Commentary on Sections Section 3: Transfers to subsidiaries of other mutuals
22.Subsection (1) gives the Treasury the power to modify provisions in the legislation identified in subsection (11), to facilitate, or in consequence of, a transfer of business from a mutual society to the subsidiary of another mutual society.
23.The legislation which may be modified under this section specifies the procedures for transfers of business of building societies, friendly societies and industrial and provident societies (subsection (11)). So any modifications will only affect transfers made by one of those types of society.
24.A transfer under the modified procedures may be made to a subsidiary of a building society, friendly society or industrial and provident society, or to a subsidiary of an EEA mutual society (subsections (1) and (10)). An EEA mutual society is a European Cooperative Society, a cooperative under the law of an EEA (European Economic Area) state, or a cooperative or mutual undertaking of such description as the Treasury specify by order (subsection (12)).
25.A subsidiary of a mutual society is a relevant company in which the society holds or controls a majority of the voting rights and in relation to which the society can appoint or remove a majority of the board of directors (subsection (13)). A relevant company is a UK company or a body incorporated in another EEA state (subsection (14)).
26.The inclusion of EEA mutual societies in section 3 ensures that any changes made under the Act to the legislation specified in subsection (11) apply where the transfer is to a subsidiary of an EEA mutual as well as where the transfer is to a subsidiary of a UK building society, friendly society or industrial and provident society. Mutual insurers, and other UK mutual undertakings, could come within the scope of “EEA mutual society”.
27.Subsection (2) specifies that the order may make provision concerning certain rights, including membership rights, in the mutual society controlling the subsidiary. This will enable the Treasury to require that members of the transferring mutual society, and new customers of the subsidiary, are given equivalent rights to those they would have enjoyed as members of the transferring mutual.
28.Subsection (3) provides that the order may confer functions on the Financial Services Authority. Those functions might for example include a power to direct that, in certain circumstances, restrictions on transfers of shares in the new subsidiary, or transfers of its business, will not apply. The Authority has a similar power under s.101(4) of the Building Societies Act 1986.
29.Subsections (6) and (7) provide that an order which modifies the primary legislation identified in subsection (11), or which modifies subsection (13), must be approved in draft by affirmative resolution of each House of Parliament before it is made. An order which does not modify those provisions will be subject to annulment by a resolution of either House. This allows an order which modifies subordinate legislation only to be made under the negative resolution procedure. An order specifying a new kind of EEA mutual may also be made under the negative resolution procedure.
30.Subsection (8) ensures that any order made under section 3 which may have effects peculiar to a particular mutual will not be dealt with under the hybrid instrument procedure in the House of Lords. As EEA mutual societies are included in subsection (10), it is possible that an order under section 3 could require an EEA mutual society acquiring a UK mutual society to give transferring members full membership rights in the EEA mutual. If the EEA mutual has a unique legal form, for example if it is established by a private Act of Parliament, that might raise a question of hybridity. This provision ensures that the hybrid instrument procedure will not apply, should such a situation arise.
31.Subsection (15) enables the Financial Services Authority to charge fees in respect of any functions conferred on it under the Act. It extends the FSA’s existing powers to charge fees under the Financial Services and Markets Act 2000. The inclusion in section 3 of EEA mutual societies will require certain safeguards to be in place, equivalent to those applicable to domestic mutuals, regarding membership rights in the holding mutual and further demutualization. The FSA, which in most cases must approve transfers of UK mutual societies’ business, will have to be satisfied that these safeguards are in place. If additional functions are conferred on the FSA in the order implementing the Act, it may need to charge fees in connection with those functions.