Jersey Unreported Judgments

Banking - application by the representors for the Court's sanctioning of the scheme and orders for transfer.

[2016]JRC161

Royal Court

(Samedi)

12 September 2016

Before     :

J. A. Clyde-Smith, Esq., and Jurats Olsen and Sparrow

IN THE MATTER OF THE REPRESENTATION OF BARCLAYS PRIVATE CLIENTS INTERNATIONAL LIMITED (FIRST REPRESENTOR) AND BARCLAYS BANK 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 M. P. Cushing for the Representors.

judgment

the commissioner:

1.        On 27st July, 2016, the Court sanctioned a transfer within the Barclays Group under the Banking Business (Jersey) Law 1991 ("the Banking Law"). 

2.        The Barclays Group is a major global financial services provider engaged in personal and retail banking, credit cards, corporate and investment banking and wealth and investment management.  It wished to re-structure and consolidate its business operations in Jersey in order to simplify its business and corporate structure and realise capital and operational efficiencies as part of a wider re-structuring of the business. 

3.        The first representor, Barclays Private Clients International Limited ("BPCI"), an Isle of Man registered company, undertakes certain deposit-taking and associated business in and from within Jersey through its Jersey branch.  It is a wholly owned subsidiary of the second representor, Barclays Bank PLC ("BBPLC"), a UK registered company which is in turn wholly owned by Barclays PLC. 

4.        The re-structuring involves a transfer as a going concern of all Banking Business, Investment Business, Fund Services Business, Money Services Business, and General Insurance Mediation Business ("the Businesses") carried on by the Jersey branch of BPCI and all property, assets and liabilities of the Jersey branch of BPCI related to the Businesses, to the Jersey branch of BBPLC, with limited exceptions.  Alongside the Jersey scheme, a separate transfer scheme will be effected in the Isle of Man in relation to BPCI's Isle of Man business and there will be a separate contractual transfer of BPCI's Guernsey business, in each case to the respective Isle of Man and Guernsey branches of BBPLC.  The intended effect is that the whole of BPCI's business (whether conducted in Jersey, Guernsey or the Isle of Man) will, with limited exceptions, be transferred to BBPLC. 

5.        The Jersey transfer will include the transfer of client deposits, loans and advances to clients and assets under management. 

6.        The applications were supported by detailed affidavits by Paul James Savery and Emiko Claire Caerlewy-Smith on behalf of BPCI and Nigel Mark Riley on behalf of BBPLC. 

The legal framework

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

8.        The Schedule to the Banking Law requires the sanction of the Court 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 an independent auditor's report has been obtained (paragraph 3 of the Schedule), appropriate notice has been given (paragraph 4 of the Schedule) and the transferee is authorised to carry on the deposit-taking business to be transferred under the scheme (paragraph 7 of the Schedule). 

The jurisdiction of the Court

9.        As Article 48D provides that the Schedule shall have effect to regulate any transfer of deposit-taking business from one registered deposit-taker to another, it is the Schedule therefore to which the Court must have regard in terms of its jurisdiction.  Under the Schedule, the Court is involved in two processes, firstly, whether or not to make an order sanctioning the Scheme put to it and secondly, in any order sanctioning the Scheme or by subsequent order, to make provision for all or any of the matters set out in paragraph 9 of the Schedule which is in these terms:-

"9       Where the Court makes an order under this Schedule sanctioning a scheme, the Court may, either by that order or by a subsequent order, make provision for all or any of the following matters -

(a)       the transfer to the transferee of the whole or a part of the undertaking and of the property or liabilities of the transferor;

(b)       the allotting or appropriation by the transferee of any shares, debentures, policies, deposits or other like interests in the transferee which under the scheme are to be allotted or appropriated by the transferee to or for any person;

(c)       the continuation by or against the transferee of any legal proceedings pending by or against the transferor;

(d)       the dissolution, without winding up, of the transferor;

(e)       such incidental, consequential and supplementary matters as are necessary to secure that the scheme shall be fully and effectively carried out."

10.      In Re Standard Chartered (Jersey) Limited [2013] JRC 172, the scheme put to the Court concerned a transfer of an investment management business carried on by Standard Chartered in Jersey in addition to the transfer of the deposit-taking business.  The question arose as to whether the language of Article 48D (i.e. the language of the Schedule) was restricted, so that only transfers of deposit-taking businesses could be sanctioned, and nothing else.  At paragraph 26 of the judgment, Clyde-Smith, Commissioner, reached this conclusion: -

"26     In my view, provided the non-deposit taking activities are integral to the business to be transferred and have not been artificially grafted on to a deposit-taking activity in order to get through the jurisdictional gateway, the Court can exercise its discretion to sanction the scheme.  From the description of the business of Standard Chartered Jersey given to me, which is distilled above, it is clear that the deposit-taking and investment management services are integral to each other, managed on a unitary basis and could not be separated without fundamentally altering the business proposition and model.  On that basis there does not seem to be any good reason for the Court to decline to sanction the Scheme on structural grounds."

