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Standing Committee B
Tuesday 22 June 2004
(Morning)
[Mr. Jonathan Sayeed in the Chair]
8.55 am
Schedules 20 and 21 agreed to.
Clause 157
Restrictions on winding-up orders
Question proposed, That the clause stand part of the Bill.
Miss Anne McIntosh (Vale of York) (Con): Good morning, Mr. Sayeed, and welcome back to the Chair. I rise to ask the Minister for a couple of points of clarification. Will the proceedings for winding-up orders be the same in Scotland as they are in England? What will the position be for creditors of electricity companies?
The Parliamentary Under-Secretary of State for Trade and Industry (Nigel Griffiths): A warm welcome back to the Committee, Mr. Sayeed. The hon. Lady asked two questions about this block of five clauses—157 to 161. The aim is to prevent special administration from being frustrated by prior orders of various types being granted before the Secretary of State and Ofgem have been given an opportunity to seek an energy administration order, or by other steps being taken when an energy administration order has been made or an application is outstanding.
Proceedings in Scotland will be in accordance with Scottish rules and practice. Those are designed, I understand, to parallel proceedings in England, Wales and Northern Ireland. If that requires further clarification I am happy to write to members of the Committee, but I hope that explanation will suffice. Will the hon. Lady remind me of her second point?
Miss McIntosh: My second point relates to creditors of a company that had to be wound up. Would they be treated the same in England as in Scotland?
Nigel Griffiths: The rules governing creditors when administrators, or their equivalent, go into a company will not be different from the existing rules applying to any company going into administration. I will need to get more clarification, but my understanding is that the position of creditors in these circumstances will be no different from that of those in other circumstances.
Miss McIntosh: Perhaps it would assist the Minister if I gave more clarification. We heard from the Liberal Democrats what the position of particular companies would be if they were granted special status under the Gas and Electricity Markets Authority and what the position of creditors would be. The regulatory impact
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assessment includes special arrangements for administration and I assume that they apply to this clause. I seek clarification of whether the situation will be the same as an ordinary sequestration.
Nigel Griffiths: I think the aim is to prevent a winding-up order from being sought by a person other than the Secretary of State to frustrate or interfere with a process, unless, as the Bill states, notice has been served on the Secretary of State and 14 days have passed since the last of the notices were served. The clause is designed so that, if an application for an energy administration order is received before a winding-up order is made, the court can consider that application instead of making winding-up orders.
The position of creditors in special administration is similar to that in normal administration, but there are differences for special administration, which are outlined and have the benefit of case or the appropriate law. The attempt here is not to add to the legal powers in a novel way, but to reflect what appertains to special administration as well as to administration, so that there are set procedures for how creditors will be dealt with. The primary purpose of special administration in this case is to keep the lights on. Creditors' rights should not otherwise be affected. I hope that I have satisfied hon. Members on that issue.
Question put and agreed to.
Clause 157 ordered to stand part of the Bill.
Clauses 158 and 159 ordered to stand part of the Bill.
Clause 160
Restrictions on administrator appointments by creditors etc.
Question proposed, That the clause stand part of the Bill.
Miss McIntosh: I seek an assurance from the Minister that the Government—the state—will not be asked to act as a creditor in respect of administration under the clause.
Nigel Griffiths: My understanding is that the Government will not be asked to stand creditor. I hope that the hon. Lady is satisfied with that reassurance.
Miss McIntosh: I am slightly concerned because the Minister says that the purpose of these clauses, particularly clause 160, is to keep the lights on. In that case, someone will have to make good the outstanding debts if the Government will not stand creditor in that regard.
Nigel Griffiths: We are talking about companies. The positions of a creditor, particularly a secured creditor, and the directors of a company are set out clearly and have been for a number of years. There are responsibilities. An administrator will be responsible for ensuring that the company continues to run and that the lights are kept on, but they will deal with the
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liabilities of the current or former directors and others, such as the shareholders of the company, as well. I am advising the hon. Lady that the liabilities or the costs of keeping the system going, which I am advised clauses 162 to 165 deal with, allow for a charge to be raised on the licence holders. That is explained in clause 162.
Miss McIntosh: I understand that it is unlikely that such companies would become insolvent because according to pages 91 and 92 of the regulatory impact assessment they are effectively monopolies or duopolies. My concern is that were such a company to become insolvent another company might not be able to leap into the breach. That is a particular worry in Scotland, which has only two such companies, and we heard earlier that there might be a move to merge them. The Government must have thought this through because it could wreck the whole Bill. What measures do they intend to take to keep the lights on?
Nigel Griffiths: Clauses 162 to 165 give clear powers here. There is provision for the Government to provide grants, loans and loan guarantees—short-term funding mechanisms for companies to keep the network functioning.
Miss McIntosh: What assurance does the Committee have that those grants and loans would pass the stringent conditions of the EU state aid provisions? On similar occasions, short of insolvency, such grants and loans have been deemed to breach EU treaty rules and the competition provisions. The measures set out in the Bill would therefore mean absolutely nothing.
Nigel Griffiths: The hon. Lady slipped in the critical phrase ''short of insolvency''. Previous state aid cases tended to focus on whether investment would be permitted and money raised. Obviously, such a matter would be considered by the Commission. The Government could undoubtedly persuade the Commission that in such circumstances the prime necessity would be to keep the lights burning, the heating systems working and the fuel flowing. I believe that the Commission would view matters in that light. It would not want to be held responsible for blocking any loan or grant that might be needed in the extreme case that the hon. Lady rightly describes. The clauses provide for extreme emergencies. I do not envisage the Commission doing anything to shut off the lights or fuel in Britain.
Miss McIntosh: I have made the point and the record will speak for itself. A similar situation pertains with British Energy, which is not a private company like the electricity companies. I understand that the Commission was not minded to allow some of the moneys that the Government wished to give British
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Energy and would look cautiously at such requests. I also understand that the time scales relating to clause 160 are extremely tight.
Question put and agreed to.
Clause 160 ordered to stand part of the Bill.
Clauses 161 to 163 ordered to stand part of the Bill.
Clause 164
Guarantees where energy administration order is made
Question proposed, That the clause stand part of the Bill.
Mr. Laurence Robertson (Tewkesbury) (Con): What I want to say follows on from the questions put by my hon. Friend the Member for Vale of York (Miss McIntosh). This strange clause states that the Secretary of State may guarantee various sums that are borrowed by the company when the energy administration order is in force. It seems odd that even after the Government have effectively taken over the company, it can continue to borrow sums, which the Government can guarantee. What is the position under European law in that respect? Will the Minister please clarify the effect of the clause?
Nigel Griffiths: The hon. Gentleman has summarised the aims of the clause. The Government expect that the energy administrator will, as a first recourse, look to commercial lenders to provide funding—short-term financing—to meet the objective of energy administration, which is to keep the network running despite the insolvency, or near insolvency, of the company. The clause will allow Secretary of State to guarantee sums borrowed by the protected energy company and provides for the payment of interest on those sums, as well as the discharge of related financial obligations for which she may see fit to accept the terms of the guarantee. That is to ensure that the energy administrator can look to commercial lenders.
The hon. Gentleman raises a fair point—state aid will need to be considered fully at the time—but the Government believe that it is fully approvable by the European Commission in accordance with the guidelines on state aid for rescuing and restructuring firms in difficulty. If the guarantee constituted state aid, we would, in the usual way, notify and obtain approval from the Commission, which would consider the arrangement in the circumstances of the specific case. We would expect the energy administrator to put a powerful case in such circumstances.
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