I move: "That the Bill be now read a Second Time."
On 5 December last year the trustees of TSB requested me to authorise the reorganisation of TSB in accordance with the terms of a contract agreed by the trustees with Irish Life and Permanent plc. Having agreed, I have decided to propose the amendment of the Trustee Savings Banks Act, 1989, to provide explicitly for the sale mechanism as proposed. The amendments are included in the restated and amended section 57 of the Trustee Savings Banks Act, 1989, which makes up the bulk of this Trustee Savings Banks (Amendment) Bill, 2000.
The proposal from the trustees, which they proposed following a full competitive sale process, involves selling the assets and transferring the liabilities of the bank to the Irish Life and Permanent group. The employees of TSB are to benefit from an employee share ownership trust agreed along the lines of ESOTs in Eircom and ICC Bank. The offer from Irish Life and Permanent values the bank at £339 million.
The request and accompanying documentation from the trustees was examined by my financial advisers, Arthur Andersen, which advised me it was its belief that the sale process had been carried out by the trustees and their advisers in an open, transparent and fair manner. Arthur Andersen also advised me that the bid from Irish Life and Permanent plc represents full value for the bank and recommended that I authorise the reorganisation. I have also benefited from the legal advice of Arthur Cox. On 13 December I made a public statement of my intention to authorise the reorganisation and published the Bill. The purpose of the Bill is to facilitate the trustees' proposal.
TSB was created by the amalgamation of TSB Dublin and the Cork and Limerick Savings Bank in 1992. Prior to the 1989 Act, and in accordance with their original purpose, the TSBs had been severely restricted in their range of activities. They were required to maintain at least 80% of their customers' deposits with the Exchequer and in terms of lending, they could only deal with personal customers.
In 1989 the Dáil provided for a broadening of the range of activities of Trustee Savings Banks. This was provided for in response to the changing situation in the financial sector and to deal with the fact that the original purpose of TSBs was no longer widely relevant. Since 1989 the TSB has grown significantly. Customer deposits have increased from about £760 million in 1989 to over £1,775 million at the end of 1999. The number of employees has also increased from about 800 to more than 1,200.
The trustees have, with the agreement of staff, reached the conclusion that the best interests of all the stakeholders in the bank will be best served by moving to the next stage of the process by changing the status of the bank and merging with the Irish Life and Permanent group. This change will give the bank access to the capital markets, a wider product range and a broader set of delivery and distribution channels, all of which are necessary if the bank is to continue to grow and prosper. Most importantly, it will provide continuity for staff and customers so they can benefit from ongoing developments in the banking market. This merger will also result in a very strong third competitor in the retail banking mar ket and is to be welcomed in terms of competition.
Section 57 of the Trustee Savings Banks Act, 1989, provided for the reorganisation of TSBs into companies. This section was incorporated in that Act because it was already clear from developments in the Irish financial markets and from the experience in countries such as Britain, France and Denmark that Trustee Savings Banks would need to become companies in order to adapt.
The provision for the reorganisation of Trustee Savings Banks was broadly drawn in the hope that it could cover any likely scenario. It was anticipated it would only be necessary for the Minister for Finance to bring a draft of any order authorising the reorganisation of a TSB before both Houses of the Oireachtas and to secure a motion of approval before proceeding.
Section 57 of the 1989 Act provided for the reorganisation of Trustee Savings Banks into either companies controlled by the Minister for Finance or not controlled by the Minister. The latter option is being adopted for the current process. However, under section 57 as it currently stands, it is not possible to establish an ESOP in TSB as it does not have any shares. It is also impossible to establish the ESOP following the merger of TSB's operations with Irish Life and Permanent because it is not possible to establish an ESOT for a particular group of employees within one company. Therefore, it has proved necessary to have an intermediate step. The assets and liabilities are being transferred to Kencarol Limited, a subsidiary of Irish Life and Permanent, at which point the ESOT will be established and then immediately transferred on, with the ESOT in place, to Irish Life and Permanent plc.
Existing legislation does not permit the establishment of an ESOP by a company while it is controlled by another company. Accordingly, section 2 of the Bill is required to allow for the establishment of the ESOT in Kencarol Limited while it is controlled by another company.