11.      The Court went on to find that even if its jurisdiction to sanction the Scheme under the Schedule was restricted to pure deposit-taking transfers, then having sanctioned such a restricted Scheme, it could still order the transfer of the investment management services business under the provisions of paragraph 9(e) of the Schedule.  Quoting from paragraph 31 of the judgment: -

"31     Thus, in this case and adopting the same settled wider interpretation, because of the inter-connected nature of the private banking business of Standard Chartered Jersey it would, in my view, be entirely proper to utilise the supplementary provisions to effect the transfer of the investment management services (including those of the legacy Swiss customers referred to above) so that the customers of the deposit-taking business can continue to receive the services the account mandate entitle them to as a matter of contract."

12.      In this case, in addition to the Banking Business (i.e. deposit-taking, lending and other banking business) undertaken by the Jersey branch of BPCI, it is intended that the Investment Business, Fund Services Business, Money Service Business and General Insurance Mediation Business carried on by the Jersey branch of BPCI will be transferred under the Scheme. 

13.      In his first affidavit Mr Savery explained that as part of its business offering, the Jersey Branch of BPCI provides both deposit-taking and Investment Business services to its clients and those services are provided under standard account opening mandates which govern both the provision of Investment Business services and the opening of the related deposit accounts.  Further, as part of its activities as an investment adviser, the Jersey branch of BPCI acts as a distributor of funds pursuant to which it provides clients with information in respect of funds for which it acts as distributor.  When a client of the Jersey branch of BPCI uses its Investment Business services, a deposit account is opened in order to receive any dividends or income generated from the investments and to hold settlement funds in respect of those investments.  Furthermore, client accounts are used as collateral to fund obligations in respect of Investment Business. 

14.      Mr Savery stated that from a practical perspective, it is not possible to separate the deposit-taking business carried on by the Jersey branch of BPCI for its clients from the Investment Banking Business and Fund Services Business.  Those businesses are integral to the deposit-taking business which is intended to be transferred and could not be separated without fundamentally altering the business model and, of course, the service delivered to clients. 

15.      Mr Savery also explained that the Money Service Business (which includes foreign exchange services and foreign payments) and the General Insurance Mediation Business (under which ancillary services are provided to, for example, home loan clients), both of which constitute a very small fraction of the business carried on by the Jersey branch of BPCI, are also integral to BPCI's deposit-taking business. 

16.      The Court accepted the evidence of Mr Savery, and agreed that the non-deposit-taking activities of the Jersey branch of BPCI which it is proposed will be transferred pursuant to the Scheme are integral to the deposit-taking business and have not been artificially grafted on to the deposit-taking business in order to get through the jurisdictional gateway under the Schedule to the Banking Law. 

17.      The Court concluded that it had jurisdiction under the Schedule to sanction the transfer of the Banking Business together with the Investment Business, Fund Service Business, Money Service Business and General Insurance Mediation Business. 

Sanction - the relevant principles

18.      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 (at paragraph 11), the Royal Court applied the principles which have been applied in the analogous case of schemes of transfer of insurance business as set out in Re AXA Equity and Law Life Assurance Society [2001] 1 All ER (Comm) 1010, which case 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 companies' 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)       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 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."

19.      On 19^th May, 2016, the Court had given directions and granted certain dispensations from the requirements set out in paragraph 4 of the Schedule to the Banking Law (i.e. the requirement to send a statement to each of the customers and to each of the members of BPCI and BBPLC).  The Court was satisfied that those directions had been complied with, dealing in particular with publication of the Gazette notice, notification to customers of the Jersey branch of BPCI, notification to members of BPCI and BBPLC, service of documents on the JFSC, documents being put on display and responses to written requests for documents. 

20.      The representors had undertaken certain additional steps-

(i)        Giving notice of the Scheme to all of the employees of the Jersey branch of BPCI and to material counterparties and creditors of the Jersey branch of BPCI. 

(ii)       Publishing the proposals regarding Scheme, the statement summarising the terms of the Scheme and the Independent Auditor's Report dated 3rd May 2016, on the Barclays' website. 

