Law Report: Court bars bank takeover: Cheltenham and Gloucester Building Society v Building Societies Commission. Chancery Division (Sir Donald Nicholls, Vice Chancellor), 8 June 1994

An agreement for the transfer of a building society into new ownership could not include a term under which the successor would make a cash distribution to members of less than two years' standing. This prohibition, imposed by section 100(9) of the Building Societies Act 1986, applied regardless of whether the payments were made by the successor company or another company in the same group.

The Vice Chancellor so declared on an application by the Building Societies Commission in respect of the proposed takeover of the Cheltenham and Gloucester Building Society by the Lloyds Bank group.

Jonathan Sumption QC, Richard Sykes QC and Malcolm Waters (Slaughter & May) for the building society; Philip Heslop QC, Stephen Richards and Stephen Moverly Smith (Treasury Solicitor) for the commission.

SIR DONALD NICHOLLS V-C said the Cheltenham & Gloucester was one of the largest and most profitable building societies in the country. The Lloyds Bank group was offering pounds 1.8bn to take over its business.

Under the 1986 Act, the transfer of a building society's business must be approved by prescribed resolution of its members and have the confirmation of the commission, which had a supervisory role. In this case, the commission considered that some of the proposed terms were outside the society's powers and were unlawful.

The 1986 Act gave building societies the power to offer a wider range of services than had been permitted under previous statutory controls. By sections 97 to 102, it also introduced a power enabling a society to become an authorised banking institution under the Banking Act 1987.

Under this scheme the building society entered into a transfer agreement with its successor.

The successor company could be specially formed for this purpose, or it might be an existing company, which would then assume conduct of the society's business. But Parliament intended these procedures to facilitate the organic development of an institution, not its takeover by an outside institution tempting members with the offer of substantial cash bonuses. There was an obvious risk the members might snap up such an offer, regardless of the society's long-term best interests.

The Act therefore contained safeguards. If the successor was an existing company, the transfer had to be approved by a shareholders' resolution passed by at least 75 per cent of the shareholders voting. In addition, it must be passed by at least 50 per cent of the members qualified to vote, or by qualified shareholders representing not less than 90 per cent of the total value of the shares held by members qualified to vote.

The prospect of an immediate cash bonus was precisely the incentive which could be expected to overcome these hurdles. To prevent speculative investment in building societies, the Act placed limits on the distributions and benefits which might be made available to members.

By section 100(9): 'Where the successor is an existing company, any distribution of funds to members of the society . . . shall only be made to those members who held shares in the society throughout the period of two years which expired with the qualifying day . . .'

In this case, the society proposed to enter into a transfer agreement with an existing company, Chambers & Remington Ltd, which was wholly owned by Lloyds Bank plc through an intermediate holding company, Lloyds Bank Financial Services (Holdings) Ltd.

The holding company was to pay pounds 500 to each shareholding member of the society, pounds 500 to each borrowing member in respect of each mortgaged property, pounds 500 to each employee and pensioner, and a proportionate cash payment, equal to about ten per cent of the amount in each account, with a likely maxium of pounds 10,000 in any one case, to each shareholding member and each holder of a deposit account with the society.

But about 27 per cent of the society's members were newly- joined and any payments to them would fall foul of section 100(9). Without their votes, the bid might fail. Did it make any difference that the payments to them came, not from the proposed successor, but from its parent company? On a proper reading of the Act, it did not.

The power under section 100(1), to make a distribution of part of the society's funds to its members in consideration of the transfer, although permissive and dependent on the society's own rules, was nevertheless subject to the statutory restriction in section 100(9).

Accordingly, the proposal for payments to be made by the successor's holding company to members of the society who had held shares for less than two years would be outside what was authorised by the Act just as much as if the payment were made by the successor company itself.