As I have already stated, the employees are in favour of the transaction. Their employee rights, including conditions of employment, are protected by employee rights legislation, particularly the EU Directive on the transfer of undertakings. In addition to this, the business sale agreement specifically provides for the protection of the employees' rights including their pension entitlements. The employees will benefit from an employment share ownership trust under which 5% of the shares in Kencarol Limited will be transferred by the trustees to the ESOT in return for agreement to the transformation agreement and the ESOT is purchasing a further 9.9% stake in Kencarol Limited for £19.8 million. On completion of the reorganisation, the ESOT's Kencarol shares will be swapped for shares in Irish Life and Permanent plc., worth £50.5 million.
As with all other ESOTs, the ESOT must hold the shares for a period of three years before it can allocate shares to employees through an approved profit sharing scheme. The maximum tax efficient allocation by an APSS is £10,000 per annum per employee. Deputies should note that while the transformation agreement envisages redundancies, it is a requirement of the agreement that all redundancies arising from the transaction must be on a voluntary basis only.
Separately from this Bill, provision is being made in the Finance Bill to ensure that the benefits of the ESOP due to the employees of TSB will be maintained after the merger with Irish Permanent. Specific exemptions are being created for TSB and also for ICC Bank, where the same issue arises.
As amendments were required in any event, the operation of section 57 in its entirety was examined and further amendments were proposed in order to provide certainty, in legal terms, in its operation. The net effect is that the existing section 57 is being restated in this Bill in its entirety but in an amended form. The main amendments are additions to provide for the ESOP, the structure of the transaction and certainty in relation to the transfer of assets and liabilities, including property and customer accounts, from the TSB to the Irish Life and Permanent Group. The other amendments are of a minor nature.
Before turning to the detail of the Bill, I want to deal with two issues which may concern Deputies – the use of the proceeds of the reorganisation and the possibility of branch closures. The present TSB is the result of the amalgamation of many trustee savings banks over the years. These trustee savings banks were founded to provide a service to small savers. The legal advice from the Attorney General has always been that the Oireachtas has the power to dispose of the assets of trustee savings banks. This was reflected in the Trustee Savings Banks Act, 1989, which consolidated the legislation and provided for the regulation of TSBs by the Central Bank and also empowered them to trade on a fully commercial basis. The power of the Oireachtas is subject to the condition that the rights of depositors are fully protected in relation to their deposits and the interest thereon. The net proceeds from this process will be paid into the Central Fund for the benefit of all citizens. I am satisfied that this is the correct course of action.
Another issue of concern to Deputies and customers of TSB and Irish Permanent is that of branch restructuring. While there are more than 40 branches that overlap between the two institutions, I have been advised that the merged bank will not close both their branches in any single location and that they will continue to serve all the communities now served by either of them.
I will now turn to the sections of the Bill. Section 1 substitutes a new section 57 for the existing section 57 of the 1989 Act. As there are numerous additions to the section, the advice of the Office of the Parliamentary Counsel to the Government was that section 57 should be restated in its entirety for ease of use. I will go through each subsection, explain its purpose and indicate whether it is an existing subsection or an addition. I will point out any amendments made to existing subsections.
Subsection (1) is an existing subsection which defines certain terms used in the section. It has been expanded to include such new definitions as are necessary for the operation of the section. Subsection (2) is an existing subsection which provides that I can make orders for the purposes of this section and that I can also make orders amending or rescinding orders made previously. Subsection (3) is an existing subsection which provides that an order may authorise the reorganisation of one or more trustee savings banks into either a company controlled by the State, referred to as a State company, or a company not controlled by the State. In the current transaction this is Kencarol Limited.
Subsection (4) is a new subsection which confirms that the trustees have the power to enter into contracts to effect a reorganisation subject to an order. It also empowers them to sell or otherwise transfer shares received by them in any reorganisation to an ESOT subject to an order. The subsection also provides that the trustees are carrying out their duties as trustees in exercising the powers conferred on them and complying with the obligations imposed on them by this section. As such, the personal liabilities of trustees in relation to a sale process are limited as set out in section 22 of the 1989 Act, as is the case with their other duties.
