Building Societies Act 1997 (c. 32)

(The document as of February, 2008)

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(2) Immediately before Schedule 9 to the 1986 Act there shall be inserted, as Schedule 8A, the provisions set out in Schedule 4 to this Act (transfer directions: modifications of Part X).

18 Notification and confirmation of transfer directions

After section 42B of the 1986 Act there shall be inserted the following section--

" 42C Notification and confirmation of transfer directions

(1) A direction under section 42B(1) shall be given by notice in writing and may be varied by a further direction; and a direction may be revoked by the Commission by a notice in writing to the building society concerned.

(2) A direction under section 42B(1), except one varying a previous direction with the agreement of the building society concerned--

(a) shall state the reasons for which it is given and give particulars of the society's rights under subsection (3) below and section 46; and

(b) shall cease to have effect at the end of the period of 28 days beginning with the day on which it is given unless before the end of that period it is confirmed by a further written notice given by the Commission to the society concerned.

(3) A building society to which a direction is given which requires confirmation under subsection (2) above may, within the period of 14 days beginning with the day on which the direction is given, make written representations to the Commission; and the Commission shall take any such representations into account in deciding whether to confirm the direction. "

19 Revocation: supplementary directions

After section 43 of the 1986 Act there shall be inserted the following section--

" 43A Revocation: supplementary directions

(1) The Commission may give a building society directions under this section--

(a) when giving it notice that the Commission proposes to revoke its authorisation;

(b) at any time after such a notice has been given to the society (whether before or after its authorisation is revoked);

(c) when giving the society a notice of revocation under subsection (3)(e) of section 43 where the requisite initial step (within the meaning of that section) is the passing of a resolution for voluntary winding up or the execution of an instrument of dissolution; or

(d) at any time after the society has requested the Commission to revoke its authorisation or the central office to cancel its registration.

(2) Directions under this section--

(a) shall be such as appear to the Commission to be desirable in the interests of the society's shareholders or depositors, whether for the purpose of safeguarding its assets or otherwise; and

(b) may relate to any activities of the society, whether or not those for which an authorisation is required.

(3) Directions under this section may in particular--

(a) impose limitations on the issue of shares, the acceptance of deposits or the making of loans;

(b) require the society to take certain steps or to refrain from adopting or pursuing a particular course of action or to restrict the scope of its business in a particular way;

(c) require the society to take steps with regard to the conduct of the business of any connected undertaking of the society;

(d) require the removal of any director or other officer.

(4) No direction shall be given by virtue of paragraph (a) or (b) of subsection (1) above, and any direction given by virtue of either of those paragraphs shall cease to have effect, if--

(a) the Commission gives the building society notice that it is not proposing to take any further action pursuant to the notice mentioned in that paragraph; or

(b) the Commission's decision to revoke the society's authorisation is reversed on appeal.

(5) No direction shall be given by virtue of paragraph (d) of subsection (1) above, and any direction given by virtue of that paragraph shall cease to have effect, if the society's request to the Commission to revoke its authorisation, or to the central office to cancel its registration, is withdrawn.

(6) No direction shall be given to a building society under this section after it has ceased to have any liability in respect of shares or deposits for which it had a liability at a time when it was authorised; and any such direction which is in force with respect to a building society shall cease to have effect when the society ceases to have any such liability.

(7) A building society which fails to comply with any requirement or contravenes any prohibition imposed on it by a direction under this section shall be guilty of an offence and liable--

(a) on conviction on indictment, to a fine;

(b) on summary conviction, to a fine not exceeding the statutory maximum.

(8) A contravention of a prohibition imposed under this section shall not invalidate any transaction or other act. "

20 Notification and confirmation of supplementary directions

After section 43A of the 1986 Act there shall be inserted the following section--

" 43B Notification and confirmation of supplementary directions

(1) A direction under section 43A shall be given by notice in writing and may be varied by a further direction; and a direction may be revoked by the Commission by a notice in writing to the building society concerned.

(2) A direction under that section, except one varying a previous direction with the agreement of the building society concerned--

(a) shall state the reasons for which it is given and give particulars of the society's rights under subsection (4) below and section 46; and

(b) without prejudice to section 43A(4), (5) and (6), shall cease to have effect at the end of the period of 28 days beginning with the day on which it is given unless before the end of that period it is confirmed by a further written notice given by the Commission to the society concerned.

