By virtue of The Energy Act 2011, The Energy Act 2004 introduced the ‘Special Administration Regime for Energy Licensees’ for companies that supply electricity and gas in England & Wales pursuant to specific supply licences granted by Ofgem.
Appointment
An ‘Energy Administrator’ may only be appointed on application to the court for an energy administration order by the Secretary of State (‘SoS’) or with the consent of the SoS.
On hearing an application for an administration order, the court does have the power to dismiss the application, however, this would be unlikely if it can be shown that that the company is unable to pay its debts or it is likely to be unable to pay its debts; or that, on a petition by the SoS under s.124A of IA86 (petition for winding up on grounds of public interest), it would be just and equitable (disregarding the objective of the energy administration) to wind up the company in the public interest.
The court must not make an energy administration order in relation to a company unless the SoS has certified to the court that the case before it is one, which he or she considers (disregarding the objective of the energy administration) that it would be appropriate for him or her to petition under s.124A of IA86.
The court has no power to make an energy administration order in relation to a company which is in administration under Sch. B1 of IA86; or has gone into liquidation (within the meaning of s.247(2) of IA86).
An energy administration order comes into force at the time appointed by the court; or if no time when the order is made.
It is important to note that Ofgem will only seek the consent of the SoS where they consider that use of their Supplier of Last Resort (‘SoLR’) powers would not be feasible. Where Ofgem decide not to seek an energy administration order they will not necessarily use their SoLR powers. Ofgem have discretion on whether to revoke a licence, and how to select and appoint a SoLR and as a general rule consider that trade sales are more desirable than regulatory intervention.
In practice, the energy administration order is not often used as it was envisaged to be used for large energy supply companies only and supports the position of Ofgem in terms of its support for trade sales rather than administration as means of ensuring continuity of supply.
Objectives of an Energy Administration
There are two objectives to an Energy Administration
(1) That the company’s system is and continues to be maintained and developed as an efficient and economical system (1); and
(2) That it becomes unnecessary, by one or both of the following means, for the energy administration order to remain in force for that purpose.
Those means are –
(a)the rescue as a going concern of the company subject to the energy administration order; and
(b)transfers falling within –
if it is a transfer as a going concern–
(a)to another company, or
(b)as respects different parts of the undertaking of the company subject to the energy administration order, to two or more different companies.
Energy Administrators
An energy administrator must be qualified to act as an insolvency practitioner and will be an officer of the court when appointed. The energy administrator will also be the company’s agent when performing his or her powers and duties in relation to the company.
The management by the energy administrator of a company of any affairs, business or property of the company must be carried out for the purpose of achieving the objective of the energy administration as quickly and as efficiently as is reasonably practicable.
Conduct of administration
The provisions of Schedule B1 of IA86 are to have effect in relation to energy administration orders but with the modifications set out in Part 2 of Schedule 20 of The Energy Act 2004.
Restrictions on winding up
A protected energy company has no power to pass a resolution for voluntary winding up without the permission of the court.
The court is not to exercise its powers on a winding-up petition unless notice of the petition has been served on the SoS and on Gas & Electricity Markets Authority (‘GEMA’) and a period of at least fourteen days has elapsed since the service of the last of those notices to be served.
Restrictions on making of ordinary administration orders
The court must dismiss the application if an energy administration order is in force in relation to the company; or an energy administration order has been made in relation to the company but is not yet in force.
However, the court must not exercise its powers under paragraph 13 of Sch. B1 of IA86 unless notice of the application has been served both on the SoS and on GEMA and a period of at least fourteen days has elapsed since the service of the last of those notices to be served. Also, there is no application for an energy administration order that is outstanding.
Restrictions on administrator appointments by creditors etc.
No step is to be taken by any person to make an appointment in relation to a company under paragraph 14 or 22 of Schedule B1 of IA86 (powers of holder of floating charge and of the company itself and of its directors to appoint administrators) if–
(a) an energy administration order is in force in relation to the company;
(b) an energy administration order has been made in relation to the company but is not yet in force; or
(c) an application for such an order is outstanding.
Restrictions on enforcement of security
No step to enforce a security over property of a protected energy company is to be taken by any person, unless
notice of his or her intention to do so has been served both on the SoS and on GEMA and a period of at least fourteen days has elapsed since the service of the last of those notices to be served.
Financial support for companies in administration
Grants and loans
The SoS may make grants or loans to the company of such amounts appropriate to pay or lend for achieving the objective of the energy administration. A grant or loan may be made in whatever manner, and on whatever terms, the SoS considers appropriate.
Indemnities
The SoS may agree to indemnify persons in respect of one or both of the following–
(a) liabilities incurred in connection with the exercise and performance by the energy administrator of his powers and duties; and
(b) loss or damage sustained in that connection.
The agreement may be made in whatever manner, and on whatever terms, the SoS considers appropriate.
Supplier of Last Resort (‘SoLR’)
Under the SoLR process Ofgem asks suppliers to notify Ofgem of their willingness to be considered as a SoLR together with the terms on which they would undertake such a role although Ofgem does have the power to direct a gas or electricity supply company to take over responsibility for supplying energy to a failed supplier company’s customers (i.e. to be a SoLR) after revocation of the failed supplier’s licence. Once Ofgem has assessed the various suppliers as against certain published criteria and nominated a SoLR, the failing supply company’s gas and electricity supply licences will be revoked. Upon revocation of its licences, the supply company is no longer a regulated company, and the supply company can be placed into an ordinary administration or any other insolvency process.
Ofgem’s principal objective is to protect the interests of customers and, in the event of a supplier failure, to ensure that customers receive a continuity of supply of gas and electricity. The energy supply company administration regime is intended to deal with situations where use of Ofgem’s SoLR powers would not be practicable. Where the court makes such an order, the energy administrator is under an obligation to run the company in accordance with objectives which differ from those which apply in ordinary administration.
Other useful references
- Ofgem consultation on energy company insolvencies (Link)
- Expectations for energy suppliers and insolvency practitioners who are dealing with domestic consumers when undertaking charge recovery action (Link)
- Open letter to insolvency practitioners appointed to failed Energy Supply companies 2019 (Link)
(1) in relation to a system for electricity distribution or electricity transmission