Subsection (5) is a restatement of the existing subsection (4) which provided for the reorganisation of TSB into a State company. It stipulated the matters that the order should take into account. There is one amendment to the subsection in paragraph (g) which prohibits the transfer of the Minister's shares other than to a director of the company. The amendment allows for the transfer of shares to an ESOT. This subsection is not being used in the current transaction but the amendment is being made for the sake of completeness as the 1989 Act is not being repealed.
Subsection (6) is a restatement of the existing subsection (6). Paragraph (b), which provides for the payment to me of the proceeds arising from the reorganisation into Kencarol Limited, has been amended to take into account the fact that the trustees will have proceeds arising from the transfer of shares to the ESOT. Subsection (7) is the existing subsection (5) which provides that an order may provide for the transfer of specified assets to me. It is not being used in the current transaction.
Subsection (8) includes the existing subsection (7) but there have been additions. It provides that the 1989 Act will not apply to a company not controlled by the State and that it will be subject to the Central Bank Act, 1971. Paragraph (c) has been added to provide that the order may make provision for the regulation of Kencarol Limited in the period during which it has the assets and liabilities of TSB Bank. This is to avoid a gap in the regulation by the Central Bank of the operations of TSB Bank. Paragraph (d) is a new paragraph which provides that from the transfer date the trustees will cease to act as trustees in the business of the bank. Paragraph (e) provides that the trustees shall continue in office to comply with their obligations in relation to the final accounts of TSB Bank prior to the transfer date. Paragraph (f) provides that any trustee who becomes an employee or officer of either Kencarol or Irish Life and Permanent shall cease to be a trustee.
Subsection (9) is a restatement of the existing subsection (8). It provides that the order may provide for the conditions of the staff. It is not being used in the current transaction because staff's entitlement and conditions of employment are protected by employment rights legislation and provision has also been made for the staff in the business sale agreement between the trustees and Irish Life and Permanent plc.
Subsection (10) is a new subsection which makes certain provisions in respect of the period after the transfer of the bank's operations to the Irish Life and Permanent group. It provides for the dissolution of the TSB, the distribution of the proceeds of the reorganisation to me, the preparation of accounts by the trustees for this period and vacation of office by the trustees.
Subsection (11) provides that Irish Life and Permanent will be able to use "TSB" in its name subject to conditions that will be set out in the order. This is required because section 14 of the 1989 Act prohibits anyone other than a trustee savings bank using the name or its derivatives. I consider this is a reasonable, commercially sensible approach and I am satisfied that, subject to the conditions I will place in the order on the use of the name, it will not cause any confusion.
Subsection (12) is a new subsection that provides for the technical aspects of the transfer of operations from TSB Bank to Kencarol Limited and on to Irish Life and Permanent. It has been modelled on provisions in the Central Bank Acts and similar legislation that provide for the transfer of the operations of one financial institution to another. Subsection (13) is a new subsection that provides for the transfer of TSB's properties to Kencarol Limited and on to Irish Life and Permanent plc. Subsection (14) is a restatement of the existing subsection (10). It is not being used in the current transaction.
Subsection (15) is the existing subsection (11). It requires me to obtain a motion of approval from each House of the Oireachtas for the draft of any order I propose to make under this section. I will lay the draft order before each House as soon as possible after the enactment of this Bill.
Subsection (16) is a new subsection that disapplies section 60 of the Companies Act, 1963, to the provision of assistance by Kencarol Limited or Irish Life and Permanent or the ESOT company in the acquisition of shares by the ESOT. Similar provisions have been made in legislation dealing with Telecom Éireann and ICC Bank.
Section 2 extends the original provisions of section 64 of the 1989 Act. That section provided an exemption from stamp duty arising from a reorganisation. This exemption is being extended to the second step of the current transaction, the onward transfer from Kencarol Limited to Irish Life and Permanent. This is being done because the only reason Irish Life and Permanent is going through Kencarol Limited is to facilitate the establishment of the ESOT in accordance with ESOP legislation.
Section 3 amends Schedule 12 to the Taxes Consolidation Act, 1997, to allow Kencarol Limited to establish an ESOT even though it will be controlled by Irish Life and Permanent plc., at the time. This is necessary because it is not possible to establish the ESOT prior to the transfer to Kencarol Limited because the TSB in its current structure does not have any shares.
Section 4 is a standard section setting out the short title and collective citation of the Bill.
I commend the Bill to the House.