C&G challenges 'hostile' restriction: Building society asks court to reject barrier to takeover by Lloyds

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The Independent Online
THE Cheltenham & Gloucester Building Society yesterday told the High Court that the Building Societies Commission's objections to cash payments to its members - under the terms of the proposed pounds 1.8bn takeover by Lloyds Bank - should be thrown out.

The Vice Chancellor, Sir Donald Nicholls, heard that the BSC specifically objects to cash payments to investors and employees coming from a third party rather than the society itself. Such payments, which will average pounds 2,100 under the Lloyds' takeover, are anathema to the BSC, said Jonathan Sumption QC, for C&G.

Mr Sumption said the BSC's argument is that the 1986 Building Societies Act is implicitly hostile to takeovers from non-building societies, however popular they might be with the society's own members. The BSC's case is that the 1986 Act only covers payments from the building society itself so that the proposed deal with Lloyds must fall outside the law.

Mr Sumption argued that the BSC was interpreting the Act in a 'highly restrictive fashion. Therefore any society in the position of C&G is likely to end up having a stand-up argument with the commission on certain fundamental questions of law'. Mr Sumption questioned the argument that a type of transaction is prohibited because it is not included in an Act.

The hearing was adjourned until today when Philip Heslop QC, for the commission, will reply to C&G's submission. The judgment is expected to take several weeks.

The stakes are high. If C&G wins, City advisers will step up efforts to persuade societies to merge or to sell up, or risk competition from ever-bigger financial groupings.

If the commission wins, Lloyds will either be forced to withdraw or to devise a new deal.