Jersey Unreported Judgments

Banking

[2024]JRC157

Royal Court

(Samedi)

12 July 2024

Before     :

A. R. Binnington, Esq., Commissioner, and Jurats Christensen and Opfermann

 

IN THE MATTER OF BUTTERFIELD BANK (JERSEY) LIMITED ("BBJL")

AND IN THE MATTER OF BUTTERFIELD BANK (GUERNSEY) LIMITED ("BBGL")

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

Advocate R. D. J. Holden for the Representors.

judgment

the COMMISSIONER:

The application

1.        On 14 May 2024, we approved an application by the Representors for the Court's sanctioning of a scheme ("the Scheme") transferring the business currently carried on by the First Representor ("BBJL") in Jersey to the Second Representor ("BBGL"), to be carried out through a branch established in Jersey.

2.        The following are our reasons for that decision.

Background

3.        The Representors are each a subsidiary of The Bank of N. T. Butterfield & Son Limited, a company incorporated in and under the laws of Bermuda on 22 October 1904, with registered number 2106 and its registered office at 65 Front Street, Hamilton, Bermuda ("NT Butterfield").

4.        BBJL carries on business as a retail bank and is registered with and authorised by the Jersey Financial Services Commission ("JFSC") to, and does, carry on deposit- taking business pursuant to the Banking Business (Jersey) Law 1991 ("Banking Law") ("BBJL's Deposit Business").

5.        Ancillary and integral to BBJL's Deposit Business, BBJL is further registered with and authorised by the JFSC to, and does, carry on: (a) Money service business pursuant to the Financial Services (Jersey) Law 1998 ("Financial Services Law"); (b) Investment and fund services business pursuant to the Financial Services Law; (c) Lending and other banking business; (together with BBJL's Deposit Business, "BBJL's Business").

6.        BBGL is licensed by the Guernsey Financial Services Commission ("GFSC") to and does carry on: (a) Deposit taking under the Banking Supervision (Bailiwick of Guernsey) Law, 2020; (b) Controlled investment business under the Protection of Investors (Bailiwick of Guernsey) Law, 2020; (c) Credit business under the Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022.

7.        In an affidavit filed by Richard Saunders, managing director of BBJL, Mr Saunders explained that the rationale for the transfer of business is that the Butterfield Group ("the Group") wishes to restructure and consolidate its business operations in Jersey in order to simplify its business and corporate structure in the island and realise capital and operational efficiencies.  He explained that it is not intended that the transfer will result in any changes to the operation of client accounts, and it should result in minimal (if any) impact on the normal course of client banking and no degradation in service levels.

The statutory regime

8.        The statutory regime pursuant to which this application is made is set out in Article 48D of the Banking Law, which provides that the Schedule to the Law has effect to regulate any transfer of deposit taking business from one registered deposit taker to another.

9.        The Schedule provides further detail in relation to the transfer of deposit taking business.  For reasons that we shall come to shortly, it is relevant at this point to note that the language of the Schedule is in some respects similar to that of Schedule 2 of the Insurance Business (Jersey) Law 1996.

10.     By Clause 3 of the Schedule to the Banking Law, the Court should not determine an application for sanction of a scheme unless the application is accompanied by a report on the terms of the scheme by an independent auditor, and the Court is satisfied that the requirements of paragraph 4 of the Schedule have been complied with.  Those latter requirements are that a notice must have been published in the Jersey Gazette giving information as to the application and the address of the offices at which and the period for which copies of the documents referred to in the Schedule will be available.  Paragraph 4 requires that unless the Court has otherwise directed, a statement setting out the terms of the scheme and containing a summary of the report of the independent auditor has been sent to each of the customers and to every member of the transferor and transferee.

11.     At a directions hearing and by its Act of Court dated 3 April 2024 ("Act of Court"), the Court gave directions which to a limited extent modified or dispensed with some of the requirements that would otherwise be required by the Schedule.

12.     From the evidence placed before us we are satisfied that the procedural requirements of the Schedule, as modified by the Court, have been complied with.

Principles to be applied

13.     The principles to be considered by the Court in the exercise of its discretion to sanction a scheme under the Banking Law are now well established, having been formulated by analogy with the principles which have been applied in schemes for the transfer of insurance business, as described by Clyde-Smith, Commissioner, in his judgment Representation of Lloyds Bank (International Services) Limited and Anor [2022] JRC 199.

14.     The principles applicable in the present case were helpfully summarised by Advocate Holden in the following terms:

(i)        The Banking Law gives an absolute discretion to the Court as to whether or not it sanctions a scheme, but it 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 as to whether any customer, employee or other interested person or any group of them will be adversely affected by the scheme;

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

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

(v)      That individual customers and groups of customers may be adversely affected does not mean that the scheme has to be rejected by the Court.  Rather, 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.

