Marks and Spencer Financial Services Plc, Re [2026] EWHC 1170 (Ch) (23 March 2026)

Neutral Citation Number: [2026] EWHC 1170 (Ch) Case No: CR-2025-003961

IN THE HIGH COURT OF JUSTICE

CHANCERY DIVISION

INSOLVENCY AND COMPANIES LIST The Rolls Buildings 7 Rolls Buildings Fetter Lane London EC4A 1NL Date: 23 March 2026 Before:

MR JUSTICE RICHARD SMITH - - - - - - - - - - - - - - - - - - - - -

IN THE MATTER OF MARKS AND SPENCER FINANCIAL SERVICES PLC Applicant - - - - - - - - - - - - - - - - - - - - - Digital Transcription by Marten Walsh Cherer Ltd nd Floor, Quality House, 6-9 Quality Court, Chancery Lane, London WC2A 1HP Tel No: 020 7067 2900. DX: 410 LDE Email: info@martenwalshcherer.com Web: www.martenwalshcherer.com - - - - - - - - - - - - - - - - - - - - -

MR ANDREW THORNTON KC appeared on behalf of the Applicant - - - - - - - - - - - - - - - - - - - - -

JUDGMENT APPROVED If this Transcript is to be reported or published, there is a requirement to ensure that no reporting restriction will be breached. This is particularly important in relation to any case involving a sexual offence, where the victim is guaranteed lifetime anonymity (Sexual Offences (Amendment) Act 1992), or where an order has been made in relation to a young person. MR JUSTICE RICHARD SMITH: Introduction This morning, I heard a joint application by Marks and Spencer Financial Services plc (

MSFS ) and HSBC UK Bank plc (

HSBC ), seeking this court's sanction to a proposed banking transfer scheme pursuant to Part VII of the Financial Services and Markets Act 2000 (

FSMA ). The application was made by a claim form dated 17 November 2025 and was supported by two witness statements from the Chief Financial Officer of MSFS, Mr Phillip Scott, two from the Chief Financial Officer of HSBC, Ms Marie Baird, and witness statements from Ms Roxanne Mead and Ms Gemma Mitchell concerning the printing and distribution of information about the proposed transfer. On 24 November 2025, Deputy ICC Judge Lambert gave directions for the publication prior to this hearing of a notice in a form approved by the Prudential Regulation Authority ( PRA ) in various publications and newspapers and for the provision of a statement of Scheme terms to any person asking for it. The judge was also satisfied then more generally with the communications plan for individual notification to the three million plus transferring customers and other persons interested in the transfer, including suppliers and litigating counterparties. Directions were also given for the listing of this hearing today. I was also shown within the evidence today examples of the correspondence and communications which were sent to those customers and interested persons. Background MSFS and HSBC are both public companies registered in England and Wales and are authorised and regulated by the PRA and the Financial Conduct Authority ( FCA ) to carry out banking business in the United Kingdom, including the

taking of deposits. Both companies are members of the HSBC corporate group, ultimately owned by the group parent, HSBC Holdings plc. MSFS carries on its business from premises in Chester. The Scheme essentially seeks to transfer to HSBC all MSFS' customers, except for those who may be subject to sanctions. The proposal is intended to streamline HSBC's banking business and to enable the group to operate more efficiently. The Scheme proposes to transfer all the business carried on by MSFS save for certain excluded assets, liabilities and contracts. As Mr Scott explains, as at 30 September 2025, the transferring business consisted of approximately three million customers, customer deposits of approximately £745 million and customer loans and advances (as was explained today, mainly in the nature of credit card facilities) of approximately £4.1 billion. As at that date, the net asset position of MSFS' transferring business was estimated to be around £450 million. MSFS is an operating company within the HSBC group. The group provides banking and financial services in the UK and overseas. MSFS has total assets as at 30 September 2025 of around £5.1 billion and equity of around £502 million. In his first witness statement, as I was taken to again this morning, Mr Scott explains how that balance sheet is constituted. HSBC is also PRA authorised and regulated and FCA regulated. As at 31

