Commentary on Sections Section 4: transfers to subsidiaries: distribution of funds
32.This section has effect only if an order made under section 3 so provides (subsection (1)), and applies only to transfers to which the order applies (subsection (2)).
33.Subsection (3) provides that a distribution of funds which exceeds limits prescribed by the Treasury must be approved by the transfer resolution of the mutual society making the transfer, and by a resolution of the holding mutual of a kind specified by the Treasury. A distribution which does not exceed the prescribed limit must only be approved by the transfer resolution or by the resolution of the holding mutual.
34.A distribution of funds is a distribution of part of the funds of the transferring society, or of the holding mutual, in consideration of the transfer, among the members of the transferor, the holding mutual or both of them (subsection (2)). The transfer resolution is the resolution specified in subsection (5) which approves the transfer. The holding mutual is the mutual society of which the transferee is a subsidiary (subsection (2)).
35.Subsection (4) requires the Treasury to authorise such distributions and to prescribe limits. If an order made under section 3 gives effect to section 4, it will be necessary for the Treasury to authorise distributions and prescribe limits for subsection (3) of section 4 to work.
36.Section 4 is similar to the provisions on distributions of funds on mergers of building societies in s.96(4) to (6) of the Building Societies Act 1986. An order implementing this section will create a less onerous procedure for distributions of funds in transfers to subsidiaries of other mutuals, in particular for distributions in transfers of building societies, which are currently limited to shareholding members of two or more years’ standing under s.100(9) of the 1986 Act.
37.Subsection (7) provides that subsections (4) to (7) of section 3 apply to an order made under section 4. This means that an order which only makes provision under subsections (3) and (4) of section 4 and does not modify primary legislation will be subject to the negative resolution procedure. However, the section 4 powers may be exercised at the same time as the section 3 powers in an affirmative resolution order.