On Friday 10th March 2023, the Bank of England published a statement that “absent any meaningful further information, it intends to apply to the Court to place Silicon Valley Bank UK Limited (SVBUK) into a Bank Insolvency Procedure”. It is possible that the application could be made on or before Monday 13th March 2023, although the Bank of England has not commented on timings as yet. The Bank of England has, however, indicated that SVBUK will stop making payments or accepting deposits for the meantime.
What is Bank Insolvency?
Bank insolvency is part of the special resolution regime for banks operating in the United Kingdom which was introduced under the Banking Act 2009. It enables the Bank of England, or alternatively the Prudential Regulation Authority or the Government, to apply to the Court for an order that a distressed bank enters into bank insolvency and for the appointment of a bank liquidator to it.
Is there any alternative to Bank Insolvency?
The special resolution regime includes 5 ‘stabilisation’ options, which include the transfer of all or part of the distressed bank’s business to a private sector purchaser, a bridge bank or an asset management vehicle. It is also possible for the Bank of England to exercise its ‘bail-in’ powers (which enable it to write down or convert shares, debt and other liabilities of the distressed bank for the purposes of absorbing the bank’s losses and recapitalising it) or to transfer the distressed bank to temporary public ownership. The Bank of England has not commented on whether it is considering exercising any of these options.
What will the bank liquidator do if appointed?
The bank liquidator must pursue two statutory objectives:
Objective 1 – to work with the Financial Services Compensation Scheme (FSCS) to ensure that as soon as reasonably practicable each eligible depositor:
- has the relevant account transferred to another financial institution, or
- receives payment from (or on behalf of) the FSCS.
Objective 2 – to wind up the affairs of the bank so as to achieve the best result for the bank’s creditors as a whole.
Objective 1 takes precedence over Objective 2, but the bank liquidator must begin working towards both objectives immediately upon appointment.
What will happen to my deposit if SVBUK goes into bank insolvency?
If you are an eligible depositor, unless your account is transferred to another financial institution, your deposit will be paid out by the FSCS up to the protected limit of £85,000 or up to £170,000 for joint accounts.
Regulated FinTechs will generally not be eligible depositors so will not be covered by this protection. This is because the depositor protection rules do not apply to a number of regulated businesses including banks, financial institutions (which includes lenders, payment institutions and e-money firms), investment firms, insurance undertakings, collective investment undertakings and pension funds.
Unregulated businesses will be eligible depositors and will benefit from the FSCS protection.
For eligible depositors, to the extent your deposit is not covered by the FSCS, you will have preferential creditor status in the bank insolvency process and rank for payment in advance of any floating charge holders or unsecured creditors.
How do I claim under the FSCS?
If you are an eligible depositor, there is no need to make a claim; the FSCS will provide compensation automatically. The FSCS aims to pay compensation within 7 days of a bank failing and must generally do so under PRA rules within 10 business days (it may take longer over certain accounts if there are certain complexities e.g. a dispute over ownership of the deposit).
If the FSCS cannot pay compensation within 7 business days, it will pay small companies an amount to cover necessary business expenses. It will do so within 5 business days of receiving a request. This only applies to companies that qualify as small companies for the purposes of the Companies Act. Broadly this includes companies that satisfy at least 2 of the following requirements (turnover of £10.2m or less, balance sheet of £5.1m or less, 50 or fewer employees) and which are not part of a larger group.
I have a funding line with SVBUK – what happens next?
The Bank of England has indicated SVBUK will stop making payments for now.
Is another bank coming to rescue or bridge SVBUK?
The Bank of England has not commented on whether it intends to exercise any of the ‘stabilisation’ options, including a transfer to a private sector purchaser or to a bridge bank.
HMT has issued a press release on 12 March stating that “The government is working at pace on a solution to avoid or minimise damage to some of our most promising companies in the UK and we will bring forward immediate plans to ensure the short term operational and cashflow needs of Silicon Valley Bank UK customers are able to be met”. It is not clear what form these plans will take.
Can I lodge a claim against SVBUK?
No formal insolvency proceedings have been opened in respect of SVBUK yet. You should continue to direct your communications to SVBUK.
The funds to my company’s next payroll are on deposit with SVBUK. Can I access the funds?
Subject to any government intervention that may emerge to facilitate making of payments in the short term, the Bank of England has indicated SVBUK will stop making payments for now.