Responses to notifications

21.      Of the 20 persons who contacted the representors about the Scheme, all bar one raised queries that had been resolved to their satisfaction.  That one person had raised an objection to the Scheme on the basis that the proposed transfer to BBPLC suggested that she was no longer a "private client".  The representors have confirmed to her that service levels and her status as a client would not change as a result of the transfer. 

22.      No one attended the hearing to object to the Scheme being sanctioned. 

Sanction

23.      The Court was satisfied that the formalities required by the Schedule to the Banking Law had been complied with.  The report from the independent auditor dated 3rd May 2016 had confirmed that: -

(i)        Nothing had come to the attention of the independent auditor to indicate that either the transferor or transferee would not have the ability to meet their liabilities after the proposed transfer of business in accordance with the Scheme; and

(ii)       The proposed transfer of business in accordance with the terms of the Scheme would not appear to disadvantage the customers or creditors of the transferor and transferee as a whole. 

24.      A letter had been obtained from the independent auditor dated 15^th July, 2016, confirming that no matters had been brought to the independent auditor's attention by key management that would have changed the contents of the report it had issued.  The finance director of the Jersey branch of BPCI had also confirmed to the independent auditor that there were no items impacting the liquidity or capital requirements of the Jersey branch of BPCI and there had been no significant developments or events that had taken place since the date of the independent auditor's report that would impact that report. 

25.      The representors had also considered additional factors which fell outside the scope of the report of the independent auditor.  Those factors included a client impact analysis, the consideration of tax implications arising from the proposed transfer and an assessment of the risks associated with the Scheme.  Having considered those factors, the representors had concluded that the Scheme is fair to the clients of the Jersey branch of BPCI as a whole. 

26.      The representors had also considered the recent decision made in the UK referendum in relation to the European Union membership and had concluded that they are satisfied that the decision by the UK to leave the European Union does not have any impact on the proposed transfer or on clients of the Jersey branch of BPCI as a result of the Scheme. 

27.      Two issues were identified and addressed by the representors at the hearing: -

(i)        In his first affidavit, Mr Savery had explained that as a bank incorporated in the UK, BBPLC is subject to the UK Banking Act 2009, part of which implements, in the UK, the EU Bank Recovery and Resolution Directive (Directive 2014/59/EU).  There is therefore a requirement upon BBPLC (but not BPCI) for contracts to which it is party governed by a non-EU Law to be amended to recognise and give effect to the Bank of England's bail-in power, by the insertion of contractual bail-in wording.  These amendments will be made by notice pursuant to existing contractual powers, as opposed to the scheme itself, but it was considered appropriate to include notice of these amendments in the Client Guide provided to clients of the Jersey branch of BPCI.  It transpired that this notice did not correctly identify those corporate clients of BPCI to whom the bail-in powers will apply in the event that their accounts are transferred to the Jersey branch of BBPLC.  Furthermore, there are further changes to customer terms and conditions that may be required as a result of further rules issued by the Prudential Regulatory Authority.  The representors proposed to deal with these matters contractually in a manner to be agreed with the JFSC.  The clients of the Jersey branch of BPCI that are detrimentally affected by the changes to be made to the categories of clients to whom the bail-in provisions apply will be permitted to reduce or withdraw their deposits without charge. 

(ii)       It transpired that notice of the Scheme had not been given to some 114 guarantors/third party security providers of the Jersey branch of BPCI.  Whilst there is no obligation to provide individual notification to guarantors/third party security providers under the terms of the Banking Law and the guarantors/third party security providers are not considered to be material counterparties in the context of the scheme as a whole, the representors proposed to give notice of the Scheme to those guarantors/third party security providers, notwithstanding the fact that provisions had already been included in the Scheme to mitigate any potential detriment that might be suffered by such guarantors/third party security providers by the transfer pursuant to the Scheme (for example, by disapplying certain set-off and other contractual terms which might have otherwise adversely affected such guarantors/third party security providers).  Any objections, complaints and/or queries received from those providers would be dealt with in accordance with the internal policies and procedures for dealing with general complaints. 

28.      Representatives of the JFSC present in Court confirmed that they had no objection to the manner in which the representors intended to deal with these two issues. 

29.      As stated in the Re AXA Equity case, in the exercise of the Court's discretion, due recognition must be given to the commercial judgment entrusted by the constitutions of the representors to their directors.  This is an intra-group transfer proposed for the bona fide purpose of the reconstruction and consolidation of the two branches concerned, which has been approved by the JFSC and to which no one has made any material objection. 

30.      The Court therefore sanctioned the scheme and made orders for the transfer which will take effect on 1^st October, 2016. 

Authorities

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

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.