(3) Where a direction requires the removal of a person as director or other officer of a building society, the Commission shall give that person a copy of the direction (together with a statement of his rights under subsection (4) below) and, if the direction is confirmed, a copy of the notice mentioned in subsection (2)(b) above.

(4) A building society to which a direction is given which requires confirmation under subsection (2) above and a person who is given a copy of it under subsection (3) above may, within the period of 14 days beginning with the day on which the direction is given, make written representations to the Commission; and the Commission shall take any such representations into account in deciding whether to confirm the direction.

(5) The Commission may omit from the copies given to a person under subsection (3) above any matter which does not relate to him. "

21 The criteria of prudent management

For section 45 of the 1986 Act there shall be substituted the following section--

" 45 The criteria of prudent management

(1) If it appears to the Commission that there has been or is, on the part of a building society or its directors, a failure to satisfy any one or more of the following criteria of prudent management, it shall be entitled to assume for the purposes of its relevant prudential powers that the failure is such as to prejudice the security of the investments of shareholders or depositors.

(2) The prudential powers relevant for the purposes of this section are the Commission's powers--

(a) under section 42, to impose conditions on a society's authorisation,

(b) under section 42B, to direct a society to transfer all its engagements or its business, and

by reference to the expedience of the imposition, direction or revocation for the protection of the investments of shareholders or depositors.

(3) For the purposes of this Act, the criteria of prudent management are--

Compliance with the requirements imposed by sections 5(1), 6(1) and 7(1), and the restrictions on powers imposed by section 9A(1).

Maintenance of--

(a) adequate reserves and other capital resources; and

(b) own funds which amount to not less than the sum which, for the purposes of section 9, is the prescribed minimum in relation to qualifying capital.

Maintenance of adequate assets in liquid form.

Maintenance of a system for managing and containing risks to the net worth of the business, and risks to its net income, whether arising from fluctuations in interest or exchange rates or from other factors.

Maintenance of the requisite arrangements--

(a) for assessing the adequacy of securities for loans which are to be made or acquired by the society or subsidiary undertakings of the society, and are to be substantially secured on land; and

(b) for assessing the willingness and ability of borrowers to repay such loans.

Maintenance of the requisite accounting records and systems of control of business and of inspection and report.

Direction and management--

(a) by a sufficient number of persons who are fit and proper to be directors or, as the case may be, officers, in their respective positions,

(b) conducted by them with prudence and integrity.

Conduct of the business with adequate professional skills.

(4) Nothing in this section implies that it is improper for a determination for any purpose of the Commission's relevant prudential powers to take account of other factors than the criteria in subsection (3) above.

(5) A failure to satisfy any of the first six criteria in subsection (3) above shall be treated, for the purposes of this section, as a failure on the part of a society's directors prudently to conduct the affairs of the society.

(6) A failure on the part of the society to comply with the conditions to which its authorisation is subject shall be treated, for the purposes of this section, as a failure on the part of the society's directors prudently to conduct the affairs of the society.

(7) The following provisions apply for the interpretation of the list of criteria in subsection (3) above in their application to a building society, that is to say--

"adequate", except with reference to liquidity, means adequate having regard to the range and scale of the society's business;
"adequate", with reference to liquidity, means of such proportion and composition as will at all times enable the society to meet its liabilities as they arise and "liquid form", in relation to assets, shall be construed accordingly;
"business" includes business the society proposes to carry on and references to the business of the society include, where it has connected undertakings, references to the business of those undertakings;
"requisite", with reference to the arrangements for assessing the adequacy of securities, means such as may reasonably be expected to ensure--
(i)
that any person who assesses the adequacy of any security for a loan to be secured on land will have furnished to him a written report on the value of the land; and
(ii)
that any person who assesses the adequacy of any security, or reports on the value of any land, will be competent to perform that task, and will not be subject to any conflict of interest or potential conflict of interest;
"requisite", with reference to the arrangements for assessing the ability of borrowers to repay loans, means such as may reasonably be expected to ensure that any person who assesses the ability of any borrower to repay a loan--
(i)
will be competent to perform that task; and
(ii)
will not be subject to any conflict of interest or potential conflict of interest;
"requisite", with reference to accounting records and systems of control, means such as are required by section 71;
"sufficient", with reference to the number of directors and officers, means sufficient having regard to the range and scale of the society's business.

