On 12 September 2018, HM Treasury published a technical consultation (the Consultation) on the draft Banks and Building Societies (Priorities on Insolvency) Order 2018 (the Order), along with a draft version of the Order.
The Consultation concerns the UK implementation of the Insolvency Hierarchy Directive amending the Bank Recovery and Resolution Directive, which came into force on 28 December 2017, and has a transposition deadline for EU Member States of 29 December 2018.
The Directive requires the non-preferred senior class of debt to be provided for in normal insolvency proceedings. In the UK, the 1986 Insolvency Act governs normal insolvency proceedings. The government proposes to create, for the entities affected, a new provision for the priority of non-preferential debt in relation to a company winding up- creating a new section 176AZA (non-preferential debts of financial institutions) in the Insolvency Act 1986.
Non-preferential debt was not previously split into classes, so it is proposed that the new section 176AZA creates:
- a class of “ordinary non-preferential debt” which corresponds to the non-preferential debt in the current regime; and
- secondary non-preferential debt, the new class required by the directive, which ranks below ordinary non-preferential debt as required by the updated Article 108(2) in the Directive.
The Government is conducting an impact assessment for the implementation of the Directive which will be influenced by responses to the Consultation. The deadline for responses to the Consultation is 10 October 2018.