Start your day with The Independent, sign up for daily news emails
Voices
There will be a chance to bid for a rare example of the SAS Diary, collated by a former member of the regiment in the aftermath of World War II but only published – in a limited run of just 5,000 – in 2011
charity appealTime is running out to secure your favourite lot as our auction closes at 2pm tomorrow
Arts and Entertainment
James May, Jeremy Clarkson and Richard Hammond in the Top Gear Patagonia Special
tv
News
Claudia Winkleman and co-host Tess Daly at the Strictly Come Dancing final
people
Arts and Entertainment
Caroline Flack became the tenth winner of Strictly Come Dancing
tvReview: 'Absolutely phenomenal' Xtra Factor presenter wins Strictly Come Dancing final
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
News
news
News
Elton John and David Furnish will marry on 21 December 2014
people
Sport
SPORT
News
people
Life and Style
A still from the 1939 film version of Margaret Mitchell's 'Gone with the Wind'
life
Arts and Entertainment
J Jefferson Farjeon at home in 1953
booksBooksellers say readers are turning away from modern thrillers and back to golden age of crime writing
Sport
Amir Khan is engaged in a broader battle than attempting to win a fight with Floyd Mayweather
boxing Exclusive: Amir Khan reveals plans to travel to Pakistan
News
Stacey Dooley was the only woman to be nominated in last month’s Grierson awards
mediaClare Balding and Davina McCall among those overlooked for Grierson awards
News
Twitchers see things differently, depending on their gender
scienceNew study shows that birdwatching men have a lot in common with their feathered friends...
Arts and Entertainment
British actor Idris Elba is also a DJ and rapper who played Ibiza last summer
film
News
i100
Arts and Entertainment
Christopher Biggins as Mrs Smee in Peter Pan
theatreHow do the men who play panto dames get themselves ready for the performance of a lifetime?
News
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs General

Austen Lloyd: Senior Private Client Solicitor

Excellent Salary: Austen Lloyd: SURREY - An outstanding high level opportunity...

Austen Lloyd: Construction Solicitor - London

Very Competitive Salary : Austen Lloyd: NICHE CITY FIRM - We are making a disc...

Austen Lloyd: Construction Solicitor - London

Very Competitive Salary : Austen Lloyd: NICHE CITY FIRM - We are making a disc...

Recruitment Genius: Finance Director

£65000 - £80000 per annum: Recruitment Genius: Finance Director required to jo...

Day In a Page

The week Hollywood got scared and had to grow up a bit

The week Hollywood got scared and had to grow up a bit

Sony suffered a chorus of disapproval after it withdrew 'The Interview', but it's not too late for it to take a stand, says Joan Smith
From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?

Panto dames: before and after

From Widow Twankey to Mother Goose, how do the men who play panto dames get themselves ready for the performance of a lifetime?
Thirties murder mystery novel is surprise runaway Christmas hit

Thirties murder mystery novel is surprise runaway Christmas hit

Booksellers say readers are turning away from dark modern thrillers and back to the golden age of crime writing
Anne-Marie Huby: 'Charities deserve the best,' says founder of JustGiving

Anne-Marie Huby: 'Charities deserve the best'

Ten million of us have used the JustGiving website to donate to good causes. Its co-founder says that being dynamic is as important as being kind
The botanist who hunts for giant trees at Kew Gardens

The man who hunts giants

A Kew Gardens botanist has found 25 new large tree species - and he's sure there are more out there
The 12 ways of Christmas: Spare a thought for those who will be working to keep others safe during the festive season

The 12 ways of Christmas

We speak to a dozen people who will be working to keep others safe, happy and healthy over the holidays
Birdwatching men have a lot in common with their feathered friends, new study shows

The male exhibits strange behaviour

A new study shows that birdwatching men have a lot in common with their feathered friends...
Diaries of Evelyn Waugh, Virginia Woolf and Noël Coward reveal how they coped with the December blues

Famous diaries: Christmas week in history

Noël Coward parties into the night, Alan Clark bemoans the cost of servants, Evelyn Waugh ponders his drinking…
From noble to narky, the fall of the open letter

From noble to narky, the fall of the open letter

The great tradition of St Paul and Zola reached its nadir with a hungry worker's rant to Russell Brand, says DJ Taylor
A Christmas ghost story by Alison Moore: A prodigal daughter has a breakthrough

A Christmas ghost story by Alison Moore

The story was published earlier this month in 'Poor Souls' Light: Seven Curious Tales'
Marian Keyes: The author on her pre-approved Christmas, true love's parking implications and living in the moment

Marian Keyes

The author on her pre-approved Christmas, true love's parking implications and living in the moment
Bill Granger recipes: Our chef creates an Italian-inspired fish feast for Christmas Eve

Bill Granger's Christmas Eve fish feast

Bill's Italian friends introduced him to the Roman Catholic custom of a lavish fish supper on Christmas Eve. Here, he gives the tradition his own spin…
Liverpool vs Arsenal: Brendan Rodgers is fighting for his reputation

Rodgers fights for his reputation

Liverpool manager tries to stay on his feet despite waves of criticism
Amir Khan: 'The Taliban can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'

Amir Khan attacks the Taliban

'They can threaten me but I must speak out... innocent kids, killed over nothing. It’s sick in the mind'
Michael Calvin: Sepp Blatter is my man of the year in sport. Bring on 2015, quick

Michael Calvin's Last Word

Sepp Blatter is my man of the year in sport. Bring on 2015, quick