Building Societies Bill (Hansard, 7 May 1986)

§ Mr. Ian Stewart

The Government have received a number of further representations from societies and others, particularly concerning conversion to company status, obstructed mergers and the provision of pensions.

Conversion to Company Status

The transfer of a society's business to a company will be subject to certain minimum statutory requirements and to confirmation by the Building Societies Commission that the requisite procedures have been complied with. These requirements will ensure that the rights of members are fully safeguarded on conversion, that it is only undertaken with the active participation and support of members, and that the process will not cause unacceptable discontinuity in the institution concerned.

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Transfer of its business to a new company created by the society for the purpose will require the approval of a special resolution on which 20 per cent. of eligible members had voted.

The interests of former members of the society will he protected by a right to a priority distribution in the event of liquidation of the new company, reflecting their notional interest in the reserves of the society, to the extent that they had retained a corresponding deposit in the company. Members of the society of at least two years' standing may be entitled to priority in any share issue and to a bonus issue after a further two years. Only in the case of members ineligible to vote on the proposal, by virtue of the small value of their shares or for other reasons, could cash distributions be made reflecting their notional interest in the reserves.

Individual shareholdings in the new company will be limited to 15 per cent. of the total for the first five years. The only exception to this would be for a transfer to an existing company, where the restrictions on cash distributions and the ownership of shares would not apply. But transfer to an existing company would need to be approved by 50 per cent. of members eligible to vote on the special resolution, or by the holders of 90 per cent. of the shares.

Mergers

After further consideration of the representations received on the proposals in part II of schedule 13 to the Bill, under which the board of one society may circulate proposals for a merger to the members of another without the agreement of its board, I have decided to substitute simplified provisions. These would require a society to include in the notice of annual general meetings, or special meetings convened to consider merger proposals, a statement of any merger approach received from another society, unless it had expressly requested that the fact of the approach be kept confidential. Whether to take the matter forward from that point would be for the members using the normal procedures available to them under the rules of the society and the constitutional arrangements provided in the Bill. Detailed amendments are being tabled today.

Provision of pensions

I have also considered further, in consultation with my right hon. Friend the Secretary of State for Social Services, the terms on which building societies should be able to make arrangements for the provision of pensions. I have concluded that building societies should be given a power to invest in a subsidiary or associated company established for the sole purpose of making provision for pensions on a money purchase basis. The subsidiary or associate would need to operate as a unit trust authorised under the financial services legislation.