(8) In determining for the purposes of the seventh criterion in subsection (3) above whether a person is a fit and proper person to hold any particular position, regard shall be had, in particular--

(a) to his probity;

(b) to his competence and soundness of judgement for fulfilling the responsibilities of that position;

(d) to whether the interests of shareholders or depositors of the society are, or are likely to be, in any way threatened by his holding that position.

(9) The Treasury may by order vary subsections (3) to (8) above by adding to or deleting from them any provision or by varying any provision contained in them; and an order under this subsection may make--

(a) different provisions for different descriptions of building societies; and

(b) such incidental, supplementary and transitional provision as appears to the Treasury to be necessary or expedient.

(10) The power to make an order under subsection (9) above is exercisable by statutory instrument; but no order shall be made under that subsection unless a draft of the order has been laid before and approved by a resolution of each House of Parliament.

(11) Nothing in this section shall give rise to any claim against a building society or its directors, or afford a defence to any claim made by a building society. "

22 Statements of principles etc. by Commission

After section 45 of the 1986 Act there shall be inserted the following section--

" General functions of Commission

45AA Statements of principles etc. by Commission

(1) The Commission shall, as soon as practicable after the coming into force of this section, publish in such manner and in such detail as it thinks appropriate a statement of the principles in accordance with which it is acting or proposing to act--

(a) in exercising its powers of control; and

(b) in interpreting the criteria of prudent management.

(2) If in the course of a financial year the Commission makes a material change in the principles in accordance with which it is acting or proposing to act as mentioned in subsection (1) above, the Commission shall include in the report made by it for that year under section 4 a statement of the change in such detail as it thinks appropriate.

(3) The Commission may, at any time, publish in such manner and in such detail as it thinks appropriate, either or both of the following, namely--

(a) a statement of the principles in accordance with which it is acting or proposing to act as mentioned in subsection (1) above; and

(b) a statement containing additional guidance as to the exercise of its powers of control and its interpretation of the criteria of prudent management.

(4) In this section "powers of control", in relation to the Commission, means--

(a) the powers conferred on it by sections 36, 36A and 37; and

(b) its powers to grant or revoke an authorisation, to impose conditions on an authorisation or to direct the making of an application under section 41. "

23 Rights of appeal

For section 46 of the 1986 Act there shall be substituted the following section--

" 46 Rights of appeal

(1) A building society which is aggrieved by a decision of the Commission--

(a) to refuse to grant authorisation;

(b) to revoke authorisation;

(d) to give a direction,

may appeal against the decision to a tribunal constituted in accordance with section 47.

(2) Any person in relation to whom the Commission, in deciding to refuse to grant or to revoke authorisation, to impose or vary conditions or to give a direction, makes a determination that a person is not a fit and proper person to hold, or as the case may be, to remain in an office in the society or imposes a requirement that he be removed from an office in the society, may appeal against the decision so far as it relates to that determination or requirement.

(3) The revocation of a society's authorisation, or a direction under section 36(3), (5), (6), (7) or (10), shall not have effect until--

(a) the end of the period within which an appeal can be brought against the Commission's decision to revoke the authorisation or give the direction; and

(b) if such an appeal is brought, until it is determined or withdrawn.

(4) Subsection (3) above applies in relation to the expiry of a society's authorisation on a refusal to grant authorisation under section 41 as it applies to the revocation of a society's authorisation.

(5) Subject to subsection (3) above and any order of the tribunal made under section 47(5), an appeal under subsection (1)(c) or (d) or (2) above shall not affect the operation, pending the determination of the appeal, of any condition or direction which is the subject of the appeal; and no determination of an appeal by any person under subsection (2) above shall affect the revocation or direction for the purposes of which the Commission made its determination or requirement in relation to that person.

(6) In this section and section 47--

"conditions" means conditions to be complied with by a building society and imposed on the grant of authorisation under section 9, on the renewal of authorisation under section 41, on reauthorisation under section 44, or under section 42, or imposed or varied under section 42A;
"direction" means a direction under section 36(3), (5), (6), (7) or (10), section 42B(1) or section 43A;
"grant" includes renew;
"revoke" means revoke under section 43(1). "

24 Determination of appeals

(1) For subsections (5) to (8) of section 47 of the 1986 Act (determination of appeals) there shall be substituted the following subsections--

" (5) The tribunal may, on the application of the building society concerned, order that the operation of--

(a) any condition or variation of a condition; or

(b) any direction under section 36(3), (5), (6), (7) or (10), section 42B(1) or section 43A,

which is the subject of an appeal by the society be suspended pending the determination of the appeal.

