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STATUTORY INSTRUMENTS
1991No. 702
BUILDING SOCIETIES
The Building Societies (Designated Capital Resources) (Permanent Interest Bearing Shares) Order 1991
Made
18th March 1991
Laid before Parliament
19th March 1991
Coming into force
1st June 1991
The Building Societies Commission, with the consent of the Treasury, in exercise of the powers conferred upon it by section 45(5) of the Building Societies Act 1986[1], hereby makes the following Order:-
Citation and commencement 1. This Order may be cited as the Building Societies (Designated Capital Resources) (Permanent Interest Bearing Shares) Order 1991 and shall come into force on 1st June 1991.
Interpretation 2.—(1) In this Order-
"the Act" means the Building Societies Act 1986;
"the applicable provisions" means section 97 of the Act and the other applicable provisions as therein described;
"the authorised sum" means such sum as is equal to the amount of payments which a society may accept by way of subscription for deferred shares without authorisation being required as may be from time to time permitted by section 9 (initial authorisation to raise funds and borrow money);
"crediting" in relation to interest shall not include the issue, in lieu of interest, of permanent interest bearing shares credited as fully paid by the application of reserves;
"creditors" in relation to a society extends to members holding shares in the society, other than deferred shares, as regards the principal of those shares and all interest due thereon in accordance with their terms;
"the first criterion" means the first criterion in section 45(3) (the criteria for prudent management) of the Act;
"issue terms" in relation to an issue of deferred shares means the provisions of a document which sets out or of a connected series of documents which set out the rights and obligations of a building society and of shareholders in respect of those shares;
"new deferred shares" means shares issued by a building society on or before the day on which this order comes into operation which are deferred shares as defined by the Building Societies (Deferred Shares) Order 1989[2];
"old deferred shares" means shares issued by a building society on or before 31st December 1986 on the terms set out in paragraph 2 of Schedule 1 to the previous regulations;
"permanent interest bearing shares" has the meaning assigned by article 4below;
"the prescribed terms" means the terms specified in Schedule 1 hereto and "the disqualifying terms" means the terms specified in Schedule 2 hereto;
"the previous regulations" means the Building Societies (Authorisation) Regulations 1981[3] or the Building Societies (Authorisation) Regulations (Northern Ireland) 1982[4];
"rate" in relation to interest means the rate per annum and "fixed rate", "floating rate", "market rate" and "stepped rate" have the respective meanings assigned by article 4(4);
"society" in relation to an issue of deferred shares means a society which proposes to issue, or as the case may be, has issued such shares;
"specified" means specified by issue terms; and
"subordinated debt", in relation to a successor company to which a building society transfers the whole of its business in accordance with the applicable provisions, means a sum in respect of which
(a) no repayment will be made to the creditor within a period not less than five years from the date of the transfer except with the consent of the Bank of England or in the winding up of the company, and
(b) no repayment will be made to the creditor in the winding up of the company except where at least all sums due from the company to other creditors claiming in the winding up of the company are paid to those creditors in full but for this purpose account need not be taken of debts to other creditors being debts which pursuant to any stipulation rank for payment only after debts which are not subject to any such stipulation.
(2) For the purposes of this Order a return on a share or deposit means the interest, dividend or combination of interest and dividend in respect of that share or deposit.
Capital resources which may be aggregated with reserves 3. Where a society has issued old deferred shares or new deferred shares and those shares remain in issue on the date on which this Order comes into force and the terms thereof would continue to be in compliance with the previous regulations or, as the case may be the Building Societies (Deferred Shares) Order 1989, those shares may for the purposes of the first criterion be aggregated with reserves but only so far as the nominal value of the shares so aggregated does not exceed £250,000.
4.—(1) Where a society has issued permanent interest bearing shares denominated in sterling, the amount paid up on those shares, or credited as paid up thereon by the application of reserves, may, subject to paragraph (2) of this article and to articles 5 and 6 below, for the purposes of the first criterion be aggregated with reserves.
(2) In the case of a society which is not authorised, the amount paid up on permanent interest bearing shares aggregated with reserves for those purposes shall not when taken together with any shares aggregated pursuant to Article 3 above exceed the authorised sum.
(3) In this article "permanent interest bearing shares" means shares which are -
(a) shares of a class defined by the Building Societies (Deferred Shares) Order 1991[5] as a class of shares defined as deferred shares for the purposes of section 119 of the Act;
(b) issued upon issue terms which provide for payment, subject to terms which have the effect of the prescribed terms, in respect of such periods as may be specified in the issue terms, of interest at a rate so specified which shall be
(i) a fixed rate;
(ii) a stepped rate; or
(iii) a floating rate
but which shall not be ascertained by reference to the profits of the society or any other factor other than a market rate;
(c) issued upon issue terms which have the effect of the prescribed terms without other terms or with only such other terms as are not inconsistent with the prescribed terms, and
(d) are not issued upon issue terms which have the effect of either of the disqualifying terms.
(4) In this article-
"a fixed rate" means a rate of interest which remains the same for so long as the shares remain outstanding;
"a stepped rate" means a rate of interest which increases or reduces from time to time by steps specified in time and amount;
"a floating rate" means a rate of interest which is ascertained by reference to a specified market rate or by reference to a specified market rate varied by a specified margin;
"a market rate" means
(a) a rate being one of, or an average of, any published rates of interest applicable from time to time for the purpose of calculating interest on debt or other financial obligation arising from transactions between institutions which are authorised for the purposes of the Banking Act 1987;
(b) a rate one of, or an average of, any published rates of interest applicable from time to time for the purpose of calculating interest payable on any class of securities issued in the United Kingdom by Her Majesty's Government;
(c) the rate of interest payable on such interest bearing shares in the society as have from time to time the lowest rate of interest; or
(d) the rate of interest payable on such interest bearing shares in the society as have from time to time the highest rate of interest.
Other shares not to be written down 5. The amount paid up on deferred shares shall not be aggregated with reserves for the foregoing purposes at any time at which the terms on which shares in the society other than deferred shares are held, whether contained in the society's rules or otherwise, enable those shares to be written down.
Effect of Commission consent to repayment 6. Where the Commission has given relevant consent for the purposes mentioned in the Schedule to the Building Societies (Deferred Shares) Order 1991, the principal money to which such consent relates shall cease to be aggregated for the foregoing purposes when such consent is notified by the Commission to the society whether or not those principal moneys are repaid pursuant to such consent.
Revocation 7. The Building Societies (Designated Capital Resources) (Deferred Shares) Order 1989[6] is hereby revoked.
In witness whereof the common seal of the Building Societies Commission is hereunto fixed and is authenticated by me, a person authorised under paragraph 14 of Schedule 1 to the Building Societies Act 1986, on 14th March 1991.
Norman Digance
Secretary to the Commission
We consent to this Order.
Thomas Sackville
Irvine Patnick
Two of the Lords Commissioners of Her Majesty's Treasury