December 2024, it had equity of just under £26 billion. HSBC's parent company is HSBC Holdings plc. MSFS is a wholly owned subsidiary of HSBC such that the proposed transfer is from subsidiary to parent. Employees As for the employees of the proposed transferring business, their transfer will be undertaken in accordance with the Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE). As at 7 November 2025, MSFS had 693 employees wholly or mainly assigned to the transferring business. Mr Scott explains in his first witness statement how MSFS has taken steps to mitigate the impact of the transfer on employees and, in his second witness statement, how up to 48 employees will be at risk of redundancy given that certain services will no longer be required on a standalone basis, with the relevant individuals to be notified and consulted ahead of the effective date of the transfer. MSFS and HSBC both participate in the HSBC (UK) Pension Scheme. Mr Scott also explains in his first witness statement how the transfer of employment will not alter the pension benefits provided to employees and that the last actuarial valuation for the scheme showed that the section that HSBC participates in and the only section that MSFS participates in is in surplus on a technical provisions basis and that the cessation of MSFS as a participant is not anticipated to have a material

impact on its funding. The impact of the transfer Looking at the impact more broadly of the transfer for MSFS customers, Mr Scott explains in his first witness statement (Section F) that, to the extent the transfer could have created additional rights, including, for example, set-off, cross-default or security rights against transferring customers, the Scheme limits the ability of HSBC to exercise these. In terms of its financial strength, he also explains that HSBC is the principal ring-fenced bank in the group with total assets, as at 31 December 2024, exceeding £340 billion and solid investment grade ratings. MSFS does not itself have any individually published credit ratings. HSBC is presently subject to, and will continue to meet, all its capital, funding and liquidity requirements set by the Bank of England and will continue to be subject to ongoing prudential supervision by the PRA. HSBC is also projected to be profitable and, therefore, potentially capital generative. In short, it is said that HSBC will continue to be a substantial creditworthy and highly rated bank with a viable and sustainable business. Mr Scott also explains, in the context of the impact on customers, how the operation of the Financial Services Compensation Scheme (

FSCS ) is addressed in the proposed transfer. Customers holding deposits with MSFS will not be affected by the transfer and they will retain the same level of protection after transfer as before. Customers holding deposits with both deposit takers will only have a single claim under the FSCS after transfer because combined deposits will be held by the single transferee, HSBC. Those affected customers will be entitled to make withdrawals without loss of any accrued interest or other benefits or penalty or charge. Specific customer issues In terms of specific customer issues, three accounts have been affected by restraints imposed by orders made in UK civil or criminal proceedings. Those accounts have been closed and the deposits held in a single suspense account. That account will itself transfer to HSBC, subject to the continuing effect of the relevant orders, the relevant authorities or parties involved in those proceedings not having raised any objection to that course. MSFS does not have any accounts affected by sanctions but, if any such accounts might exist at the effective date of the transfer, they will remain with MSFS unless and until a relevant licence has been granted, or the relevant party ceases to be a sanctioned person. Notification/ feedback Turning to the notification of the transfer, I have already mentioned the order made by Deputy ICC Judge Lambert on 24

November last year and the related directions for the application to be advertised in each of the London, Edinburgh, and Belfast Gazettes, the Times, the Daily Mail and the international edition of the Financial Times, as well as the detailed communication plan more generally. The implementation of that plan is explained in the second witness statements of Mr Scott and Ms Baird, as well as the first witness statements of Ms Mead and Ms Mitchell, including the notifications process for transferring customers, with MSFS sending out some 2.7 million individual notifications to customers and other interested parties in the PRA and FCA approved form. Notifications were also sent to MSFS employees. In terms of customer engagement in the process, MSFS had received by 28 February 2026 347 returned postal notifications. In response, MSFS sought to contact those customers by telephone to obtain current address details. As at the same date, MSFS had also received nearly 8,900 failed email notifications. For those customers, a copy of the customer communications pack was sent to them by post. The notices required for advertisement in the press were placed on 25 and 26 November 2025. In terms of feedback specifically from customers, between 25 November last year and 1 March this year, MSFS received 2,793 responses of what it terms as 'business as usual' requests and an additional 1,867

requests for further information. The latter included questions as to why the transfer was proposed and as to its general effects. Mr Scott explains in his second witness statement that, by 28 February, MSFS had received 17 objections. 15 of those concerned the relevant customer's reluctance to transfer their credit card account to HSBC. MSFS explained in response that it was already part of the HSBC UK group. The relevant customers asked to close their accounts and the necessary steps were explained to them but, as at last week, they had apparently not taken such a step. Two objections related to concerns regarding HSBC's fossil fuel investments but the relevant customers have also apparently not yet elected to close their accounts. It was also explained how, since the beginning of this month, there had been one further customer objection indicating reluctance to transfer their credit card to HSBC and the same steps, in terms of action required to close the account, were explained. Those steps had not yet apparently been taken as of last week either. As was also fairly brought to the attention of the court this morning by Mr Thornton, two further objections have since been notified or come to MSFS' attention. The first concerns certain home buildings and contents insurance relating to HSBC. Having read the objection and having had explained to me the response, it appears that