15.     We accept that those are the principles that should guide us in the application before us.

16.     Commissioner Clyde-Smith, in the decision to which we have referred, went on to note that the Court will always, in exercising its discretion, accord full weight to the opinions of the independent auditor and the regulator.  This does not mean that the Court can never depart from the recommendations of the independent auditor or the non-objections of the regulator, but it does mean that full weight must be accorded to them, and the Court should not depart from such recommendations and non-objections without significant and appropriate reasons for doing so.

The evidence before us

17.     We have examined the report of the independent auditor, PricewaterhouseCoopers CI LLP, dated 14 March 2024, which concludes that:

·      "nothing has come to our attention that causes us to believe that the proposed transfer of business would have a materially adverse effect on the financial position, liquidity or capital adequacy of the Transferor or Transferee, or that would indicate that the Transferor or the Transferee would not have the ability to meet their liabilities after the proposed transfer of business between the Transferor and Transferee in accordance with the terms of the Scheme;

·      the proposed transfer of business in accordance with the terms of the Scheme would disadvantage the transferring and non-transferring customers and creditors of the Transferor and the customers and creditors of the Transferee; and

·      the Depositor Compensation Scheme ("DCS") arrangements and creditor hierarchy considerations would have any material adverse effect on customers upon the Scheme taking effect."

18.     We note that as at 1 May 2024, the Independent Auditor confirmed that the conclusions in its Independent Auditors' Report still stood, stating that:

"Since 14 March 2024 we have not performed any assurance engagements for BBJL or BBGL and no matters have been brought to our attention by the Directors of BBJL or BBGL therefore we are not aware of any facts or circumstances that have arisen since the date of our report that could have materially impacted our ... conclusion[s] on the Scheme as outlined in the aforementioned [Independent Auditors' Report]."

19.     We note that by letter dated 8 May 2024, the JFSC confirmed that it did not have any objections or specific comments to make concerning the provisions of the Scheme, as presented. Furthermore, we note that on 3 May 2024, the JFSC issued certificates confirming the registrations required for BBGL Jersey Branch to carry out the Business of BBJL being transferred to it pursuant to the Scheme.

20.     No objections were received from customers of BBJL nor indications that any of them wished to be heard at the hearing (and no objecting customers appeared before us), nor have any objections been received from the members of BBJL or BBGL.

21.     In answer to a question from the Court Advocate Holden confirmed, on instruction, that the arrangements for the transfer of the share capital of BBJL from NT Butterfield to BBGL would ensure that the capital adequacy requirements for BBGL, including its Jersey branch, would be equivalent to those of BBJL.

22.     The Scheme presented to us, and which we have reviewed, is essentially an inter-group transfer and has been designed to ensure continuity in the transfer of all aspects, assets and liabilities of BBJL's business as a going concern to BBGL Jersey Branch.  It provides that no liabilities are to be erased, or new rights created, but the existing liabilities and rights continue as if BBGL Jersey Branch had conducted BBJL's business all along.

23.     We were satisfied that the Scheme has been carefully designed to have no adverse effect on the customers of BBJL, creating no greater or lesser rights, interests or benefits or obligations being created than existed before the Transfer.  Similarly, we see no reason why existing customers of BBGL should be disadvantaged in any way by the transfer.

24.     We noted that all the necessary consents for the business to be conducted in Jersey by BBGL Jersey Branch have been obtained.

25.     We also noted that the Scheme provided the necessary mechanisms for the benefit of any disclosures that may have been made to the Jersey Financial Crimes Unit of the States of Jersey Police by BBJL for the purposes of the Proceeds of Crime (Jersey) Law 1999 to be transferred to BBGL Jersey Branch.

Conclusion

26.     Applying the principles to which we have referred to the exercise of its discretion we sanctioned the Scheme for the following reasons:

(i)        The directions made by the Court and the requirements of the Schedule to the Banking Law had been complied with.

(ii)       The Independent Auditor's Report does not highlight any concerns in relation to the implementation of the Scheme.

(iii)      The Jersey Financial Services Commission does not object to the Scheme.

(iv)     No customers of BBJL have objected to the Scheme nor have any objections been received from the members of BBJL or BBGL.

(v)      The Scheme is designed to achieve a reasonable commercial objective, namely to restructure and consolidate the group's business operations in Jersey in order to simplify its business and corporate structure and realise capital and operational efficiencies and has been devised having regard to the fairness of the Scheme as a whole.

27.     We accordingly made an order sanctioning the Scheme in the terms sought by the Representors.

Authorities

Banking Business (Jersey) Law 1991. 

Financial Services (Jersey) Law 1998. 

Banking Supervision (Bailiwick of Guernsey) Law, 2020. 

Protection of Investors (Bailiwick of Guernsey) Law, 2020. 

Lending, Credit and Finance (Bailiwick of Guernsey) Law, 2022. 

Insurance Business (Jersey) Law 1996. 

Representation of Lloyds Bank (International Services) Limited and Anor [2022] JRC 199. 

Proceeds of Crime (Jersey) Law 1999