Jersey Unreported Judgments

Banking- representation seeking Court's sanction of scheme of transfer

[2015]JRC138

Royal Court

(Samedi)

25 June 2015

Before     :

J. A. Clyde-Smith, Esq., Commissioner, and Jurats Kerley and Olsen

IN THE MATTER OF THE REPRESENTATION OF ABBEY NATIONAL INTERNATIONAL LIMITED (FIRST REPRESENTOR) AND SANTANDER UK PLC (SECOND REPRESENTOR)

AND IN THE MATTER OF AN APPLICATION PURSUANT TO ARTICLE 48D OF AND THE SCHEDULE TO THE BANKING BUSINESS (JERSEY) LAW 1991

Advocate F. B. Robertson for the Representors

judgment

the commissioner:

1.        On 8^th May, 2015, upon the representation of the representors, the Court sanctioned a proposed scheme of transfer ("the Scheme") under the Banking Business (Jersey) Law 1991 ("the Banking Law").

2.        Abbey National International Limited ("ANIL") provided private banking and savings services in Jersey.  ANIL is a wholly owned subsidiary of Santander UK plc ("Santander UK") which is the main UK operating company of the Santander UK group of companies ("Santander UK Group").  The Santander UK Group wished to consolidate its business operations in Jersey (with limited exceptions) in order to simplify its corporate structure in Jersey and realise operational efficiencies that would reduce its cost base.  The consolidation involved the transfer as a going concern of all deposit-taking business carried on by ANIL and all property, assets and liabilities of ANIL to Santander UK, acting through its Jersey branch ("the Jersey Branch"), with very limited exceptions for excluded property as defined in the Scheme ("the Transferring Business"). 

3.        All assets and liabilities relating to the Transferring Business would be transferred to the Jersey Branch, including over £1.905 billion of customer deposits.  In practical terms, the transfer would be implemented with no impact on the day to day operation of customer accounts and no degradation in service levels. 

The Legal Framework

4.        Article 48D of the Banking Law provides that the Schedule to the Banking Law ("the Schedule") has effect to regulate any transfer of deposit-taking business from one registered deposit taker to another.  Both ANIL and the Jersey Branch are registered by the Jersey Financial Services Commission ("JFSC") to undertake deposit-taking business. 

5.        The Schedule requires that the sanction of the Court be obtained to any scheme where the whole or part of the deposit-taking business carried on in or from within Jersey is to be transferred from one registered person to another.  The Schedule provides in particular that the court shall not determine any application for sanction unless the Court is satisfied that:-

(i)        An independent auditor's report has been obtained (Paragraph 3 of the Schedule);

(ii)       Appropriate notice has been given (Paragraph 4 of the Schedule); and

(iii)      The transferee is authorised to carry on the deposit-taking business to be transferred under the Scheme (Paragraph 7 of the Schedule). 

6.        The principles to be considered by the Court in the exercise of its discretion to sanction a scheme under the Banking Law were considered in the case of Re Standard Chartered (Jersey) Limited [2013] JRC 210 and confirmed in Re Barclays Private Bank and Trust Limited [2014] JRC 161.  In the Standard Chartered case, the Royal Court applied the principles which had been applied previously in the analogous cases for the transfer of insurance business as set out in Re AXA Equity and Law Life Assurance Society [2001] 1 All ER (Comm) 1010, which was cited by Birt, Bailiff, in the Representation of Royal London 360 Limited and Royal London 360 Insurance Company Limited [2011] JRC 192:-

"...and we would take the opportunity of transposing what Evans-Lombe J said in that case into the Jersey context so that in our judgment the principles to be applied in such cases are as follows:-

(i)        the 1996 Law confers an absolute discretion on the Court whether or not to sanction a scheme but this is a discretion which must be exercised by giving due recognition to the commercial judgment entrusted by the company's  constitution to its directors;

(ii)       the Court is concerned whether a policyholder, employee or other interested person or any group of them will be adversely affected by the scheme;

(iii)      this is primarily a matter of actuarial judgment involving a comparison of the security and reasonable expectations of policyholders without the scheme with what would result if the scheme was implemented.  For the purposes of this comparison the 1996 Law assigned an important role to the independent actuary to whose report the Court will give close attention;

(iv)      the Jersey Financial Services Commission, by reason of its regulatory powers, can also be expected to have the necessary material and expertise to express an informed opinion on whether policy holders are likely to be adversely affected.  Again the Court will pay close attention to any views expressed by the Jersey Financial Services Commission;

(v)       but the fact that individual policyholders and groups of policyholders may be adversely affected does not mean that the scheme has to be rejected by the Court.  The fundamental question is whether the scheme as a whole is fair as between the interests of the different classes of persons affected.

(vi)      It is not the function of the Court to produce what, in its view, is the best possible scheme as between different schemes all of which the Court may deem fair.  It is the company's directors choice which to pursue.

