The Rescue of Northern Rock : Nationalization in the Shadow of Insolvency

The collapse of Northern Rock plc in September 2007 as a result of the financial crisis that had its origins in the sub-prime mortgage bubble in the United States focussed attention on the limited nature of governmental powers in the UK to deal with banks in distress or facing insolvency. The Banking (Special Provisions) Act 2008 was hurriedly introduced on 21 February 2008 so as to give the UK Treasury wider powers to effect a rescue of failing banks such as Northern Rock, without a recourse to ordinary insolvency procedures such as those under the Insolvency Act 1986. The Act gave the Treasury wide powers, including the power to overcome statutory provisions and to absolve directors of any deposit taking institution of any personal liability as a result of any act or omission whilst the bank was under Treasury control. This temporary legislation was a classic illustration of emergency legislation which allowed government in a state of crisis to act contrary to normal rule of law constraints or procedures, such as in regard to the compulsory acquisitions of property. The Act provided Treasury with powers to make various Orders, such as Compensation Scheme Orders and Transfer Orders. Despite its significance, the legislation passed through the UK Parliament with little or no debate and came into force the day after it was introduced into Parliament