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.

News
Susan Sarandon described David Bowie as
peopleSusan Sarandon reveals more on her David Bowie romance
Sport
sportDidier Drogba returns to Chelsea on one-year deal
Arts and Entertainment
The Secret Cinema performance of Back to the Future has been cancelled again
film
News
people
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Arts and Entertainment
Christian Grey cradles Ana in the Fifty Shades of Grey film
filmFifty Shades of Grey trailer provokes moral outrage in US
Sport
Louis van Gaal would have been impressed with Darren Fletcher’s performance against LA Galaxy during Manchester United’s 7-0 victory
football
Voices
The new dawn heralded by George Osborne has yet to rise
voicesJames Moore: As the Tories rub their hands together, the average voter will be asking why they're not getting a piece of the action
Sport
Dejan Lovren celebrates scoring for Southampton although the goal was later credited to Adam Lallana
sport
News
newsComedy club forced to apologise as maggots eating a dead pigeon fall out of air-conditioning
Arts and Entertainment
Jo Brand says she's mellowed a lot
tvJo Brand says shows encourage people to laugh at the vulnerable
Life and Style
People may feel that they're procrastinating by watching TV in the evening
life
Sport
Rhys Williams
commonwealth games
News
Isis fighters travel in a vehicle as they take part in a military parade along the streets of Syria's northern Raqqa province
i100
Arts and Entertainment
Southern charm: Nicolas Cage and Tye Sheridan in ‘Joe’
filmReview: Actor delivers astonishing performance in low budget drama
Life and Style
fashionLatex dresses hit the catwalk to raise awareness for HIV and Aids
Travel
travel
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
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

Senior Risk Manager - Banking - London - £650

£600 - £650 per day: Orgtel: Conduct Risk Liaison Manager - Banking - London -...

Commercial Litigation Associate

Highly Attractive Package: Austen Lloyd: CITY - COMMERCIAL LITIGATION - GLOBAL...

Systems Manager - Dynamics AX

£65000 - £75000 per annum + Benefits: Progressive Recruitment: The client is a...

Service Delivery Manager (Software Development, Testing)

£40000 - £45000 per annum: Ashdown Group: A well-established software house ba...

Day In a Page

Finding the names for America’s shame: What happens to the immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert?

Finding the names for America’s shame

The immigrants crossing the US-Mexico border without documents who never make it past the Arizona desert
Backhanders, bribery and abuses of power have soared in China as economy surges

Bribery and abuses of power soar in China

The bribery is fuelled by the surge in China's economy but the rules of corruption are subtle and unspoken, finds Evan Osnos, as he learns the dark arts from a master
Commonwealth Games 2014: Highland terriers stole the show at the opening ceremony

Highland terriers steal the show at opening ceremony

Gillian Orr explores why a dog loved by film stars and presidents is finally having its day
German art world rocked as artists use renowned fat sculpture to distil schnapps

Brewing the fat from artwork angers widow of sculptor

Part of Joseph Beuys' 1982 sculpture 'Fettecke' used to distil schnapps
BBC's The Secret History of Our Streets reveals a fascinating window into Britain's past

BBC takes viewers back down memory lane

The Secret History of Our Streets, which returns with three films looking at Scottish streets, is the inverse of Benefits Street - delivering warmth instead of cynicism
Joe, film review: Nicolas Cage delivers an astonishing performance in low budget drama

Nicolas Cage shines in low-budget drama Joe

Cage plays an ex-con in David Gordon Green's independent drama, which has been adapted from a novel by Larry Brown
How to make your own gourmet ice lollies, granitas, slushy cocktails and frozen yoghurt

Make your own ice lollies and frozen yoghurt

Think outside the cool box for this summer's tempting frozen treats
Ford Fiesta is UK's most popular car of all-time, with sales topping 4.1 million since 1976

Fiesta is UK's most popular car of all-time

Sales have topped 4.1 million since 1976. To celebrate this milestone, four Independent writers recall their Fiestas with pride
10 best reed diffusers

Heaven scent: 10 best reed diffusers

Keep your rooms smelling summery and fresh with one of these subtle but distinctive home fragrances that’ll last you months
Commonwealth Games 2014: Female boxers set to compete for first time

Female boxers set to compete at Commonwealth Games for first time

There’s no favourites and with no headguards anything could happen
Five things we’ve learned so far about Manchester United under Louis van Gaal

Five things we’ve learned so far about United under Van Gaal

It’s impossible to avoid the impression that the Dutch manager is playing to the gallery a little
Screwing your way to the top? Good for Lana Del Rey for helping kill that myth

Screwing your way to the top?

Good for Lana Del Rey for helping kill that myth, says Grace Dent
Will the young Britons fighting in Syria be allowed to return home and resume their lives?

Will Britons fighting in Syria be able to resume their lives?

Tony Blair's Terrorism Act 2006 has made it an offence to take part in military action abroad with a "political, ideological, religious or racial motive"
Beyoncé poses as Rosie the Riveter, the wartime poster girl who became a feminist pin-up

Beyoncé poses as Rosie the Riveter

The wartime poster girl became the ultimate American symbol of female empowerment
The quest to find the perfect pair of earphones: Are custom, 3D printed earbuds the solution?

The quest to find the perfect pair of earphones

Earphones don't fit properly, offer mediocre audio quality and can even be painful. So the quest to design the perfect pair is music to Seth Stevenson's ears