-- The Law Society has received complaints about an effect of the way in which building societies converting to limited companies are distributing benefits, in the form of free shares, to account holders.This is an obscure and difficult corner of the law about which virtually nothing can be stated without qualification.When the Abbey National converted from a building society to a limited company (or transferred its business to a commercial company -- s.97 of the Building Societies Act 1986) in 1989 becoming a bank, it decided to adopt the 'per member' principle in distributing benefits to members -- generally, sole or first named account holders.

With the approval of its members and the Building Societies Commission, and the support of a High Court decision, it decided that this was the fairest approach.

The Halifax Building Society is in the process of a similar conversion and is, with the support of another High Court decision, to adopt the same principle.It seems likely that other converting societies will decide to follow the Abbey/Halif ax route -- only the Cheltenham and Gloucester has taken a different direction by opting for a 'per account' approach (but this was a different type of transaction as the society was not transferring business to a commercial company formed for this purpose, as were the Abbey and the Halifax [see s.97 of the Building Societies Act 1986] but was being taken over by Lloyds Bank of which it is now a subsidiary).Whatever the advantages of the 'per member' approach, it has a drawback where a member of a building society holds more than one account and one or more of them belongs to someone other than the holder as a beneficiary of a trust.

Regardless of the number of accounts and who owns them, the accountholder will receive only one set of benefits.

Accounts are effectively amalgamated and treated as one.This amalgamation may seem unfair to those who lose out because of it.

However, it seems to follow from the provisions of the Building Societies Act 1986 that nothing else but a 'one set per qualifying member' scheme is permissible (although the Act gives more latitude in a Lloyds/Cheltenham & Gloucester type takeover, where benefits come from a body other than the society itself).The sections of the Act which are concerned with conversions of building societies to limited companies are ss 97-102.

Sched 2 is also relevant.

Section 100 lays down rules about the distribution of benefits, giving limited powers to distribute cash, while the power to distribute free shares is wider.

However, although there is uncertainty, it seems that the Act does not allow a society to give cash or shares to anyone other than a member (or a former member, in certain circumstances).

A 'member' is a person whose name appears on the register of members.

Where an account is held in more than one name, sched 2 says that it is the first-named, or 'representative', holder who is to be treated as the 'member'.

Thus, a beneficial owner of an account held in another's name cannot be a member.There are categories of people who are likely to hold building society accounts for others as trustees.

Though the main banks' trust companies no doubt hold substantial numbers, solicitors may between them hold more.

It is common for more than one of the trusts of which a solicitor is trustee to have an account with the same building society -- and the solicitor will usually be the first named accountholder.Thus, solicitors find themselves having to divide the benefits given by a society between several trusts, instead of each receiving a full set.

This can give rise to resentment, aggravated further when a trustee also has an account of his or her own.

As trust law says that a trustee may not benefit at the expense of a trust of which he or she is trustee, the trustee may not keep any share in the benefits if this would reduce what goes to the trust or trusts.

This effect of trust law was confirmed by counsel in advice obtained by the Law Society at the time of the conversion of the Abbey National and was restated in an article in the Gazette [1995] 25 October, 25 about the Halifax conversion.

In fact, because of the Halifax's intention to give qualifying members, in addition to a flat rate benefit, a variable benefit reflecting the amount held in an account eligible for this extra distribution, non-member owners of Halifax accounts which are held by someone who also holds other accounts may get 'per account' benefits.

This is because the variable distribution will be calculated according to the total credit balances of the accounts in the name of a qualifying member (although excluding any amount of more than £50,000), so that a single benefit package may contain an element distributable per account.It is for the members of each building society to choose which benefit distribution scheme to adopt.

The effect of a 'per member' scheme may seem unfair to those who lose out but it seems that the present law requires a building society whose members choose this approach to give only one set of benefits to each qualifying member, regardless of how many accounts he or she holds, and of who their actual owners are.The Law Society and others have made representations for a change in the Building Societies Act 1986 to enable a society to recognise beneficial ownership of accounts.

At the time of writing, the Building Societies (Distributions) Bill was before Parliament.This would, to some extent, modify the amalgation effect of the 1986 Act if it reached the statute book but, even if it does, it will not operate retrospectively and will therefore not apply to the conversions of the Halifax, the Alliance and Leicester, the Northern Rock, or the Woolwich.Charles Maggs is secretary to the Law Society's consumer and commercial law committee.