(vii)     Under the same principle the details of the scheme are not a matter for the court provided that the scheme as a whole is found to be fair.  Thus the Court will not amend the scheme because it thinks that individual provisions could be improved upon."

Directions

7.        At a hearing on 13^th March, 2015, the Court had given directions and granted certain dispensations from the requirements set out in paragraph 4 of the Schedule (i.e. the requirement to send a statement to each of the customers and to each of the members of ANIL and the Jersey Branch). 

8.        The third affidavit of Mr Colin Andrew Huelin, the Managing Director of ANIL, set out the steps which had been taken by the representors to comply with the directions and, in particular, dealt with the publishing of a notice in the Jersey Gazette, the notification of ANIL customers, the service of documents on the JFSC, the documents on display and the response to written requests for documents. 

9.        The representors had ensured that notice of the proposed transfer has been provided to all of the employees of ANIL (whether they are being transferred or not) and to transferring counterparties and creditors of ANIL.  In addition to the formal notifications which had been given, the representors had also advertised the Scheme in ANIL's website. 

10.      We were satisfied that the representors had complied with the directions given by the Court and with the requirements of paragraph 4 of the Schedule. 

Responses to Notifications

11.      At paragraph 18 of his third affidavit, Mr Huelin outlined the responses which had been received to the various notifications.  In total, and by the date of the hearing (the Court having been updated as to the position by Advocate Robertson during the course of oral submissions), 156 persons contacted ANIL out of 18,482 customers who were sent letters, of which four were ANIL employees, and 152 were transferring customers.  Of the 152 transferring customers:-

(i)        149 sought information of a general nature about the Scheme;

(ii)       Three raised objections to the Scheme. 

12.      On 30^th April, 2015, a Mr W attended the offices of Santander and raised an objection on the basis that the deposit guarantee given by Santander UK, would fall away under the Scheme.  This objection was misconceived.  Santander UK had guaranteed the payment of all deposits made with ANIL.  On the transfer of those deposits to Santander UK, the guarantee would fall away as Santander UK cannot guarantee what will then be its own obligations.  If anything, the position of depositors is improved, as they will be able to have direct recourse to Santander UK as opposed to recourse through a guarantee. 

13.      A Mr B raised an objection to the Scheme in an email dated 30^th April, 2015, which had various online articles attached to it.  The primary basis of his objection was the transfer of data relating to him as a client from ANIL to the Jersey Branch and potentially to Santander in the UK as a consequence of the Scheme. 

14.      The position in relation to data was clearly set out in the client leaflet and whilst it is probably fair to say that in certain circumstances data may be shared by the Jersey Branch with Santander in the UK, it remains subject to Santander UK's strict confidentiality policies.  Mr B's concern appears to relate not so much to the possibility of the Inland Revenue being able to lawfully gain access to that data within the UK, as to his assertion that Santander UK is "notorious for its inability to keep customers' data and information secure."  In support of this assertion he cited online reports of frauds committed upon customers of Santander UK where they had been tricked by phone into transferring funds out of their accounts, but to our knowledge, such frauds have been committed on customers of other banks; it is not a phenomenon limited to customers of Santander UK.  He also cited a "Trustpilot Santander Review" in which a limited number of customers of Santander UK had made a number of unverified complaints about service generally, the implication being that customers of ANIL would get a worse service with Santander UK than they enjoy at present.  We had not seen Santander UK's response to those complaints, but we felt that such complaints would be fairly representative of those received by any large banking institution (Santander UK has over 14,000,000 active customers). 

15.      Mr B also complained about the time given to him to respond to the documentation he received.  This was sent to him at his correspondence address on 19^th March, 2015, but Mr B's correspondence address is different from his residential address and this would seem to account for any delay in him receiving it.  In any event on the 30^th April, 2015, he was able to send a detailed email on to the Court. 

16.      As Advocate Robertson pointed out, if Mr B (or indeed any other customer) was concerned in relation to the Scheme, he is able to close his account and ANIL had waived any notice requirements should he wish to do so at short notice. 

17.      A Mr G was concerned that the deposits with Jersey Branch would not be covered by the Financial Compensation Scheme under the UK Financial Service and Markets Act 2000, but there would in fact be no change in the protection given to depositors.  Customers of ANIL were entitled to compensation in accordance with the Banking Business (Depositors' Compensation) (Jersey) Regulations 2009 and as customers of the Jersey Branch, they would have precisely the same protection.  They never had protection under the UK Compensation Scheme and that will remain the position once they are transferred to the Jersey Branch - in other words, there was no change. 

18.      In our view those few customers who objected to the Scheme were not in reality adversely affected by it.  The number of objections received was proportionately very small when set against the total number of customers involved, and the evidence showed that the ANIL management team have carried out a very detailed customer impact analysis, which concluded that the Scheme as a whole, including its implementation, was fair to those customers who would be transferred.  No action was required by them to continue to operate their accounts and enjoy products and services in accordance with their existing mandates and instructions, and there was no planned material change in the personnel or relationship managers providing those services.  In essence, continuity of service would be preserved. 