that objection is not a live one. There is a further much more detailed email, the latest in the chain sent on 13 March 2026. Although it does mention the transfer, it appears to be concerned with a much broader subject matter, including County Court proceedings elsewhere. It was also explained to me that the relevant customer, quite properly not identified today, is known to MSFS as a vulnerable customer, and steps are being taken to communicate with that person. I am satisfied, looking at the relevant email, that it is not a material matter for me to consider today. In terms of the views of the regulators, the PRA and FCA have both notified the applicants that they do not intend to appear to make representations at this sanction hearing but they may attend as observers. The PRA, as I was shown today by Mr Thornton, provided a certificate pursuant to s.111(2) of FSMA confirming that, taking into account the proposed transfer, HSBC possesses, or will possess before the effective date, adequate financial resources. As I have said, HSBC has permission to accept deposits in the UK and all necessary regulatory permissions to carry on transferring business post transfer. Ms Baird confirms in her second witness statement that HSBC will be operationally ready to undertake transferring business at the effective date. Legal principles (a) Jurisdiction With that long background to the

matter, I turn to the legal principles which engage the court's consideration on hearings like this. In terms of those principles, and specifically the jurisdictional issues considered by Deputy ICC Judge Lambert at the directions hearing, this is a banking business transfer scheme within the meaning of s.106 of FSMA, being one under which the whole or part of the business carried on in the UK by MSFS, being an authorised person who has permission to accept deposits, is to be transferred to another body, HSBC, and the proposed transfer is not an excluded scheme under s.106(3) of FSMA. I have already mentioned the arrangements for notification of the transfer to customers. Based on the evidence filed since the directions hearing, MSFS has implemented the proposed communications plan with which the judge was satisfied then and which was prepared specifically to comply with the Financial Services and Markets Act 2000 (Control of Business Transfers) (Requirements on Applicants) Regulations 2001. I am also satisfied that, in pursuance of that plan, there has been appropriate engagement with MSFS' customers and related information provision to the PRA and FCA and, as I have already mentioned, appropriate disclosure to this court of any concerns or objections raised. (b) Discretion The question of the court's discretion arises most pointedly at this sanction hearing. In this regard, I

was taken, at least in the skeleton argument, to some of the most relevant authorities, including the principles arising generally on applications for transfers under Part VII, as well as how these fall to be applied in the banking business transfer context. By way of introduction, I was referred to In Re The Prudential Assurance Company Limited [2020] EWCA Civ 1626 in which the Court of Appeal observed (at [31]):- "Although Part VII contains provisions particular to each type of transfer scheme, the exercise by the court of its discretion to sanction any type of scheme is ultimately subject to the same broadly-expressed statutory criterion in section 111(3) that "in all the circumstances of the case, it is appropriate to sanction the scheme." I will come back to Prudential , but I was also referred to Re Alliance & Leicester PLC EWHC 2858 (Ch), concerning a transfer to Santander UK PLC of the banking, mortgage and other financial activities business carried on by Alliance & Leicester PLC. Mr Justice Henderson (as he then was) said the following (at [44]-[48]):- "44. The principles which can, and it seems to me should, be applied by way of analogy are briefly as follows. First, the relevant Act (in the present context, the 2000 Act) confers an absolute discretion on the court whether or not to sanction the scheme, but the discretion is one which must be exercised by giving due recognition to the commercial judgment entrusted by the constitution of the relevant company to its directors.

45. Secondly, the court is concerned whether an interested person or any group of interested persons will be adversely affected by the scheme. That, it seems to me, must be right, and is reflected in section 110 of the 2000 Act to which I have already referred. Indeed, this is the aspect of the matter to which I have been directing most of this judgment.

46. Thirdly, the FSA, by reason of its regulatory powers, can also be expected to have the necessary material and expertise to express an informed opinion on whether, in the present case, investors or other persons holding products with Alliance & Leicester are likely to be adversely affected, and the court will pay close attention to any views which the FSA may express. I have already explained that the FSA has been closely involved in these proposals and is plainly content with them because it has granted the necessary certificates and has not exercised its right to be represented at the hearing.