(6) The tribunal may confirm or reverse the decision which is the subject of the appeal but shall not have power to vary it except by directing the Commission--

(a) in the case of an appeal against a decision to refuse to grant authorisation, to determine the conditions to which the grant of authorisation is to be subject;

(b) in the case of an appeal against a decision to revoke authorisation, to determine the conditions or different conditions subject to which the authorisation is to continue in force, as the case may be;

(c) in the case of an appeal against the imposition of conditions or as to the conditions imposed by the decision, to determine different conditions subject to which the authorisation is to be granted or is to continue, as the case may be;

(d) in the case of an appeal against the variation of conditions or as to the variation imposed by the decision, to determine different variations of the conditions subject to which the authorisation is to continue;

(e) in the case of an appeal against the giving of a direction under section 36(3), to give a direction under section 36(5) or (6);

(f) in the case of an appeal against the giving of a direction under section 36(5), to give a direction under section 36(3) or (6);

(g) in the case of an appeal against the giving of a direction under section 36(7), section 42B(1) or section 43A, to give a direction imposing different requirements.

(7) Where by virtue of subsection (6) above the tribunal directs the Commission to determine conditions or different conditions or to determine different variations of conditions--

(a) the Commission shall by notice to the society concerned impose such conditions, or such variations of conditions, to be complied with by the society as it considers expedient in order to protect the investments of shareholders or depositors;

(b) Part III of Schedule 3 to this Act shall apply subject to the modifications made by paragraph 9 of that Schedule; and

and on any such appeal the tribunal may confirm or reverse the Commission's decision with respect to the conditions or variations which are the subject of the appeal or may direct the Commission to determine different conditions or variations.

(7A) Where by virtue of subsection (6) above the tribunal directs the Commission to give a different direction under section 36--

(a) the Commission shall by notice to the society concerned give such direction as it considers expedient in order to ensure compliance with the relevant statutory requirements within the meaning of that section;

(b) paragraphs 2 and 3 of Schedule 7A to this Act shall apply subject to the modifications made by paragraph 4 of that Schedule; and

and on any such appeal the tribunal may confirm or reverse the Commission's decision with respect to the direction which is the subject of the appeal or may direct the Commission to give a different direction.

(7B) Where by virtue of subsection (6) above the tribunal directs the Commission to give a different direction under section 43A--

(a) the Commission shall by notice to the society concerned give such direction as it considers desirable in the interests of shareholders or depositors; and

(b) the society concerned may appeal to the tribunal against that direction;

(8) Where by virtue of subsection (7), (7A) or (7B) above the tribunal, on an appeal against any conditions or variations of conditions or any direction, directs the Commission--

(a) to determine different conditions or variations; or

(b) to give a different direction,

the other provisions of that subsection shall apply as they apply where the tribunal gives such a direction by virtue of subsection (6) above. "

(2) In subsection (10) of that section, for the word "conditions" there shall be substituted the words "conditions, variations or directions".

Part III Accountability to members

25 Special meeting on members' requisition

After paragraph 20 of Schedule 2 to the 1986 Act there shall be inserted the following paragraph--

" Special meeting on members' requisition

20A (1) On a members' requisition, a building society shall--

(a) duly call a special meeting, and specify the meeting as such in the notice calling it; and

(b) if so required by the requisition, send to each member entitled to receive notice of the meeting a copy of a statement of not more than 500 words with respect to the matters to be dealt with at the meeting;

and where a meeting is so called no business shall be conducted at the meeting other than that stated in the notice calling it or (where applicable) that mentioned in sub-paragraph (8)(b) below.

(2) A members' requisition is a requisition of not less than the requisite number of members of the society; and that number is 100 or such lesser number as may be specified in the rules of the society.

(3) The requisition--

(a) must state the objects of the meeting, be signed by the requisitionists and be deposited at the society's principal office; and

(b) may consist of several documents in like form each signed by one or more requisitionists and each after the first deposited within three months of the date on which the first was deposited.