Jurisdiction

19.      The case of Re Standard Chartered (Jersey) Limited [2013] JRC 172 is authority for the proposition that the Court can sanction the transfer of a business which is integral to the deposit taking business under the Scheme and has not been artificially grafted on to the deposit taking activity in order to get through the jurisdictional gateway.  The other banking services offered by ANIL were clearly integral to the deposit taking business.  We noted that the Transferring Business included the transfer of historic liabilities which may relate to historic activities such as investment business and general insurance mediation business which, although wider than the deposit taking business currently undertaken by ANIL, were at the time they were carried out integral to the overall banking business carried out by ANIL, as made clear in Mr Huelin's first affidavit.  As a result, we were satisfied that it was within the Court's jurisdiction to transfer the historic liabilities of ANIL alongside the Transferring Business. 

Sanction

20.      The report from the independent auditor, Deloitte LLP ("the Independent Auditor") dated 14^th April, 2014, ("the Report") confirmed that:-

(i)        the financial information supplied to the Independent Auditor by the representors had been accurately extracted from the accounting and other records of the representors;

(ii)       nothing had come to the attention of the Independent Auditor which would indicate a materially adverse effect on the financial position of ANIL or the Jersey Branch, or that would indicate that ANIL or the Jersey Branch would not have the ability to meet their liabilities following the proposed transfer of business in accordance with the terms of the Scheme; and

(iii)      the proposed transfer of business in accordance with the terms of the Scheme would not appear to disadvantage customers or creditors of ANIL and the Jersey Branch as a whole. 

21.      The Independent Auditor had confirmed that nothing had since been brought to its attention which, had it known about, would have materially altered the contents of its report.  The requirements of Paragraph 3 of the Schedule to the Banking Law were thus satisfied. 

22.      As previously mentioned the representors have also considered additional factors which fell outside the scope of the Independent Auditor's report and had concluded that the Scheme as a whole including its implementation was fair to those customers transferring.  In essence, Santander UK has a credit rating when ANIL has none, it offered a strong covenant, and the services for transferring customers would remain the same. 

23.      The proposed transfer was, in reality, an intra-group transfer.  The transfer of the private banking business carried out by ANIL to the Jersey Branch would result in customers, counterparties, creditors and the majority of the employees of ANIL transferring to the principal operating company within the Santander UK Group.  This transfer would be carried out with no material change in the products or service levels enjoyed by customers.  The Jersey Branch as part of Santander UK has a diversified portfolio operating across many jurisdictions, has a significantly larger net balance sheet than ANIL and strong credit ratings, thereby presenting customers and creditors with a strong counterparty.  As at 31^st December, 2014, Santander UK had a total deposit business of £142 billion (Santander UK plc annual report 2014 as at 31^st December, 2014).  The total customer deposits of ANIL were under £2 billion.  The Transferring Business therefore represented a very small percentage of the total business of Santander UK (approximately 1.4% of total deposit business as at 31^st December, 2014) which, as set out in the Independent Auditor's report, enjoys capital adequacy and liquidity ratios above the relevant regulatory requirements. 

24.      The Representors had consulted with the JFSC throughout the transfer process and the JFSC had confirmed in writing that, having considered the proposed Scheme and the conclusions of the Independent Auditor, it did not have any objections or specific comments to make concerning the provisions of the Scheme.  The JFSC representative attended the hearing and had no comments to raise, in particular in relation to the few objections that had been received. 

25.      The Jersey Branch was appropriately authorised to conduct the deposit-taking business to be transferred and thus Paragraph 7 of the Schedule was satisfied. 

26.      Accordingly we found that:-

(i)        We had jurisdiction to sanction the Scheme;

(ii)       The requirements of the Schedule to the Banking Law had been complied with; and

(iii)      We should exercise our discretion to sanction the Scheme because:-

(a)       no interested party had been shown to be adversely affected by the Scheme but to the very limited extent that there had been objections, the Scheme was fair as between the different persons affected by it and was fair as a whole;

(b)       it was supported by the JFSC; and

(c)       the representors had carefully exercised their commercial judgment in devising the Scheme. 

27.      In the circumstances, we sanctioned the Scheme pursuant to Article 48D and the Schedule and ordered accordingly. 

Authorities

Banking Business (Jersey) Law 1991.

Re Standard Chartered (Jersey) Limited [2013] JRC 210.

Re Barclays Private Bank and Trust Limited [2014] JRC 161.

Re AXA Equity and Law Life Assurance Society [2001] 1 All ER (Comm) 1010.

Representation of Royal London 360 Limited and Royal London 360 Insurance Company Limited [2011] JRC 192.

Banking Business (Depositors' Compensation)(Jersey) Regulations 2009.

Re Standard Chartered (Jersey) Limited [2013] JRC 172.