47. Fourthly, and this is, I think, an important point, individual investors or holders of products may be adversely affected, but that does not necessarily mean that the scheme has to be rejected by the court. The fundamental question is whether the scheme, as a whole, is fair as between the interests of the different classes of persons affected.

48. Also of importance is the following principle. It is not the function of the court to produce what, in its view, is the best possible scheme. As between different schemes, all of which the court may deem fair, it is for the directors of the company to choose which one to pursue; and, by the same token, the details of the scheme are not a matter for the court, provided that the scheme as a whole is found to be fair. The court will not, therefore, amend the scheme merely because it thinks that individual provisions could be improved upon." Although the principles applicable to insurance business and banking business are similar, different considerations may well arise depending upon the type of business with which the court is concerned on any particular occasion. As David Richards J (as he too then was) said in Re ING Direct NV [2013] EWHC 1697 (Ch) in relation to applications for the sanction of transfers of long-term insurance business (at [89]):- "In those cases the judges identified principles which govern the exercise of the court's discretion in relation to such business transfers. Many of them are equally applicable to a transfer of a banking business and indeed a transfer of general insurance business. They are, however, passages which require to be read with this in mind - that there are additional considerations of importance in relation to long-term business,

particularly with-profits business, which may not be of importance in the context of a transfer of banking or general insurance business. As an example, questions of fairness amongst different parties affected may well be of importance with long-term business where there are different classes of long-term business differently affected. It is unlikely to be an issue on the transfer of general insurance business or banking business. It is certainly not an issue which arises on the present transfer. The issue for the court in relation to a transfer of banking business, as I see it, is primarily whether the interest of those affected - in this case depositors and mortgage borrowers - will be adversely affected by the transfer and, if they will be, whether there are different mechanisms put in place in relation to such adverse changes as to make it appropriate to sanction a scheme. It is not, I think, the case that it will never be appropriate for the court to sanction a business transfer if there was some adverse change in the position of those affected. It must inevitably be a question of degree and judgment in the particular circumstances of the case. However, I think it equally fair to say that in circumstances where the transfer is being effected in order to facilitate the commercial decision to transfer or to dispose of a business it no longer wishes to hold, those whose

interests are to be transferred are entitled to expect as a general rule that their interests would not be prejudiced by such a transfer." Prudential guidance The Court of Appeal in Prudential set out certain guidance (at [75]-[86]) as to the court's consideration of the exercise of its discretion. That case concerned the proposed transfer of a large number of non-profit annuity contracts which were already in payment. Turning to that guidance briefly but recognising what has already been said about the different nature of the businesses involved:- (i) The judge on an application for the sanction of an insurance business transfer scheme under Part VII should identify the nature of the business being transferred and the underlying circumstances giving rise to the scheme [75]; (ii) Different considerations affect different types of business and transfers of some types of business may engage the interests of employees or other stakeholders in the transferor or transferee companies [76]; (iii) The circumstances giving rise to the proposed scheme will also affect the approach of the court, whether for example, for commercial reasons, as a result of external events or because of the financial or other commercial circumstances of the transferor [77]; (iv) The discretion of the court is unfettered and genuine and is not to be exercised as a rubber stamp. However, the court must take

account of, and give proper weight to, matters that ought to be considered and ignore matters that ought not properly to be taken into account [78]; (v) The judgments of Hoffmann J in the prior London Life case and Evans-Lombe J in the prior Axa case are not a comprehensive statement of the factors to be applied in all insurance business transfers. They involve factors likely to apply to the transfer of with-profits business but also many factors which may have no obvious application to different cases [79]; (vi) The paramount concern of the court in a case like Prudential was to assess if the transfer would have a material adverse effect on the receipt by the annuitants of their annuities, payments that may become due to the other annuitants, policyholders and creditors of the transferor and transferee. The court will also be concerned to assess any material adverse effect on the service standards provided to transferring annuitants or policyholders. Whether any other factors require consideration will depend on the circumstances of the case [80]; (vii) The first duty of the court is to scrutinise the reports of the independent expert and the regulators and the evidence of any person required to be heard under s.110, including those that say they would be adversely affected by the carrying out of the scheme. The court must understand the opinions presented, it can ask related