(4) Where the requisition consists of several documents, the date of its deposit shall be taken to be the date on which the document signed by the requisitionist making up the requisite number is deposited at the society's principal office.

(5) The rules of the society may require a requisitionist--

(a) to state his full name and address;

(b) to fulfil one or other of the following conditions, namely--

(i) to have been a shareholding member for a specified period and to hold, or to have held at any time during that period, shares in the society to such value (not greater than the prescribed amount) as is specified in the rules; and

(ii) to have been a borrowing member for a specified period and to owe to the society, or to have owed to the society at any time during that period, a mortgage debt of such amount (not greater than the prescribed amount) as is so specified; and

(c) to identify a share or mortgage account with the society which will evidence the fact that he fulfils one or other of those conditions;

and in this sub-paragraph "specified period" means such period (not more than two years) before the date of the requisition as is specified in the rules.

(6) No objection may be made by virtue of such rules to the requisition or, where the requisition consists of several documents, to any of those documents unless it is made within 14 days of the requisition or document being deposited at the society's principal office.

(7) The rules of the society may also require a sum of money, not exceeding £25 per requisitionist, to be deposited with the requisition; and, where any money is so deposited, it shall be forfeited to the society, or returned to the persons who deposited it, as provided by the rules.

(8) The rules shall not provide for any deposited money to be forfeited to the society except--

(a) where a quorum is not present within half an hour after the time appointed for the meeting; or

(b) where and to the extent that those eligible to vote at the meeting decide by ordinary resolution that the money should be applied to defray the whole or any part of the expenses of holding the meeting.

(9) If the rules of a building society so provide, sub-paragraph (1) above does not require the society--

(a) to call a special meeting if the only or main object of the meeting is to move a resolution in substantially the same terms as any resolution which has been defeated at a meeting or on a postal ballot during the period beginning with the third annual general meeting before the date on which the requisition is deposited at the society's principal office; or

(b) to call a special meeting to be held during the period of four months beginning one month after the end of its financial year.

(10) Sub-paragraph (1)(b) above does not require the society to send copies of a statement to members entitled to receive notice of a meeting in any case where--

(a) publicity for the statement would be likely to diminish substantially the confidence in the society of investing members of the public; or

(b) the rights conferred by sub-paragraph (1)(b) above are being abused to seek needless publicity for defamatory matter or for frivolous or vexatious purposes;

and that provision shall not be taken to confer any rights on members, or to impose any duties on a building society, in respect of a statement which does not relate directly to the affairs of the society.

(11) Where sub-paragraph (1)(b) above requires copies of a statement to be sent to members entitled to receive notice of a meeting, the proceedings at the meeting are not invalidated by--

(a) the accidental omission to send a copy of the statement to a member entitled to receive one, or

(b) the non-receipt of such a copy by such a member.

(12) The Commission shall hear and determine any dispute arising under sub-paragraph (10)(a) above, whether on the application of the society or of any other person who claims to be aggrieved.

(13) The Commission may, with the consent of the Treasury, by order substitute--

(a) for the number specified in sub-paragraph (2) above; or

(b) for the sum specified in sub-paragraph (7) above,

such other number or sum as appears to it to be appropriate; and an order under this subsection may make such supplementary, transitional and saving provision as appears to the Commission to be necessary or expedient.

(14) The power to make an order under sub-paragraph (13) above is exercisable by statutory instrument which shall be subject to annulment in pursuance of a resolution of either House of Parliament. "

26 Failure to comply with members' requisition

After paragraph 20A of Schedule 2 to the 1986 Act there shall be inserted the following paragraph--

" Failure to comply with members' requisition

20B (1) This paragraph applies where a members' requisition is deposited at a building society's principal office and the society is not relieved of the obligation to call a special meeting by paragraph 20A(9)(a) above.

(2) Subject to sub-paragraph (5) below, if the society does not within 28 days from the date of the deposit of the requisition duly call a meeting to be held within 63 days from that date--

(a) the requisitionists, or any proportion of them exceeding one half, may themselves call a meeting to be held within five months from that date; and

(b) no business shall be conducted at a meeting so called other than that stated in the notice calling it or (where applicable) that mentioned in paragraph 20A(8)(b) above.

(3) A meeting called under sub-paragraph (2) above by requisitionists shall be called in the same manner, as nearly as may be, as that in which meetings are to be called by the society.

