority power to disregard certain non-fulfilments;

3. (3)

   sub-section (7) which provides that a failure to meet such a relevant requirement shall not invalidate a transfer of business, 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 (5) - the power of the Authorityto give the society a direction to remedy defects specified in paragraphs (a) to (d) of sub-section (3).

Sub-section (8) defines "relevant requirement":

"(8) In this section "relevant requirement", with reference to this Act or the rules of a society, means a requirement of the applicable provisions of this Act or of any rules prescribing the procedure to be followed by the society in approving the transfer and its terms."

Section 97(2) in turn defines "the applicable provisions" other than Section 97 as:

"section 98, section 99, section 99A, section 100, section 101, section 102, sections 102B, 102C and 102D, paragraph 30 of Schedule 2 and Schedule 17."

It will be noted that Section 102A (joint account holders) of the 1986 Act is not an applicable provision and, thus, not a relevant requirement.

The Authorityconsiders that sub-section (8) of Section 98 should be read naturally. The words "prescribing the procedure to be followed by the society in approving the transfer and its terms" 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 Section 97(2).

In the Authority'sview, the above interpretation of "relevant requirement of the 1986 Act" stems from the natural construction of Sections 98(8) and 97(2) which, in turn, is necessary to give effect to Parliament's intentions for Section 98(5), (6) and (7). The Authorityrecognises that this interpretation does not quite fit Section 98(4). The test which the Authorityhas to apply in the case of sub-section (4) 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 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 98 is such that no construction of the phrase is entirely free from difficulty. The Authority's view is that the wording, and the intentions of Parliament, are best met by following the natural construction of sub-section (8), as a result applying a wide interpretation in sub-sections (3), (5) and (7), and implicitly in (6), but only considering that it is open to the Authority to make a direction under sub-section (4) in relation to non-fulfilment of a procedural requirement or other failure to which the test in that sub-section is apposite.

The Authorityaccordingly considers that the relevant requirements are those in:

1. (1)

   sections 97 to 102, and 102B to D of, together with paragraph 30 of Schedule 2 to and Schedule 17 to the 1986 Act;

2. (2)

   the Transfer Regulations; and

3. (3)

   the Rules 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 confirmation proceedings is prescribed by Part II of Schedule 17 to the 1986 Act. Any interested party has the right to make written and/or oral representations to the Authoritywith respect to a society's application for confirmation. Written representations are to be copied to the society, which is to be afforded the opportunity to comment on them orally at the hearing of its application or in writing. (The FSA will 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 Confirmation Criteria discussed above. Notice of a person's intention to make oral representations must be in writing. Such notices and written representations must reach the Authorityat the address, and by the specified date customarily given in the Transfer Document issued to members and subsequently confirmed by notice published in the official Gazettes and newspapers as required by the 1986 Act. Persons who make written representations but 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 Authority to raise matters of substance relevant to the Confirmation 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 the chapter of this Guide on confirmation procedures to each representer. It will send copies of all written representations and notices to the society and will afford it an opportunity to comment on the written representations.

The Authoritywill consider the written representations in category 3.6.24(1)and the society's responses to them in advance of the date set for hearing oral representations. Copies of the society's comments on representations in category 3.6.24(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. A person making written representations who also wishes to see the society's response must, therefore, also give notice of intention to make 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 3.6.24(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 Authoritywill usually appoint one or more persons to hear and decide an application on its behalf. In the absence of notices of intention to make oral representations the Authoritywould expect to decide the application, having regard to the written representations, the society's responses and other information available to it, without the need for a public hearing. If there is a public hearing, an additional fee is payable by the society.

The Authoritywill notify the society 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 of when the society's representatives may be expected to respond.

The Authority expects 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 Authority may 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. Only the representatives of the society and those who have given due notice of intention to make oral representations may address the Authority.

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 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 chairman of the Authoritypanel will introduce the proceedings;

3. (3)

   the representatives of the society will be invited to present the application for confirmation, including a description of the events at the meeting at which the Transfer Resolutions were put to the members, the voting on the Resolutions, and 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 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 society's replies insofar as those replies raised new issues.

This 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 necessary to enable facts to be checked or additional information to be obtained.

The Authoritywill not normallygive an oral decision at the end of the hearing, but may be expected toreserve its decision to be issued later in writing, setting out its reasons. Copies of the written decision will be sent to the participants, and can be purchased by any other person. The Authoritywill ask the registration teamto place a copy on the public file of the society.