questions as necessary and it will do so, in particular, to identify any errors, omissions or inadequate or defective reasoning [81]; (viii) In the absence of such defects, the court will always accord full weight to the opinions of the independent expert and the regulators. A court would not depart from such recommendations and non-objections without significant and appropriate reasons for doing so. This is particularly so in relation to the financial and actuarial assessments required as regards the security of financial benefits [82]; (ix) An adverse effect will only be material if it is (a) a possibility that cannot sensibly be ignored having regard to the nature and gravity of the feared harm in the particular case (b) a consequence of the scheme and (c) material in the sense that there is the prospect of real or significant, as opposed to fanciful or insignificant, risk to the position of the stakeholder concerned. In some cases, it may also be relevant to consider if there would be such material adverse effects if the scheme were not sanctioned [83]; (x) Even if the court finds that the proposed scheme will have a material adverse effect on some group or groups of policyholders, it may still sanction the scheme, for example if it is in the nature of a business rescue. If there are differential effects on the interests of different classes of person affected, the court

will need to consider whether the proposed scheme as a whole is fair as between those interests [84]; (xi) The court should adopt the same approach to the exercise of its discretion when making the more general comparison between the positions that would exist with or without the proposed scheme in respect of (a) the security of the policyholders' benefits and (b) the standards of service and corporate governance that the policyholders can expect [85]; (xii) Once the court has undertaken these evaluations, it will decide whether to sanction the proposed scheme if, under section 111(3) FSMA it is, in all the circumstances of the case, appropriate to do so. The court cannot require the applicants to vary or alter the scheme even if that may sometimes be the effect of the court expressing its concerns [86]. In Re Santander UK plc [2021] EWHC 1813 (Ch) , Snowden J (as he too then was) noted (at [45]) the court's warning in Prudential that earlier authorities should not be treated as a comprehensive statement of the facts to be applied in any given case, that this echoed David Richard J's observations in Re ING Direct and that this must also apply in the banking business scheme context. In Re LHV Pank (UK branch) [2023] EWHC 2100 (Ch) , Mellor J noted (at [13]-[15]) that, in considering the application of the Prudential approach to a banking business scheme, the crucial question was

whether the proposed scheme would have any material adverse effect on the persons affected by it. As noted in ING Direct , the security of the rights of depositors was particularly important. Discussion/ decision Having considered the evidence filed in support of the application and having considered the nature of the proposed transfer, relating to a banking business, and the reasons for that transfer, namely the proposed operational efficiencies that might be realised, and being satisfied that the transfer reflects the commercial judgment of the directors of MSFS and HSBC, I have come to the view that there will be no relevant material adverse effect here were the court to grant sanction, that the proposed transfer is a fair one and that it is appropriate to sanction that transfer. An important concern here, mirroring that I have just mentioned in the ING Direct context, is obviously the security of deposits the subject of the proposed transfer to the extent of nearly three £0.75 billion. However, having regard to HSBC's sound financial position, even sounder than MSFS's already sound position, and notwithstanding the negative impact on HSBC of the transfer on its regulatory capital position, the impact being in the region of £330 million, those concerns which I have highlighted about the security of the deposits are well satisfied in this case. Likewise, the court is

satisfied as to the ability of HSBC properly to conduct and manage the very substantial portfolio in excess of £4 billion of customer loans and advances that are also proposed to be transferred. To the extent that rights in favour of HSBC (and to the detriment of transferring customers) might only become exercisable as a result of the transfer, for example in the form of newly arising set-off, or cross-default, or security rights, the transfer does provide for appropriate limits or restrictions on their exercise. Likewise, customers are not prejudiced by potential excess of post-transfer combined deposits over the FSCS protection limits, the transfer envisaged here allowing in those circumstances the withdrawal of deposits without penalty or loss of interest such that the customer can seek to make deposits with other institutions and make full use of their protection afforded by a deposit with that institution. For the reasons given by Ms Baird in her first and second statements, including her explanation of the service company support which is available groupwide, and the steps taken by HSBC to ensure operational readiness for the transfer, the court does not consider the transferring customers will experience a material adverse effect on the level of service that they will receive post transfer. Although a limited number of employees may be at risk of redundancy, the court is

satisfied that appropriate steps will be undertaken to consult and counsel the employees concerned, and that that risk is not an impediment to court sanction. It should also be pointed out that the PRA and the FCA have raised no objection to the proposed transfer. Finally, although a limited number of objections have been received from proposed transferring customers, including, I reiterate again, as was fairly pointed out to me today, the recent additional query and objection, given their nature, I agree that these are not material to whether sanction should be given. In all the circumstances, I therefore sanction the proposed transfer. - - - - - - - - - - - BAILII: Copyright Policy | Disclaimers | Privacy Policy | Feedback | Donate to BAILII