(4) If--

(a) paragraph 20A(1)(b) above requires the society to send to each member entitled to receive notice of the meeting a copy of a statement of not more than 500 words with respect to the matters to be dealt with at the meeting; and

(b) subject to sub-paragraph (5) below, that requirement is not complied with within 28 days from the date of the deposit of the requisition,

the requisitionists, or any proportion of them exceeding one half, may themselves send a copy of the statement to each such member.

(5) If the rules of the society make such provision as is mentioned in paragraph 20A(9)(b) above, any days falling within the period there mentioned shall be disregarded in determining any period for the purposes of sub-paragraph (2) or (4)(b) above.

(6) Any reasonable expenses incurred by the requisitionists by reason of the failure of the society to call a meeting, or to comply with such a requirement as is mentioned in sub-paragraph (4) above, shall be repaid to the requisitionists by the society.

(7) Any sum so repaid shall be recoverable by the society from such of the directors of the society as were responsible for the failure (whether by the retention of fees or other remuneration in respect of services or otherwise). "

27 Election of directors: general

(1) In subsection (1) of section 60 of the 1986 Act (directors: elections and retirements), for paragraph (a) there shall be substituted the following paragraph--

" (a) on a poll taken at the annual general meeting of the society, or " .

(2) After that subsection there shall be inserted the following subsection--

" (1A) Where directors of a building society are to be elected to office on a poll taken at the annual general meeting of the society, a form for the appointment of a proxy shall be sent to each person entitled to notice of the meeting. "

(3) For subsection (3) of that section there shall be substituted the following subsections--

" (3) Where, in the case of an election of directors of a building society, there are more candidates than vacancies to be filled by the election, a person entitled to vote in the election--

(a) shall have one vote in respect of every vacancy, but

(b) cannot be required to cast all or any of his votes.

(3A) Where, in the case of an election of directors of a building society, there are not more candidates than vacancies to be filled by the election--

(a) a person entitled to vote in the election shall have one vote in respect of every candidate, but cannot be required to cast all or any of his votes;

(b) each vote shall be capable of being cast either for or against the candidate concerned; and

(4) In subsection (4) of that section, for the words "any person" there shall be substituted the words "any natural person".

(5) In subsection (10) of that section, for paragraph (b) there shall be substituted the following paragraph--

" (b) their qualifications as respects length of membership and the value of their shares or the amount of their mortgage debt; " .

(6) After that subsection there shall be inserted the following subsection--

" (10A) A nomination of a candidate for election as a director of a building society--

(a) may be made at any time; but

(b) if made after the closing date for the nomination of candidates for the next election of directors, shall be carried forward (unless the candidate otherwise requires) as a nomination for the next election of directors after that;

and in this subsection and section 61 "the closing date for the nomination of candidates", in relation to an election of directors, means the last day of the last financial year to end before the voting date. "

(7) In subsection (17) of that section, the definition of "ordinary resolution" shall cease to have effect.

28 Election of directors: supplementary

(1) For subsections (1) and (2) of section 61 of the 1986 Act (directors: supplementary provisions as to elections etc.) there shall be substituted the following subsections--

" (1) Rules made under section 60(10)(a), in order to comply with this section, must not require--

(a) in the case of a society whose total commercial assets do not exceed £100 million, more than 10 members;

(b) in the case of a society whose total commercial assets exceed £100 million but do not exceed £250 million, more than 20 members;

(c) in the case of a society whose total commercial assets exceed £250 million but do not exceed £1,000 million, more than 30 members;

(d) in the case of a society whose total commercial assets exceed £1,000 million but do not exceed £5,000 million, more than 40 members; and

(e) in the case of a society whose total commercial assets exceed £5,000 million, more than 50 members,

to join in nominating a person for election as a director.

(2) Rules under section 60(10)(b), in order to comply with this section, must not require a nominating member--

(a) to have been a member for more than two years before the date of the nomination; or

(b) if he claims eligibility as a shareholding member, to hold, or to have held at any time during that period, shares in the society to a value greater than £100; or

(c) if he claims eligibility as a borrowing member, to owe to the society, or to have owed to the society at any time during that period, a mortgage debt of an amount greater than £100. "

(2) For subsection (4) of that section there shall be substituted the following subsections--

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