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I am happy for the noble Baroness to take this away and come back to me on this matter. There was another point that she did not address. Some companies have put it to me that such a clause, whereby there can be direct intervention by the Secretary of State in what was a commercial arrangement, could impact on the investments of those companies in the industry. That is quite a serious matter, and I asked whether there had been any discussions with the industry on investment.

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I appreciate that she does not have the information to hand, but if she could let me know it would be very helpful.

Lord Teverson: I like this part of the Bill. Good questions have come from the noble Baroness, which we would not have dealt with in Committee otherwise. First, as the Minister says, these provisions give the opportunity for small oilfields to be exploited when the infrastructure and investment in that would not otherwise allow that at all. Secondly, to pick up the point made by the noble Lord, Lord Moynihan-although he is not in his place-it must make it possible for smaller, independent oil companies to exploit those opportunities, which would not otherwise be there if there was no sharing. The pipelines that are already there are in a certain way a ransom strip. They are a monopoly of a facility that has been invested in, rightly, by those organisations, but they give undue leverage to those organisations. Also, the fact that this legislation is here means that commercial deals will almost certainly be done, whereas they might not be if it was not here. So this is a good clause in the Bill.

Baroness Northover: I welcome what my noble friend Lord Teverson has said. I note several things in relation to what the noble Baroness said. I point out that the briefing, which I hope she received all of, says that, while there are understandable differences of view-infrastructure owners are wary of change, but potential users are often strongly in favour-the industry is broadly speaking supportive of the case for change. On the point of whether the Government should be involved in something like this or whether it should simply be left to commercial negotiations, EU law requires the provision of a dispute resolution procedure for access to upstream gas pipelines.

My noble friend Lord Teverson pointed out that we have a responsibility as the UK Government to ensure that these resources are accessible. The fact that they are, as I have mentioned, in smaller pockets and may need that kind of sharing of infrastructure makes it even more important now that this is addressed. That is why that is being done: it is in the national interest that it is done and not simply left to market forces to resolve in these circumstances. On that basis, I hope the noble Baroness will feel that I have adequately addressed the issues that she has raised. If she remains concerned, we can have further discussions. In the mean time, I hope she is happy for this clause to stand part of the Bill.

7.15 pm

Baroness Smith of Basildon: I am grateful to the noble Baroness, who has sought to address my concerns. I have had a note from the officials to say that there are many legal complexities around this. On that basis, I am happy to discuss further-that would be helpful for my peace of mind and in understanding why certain provisions have come forward in the way that they have. I am grateful to the noble Baroness for that offer.

Clause 78 agreed.

Clauses 79 to 85 agreed.



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Schedule 2 agreed.

Clauses 86 to 89 agreed.

Clause 90 : Application of certain provisions of the Energy Act 2004 in relation to esc administration orders

Amendment 34B

Moved by Lord Jenkin of Roding

34B: Clause 90, page 70, line 43, at end insert-

"( ) In the application of section 157(2), insert "or" at the end of paragraph (a) and omit paragraph (b)."

Lord Jenkin of Roding: My Lords, I am conscious that we are nearing the usual time for the Committee to adjourn so I will try to be brief. I just make a point by way of introduction. Nobody reading this amendment could have a clue what it was about. The reason for that is that it is a striking example of the Bill adopting the process of legislation by reference to earlier Bills. I am sorry my noble friend Lord Marland is not here. I have raised this matter with the Law Commission because the gas and electricity Acts are now virtually indecipherable; it is impossible to find one's way around them. It is high time that there was a consolidation. Having said that, I will move on.

The real problem that the amendment addresses is that one of the provisions of the Energy Act 2004 that is being applied to this Bill is Section 157. Section 157(2) established three grounds on which an energy supply company can be put into administration. One is that the company is unable to pay its debts. Another is that it would be just and equitable, under Section 124A of the Insolvency Act, to wind up the company in the public interest-for instance to stop fraud or criminal activity. The third ground-this is what the amendment is about-is that the court must be satisfied that the company is likely to be unable to pay its debts. The 2004 Act applied to network companies; this Bill would apply it to supply companies. My amendment would delete that third ground-of a company being likely to be unable to pay its debts-for administration as it would apply to supply companies.

To put it in layman's terms, this means that the petitioner for a special administration order must be able to convince the court that, while the company in question is currently quite solvent, it is at risk of becoming insolvent, perhaps because the scale of liabilities that it faces looks excessive in relation to the foreseeable value of its assets. How far ahead? It is a very uncertain test. The reason for the third test was that it enabled a company's directors, who after all should have the best view of the likely future circumstances, to apply for insolvency administration. That cannot possibly apply here because the only people who can apply for administration under this Bill are the Minister or Ofgem. The directors cannot do so.

There is another reason why the test should not apply here. Those who followed closely the tangled affairs of Railtrack in 2001 can recognise that it is open to political abuse. I do not propose to go into the long and tangled story, which was reported the other

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day in the Times, but it was the very looseness of test, which was in reality just a call by an accountant, that enabled the Government of the day to put Railtrack into special administration, even though the company was at the time solvent. It was only on the basis of cash flow projections over a lengthy future period that the Government could proceed.

A test that requires that kind of assessment to be made is quite different from the other two tests. It is inherently inappropriate, particularly here where we are dealing with energy supply companies which are operating in volatile, competitive markets. It is made doubly inappropriate by the fact that the tests can be abused for political purposes.

My amendment would simply remove that test altogether as it would apply to energy suppliers. My noble friend may have better ways of doing this, but I do not think that that test is appropriate in such a case as we have here, where only Ofgem or the Secretary of State-not the directors of a company-are able to use it and where it would be inherently very difficult to apply. I beg to move.

Lord Davies of Oldham: My Lords, like the noble Lord, Lord Jenkin, I served on the Committee that produced the 2004 Act. It went on at least twice as long as we are destined to do. The noble Lord indicated that he has found a slight impediment in that Act. All I can say is that I did not see it at the time and I do not understand it now, so good luck to the Minister.

Baroness Northover: My Lords, I must say that I am incredibly impressed at the thoroughness with which my noble friend Lord Jenkin has read this Bill and that I hope that he very much liked Clause 78, which indeed consolidated and hopefully improved existing provisions.

Lord Jenkin of Roding: I had intended to say just that, because I was checking the Bill and saw that, indeed, the earlier clauses had been repealed.

Baroness Northover: The clauses on special administration in the Bill largely follow the tests and procedures for ordinary administration laid down in the Insolvency Act 1986. If a party applies to the court for an ordinary administration order, the court may grant it if it is satisfied that a company is unable to pay its debts or is unlikely to be able to pay them. Administration under the Insolvency Act 1986 is a business rescue procedure with the survival of the company as its primary objective. If entry to administration were available only to a company that could not pay its debts at the date of commencement, the rescue of viable businesses might be jeopardised. For this reason, administration can be entered also when a company is likely to become unable to pay its debts. The provisions in the Bill apply these same principles to energy supply company administration.

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They follow the same tests for insolvency as the Insolvency Act. My noble friend's amendment would require the court to apply a stricter test for insolvency when considering applications for energy supply company administration than it does for applications for ordinary administration.

I make it clear that the Secretary of State would apply for an energy supply company administration order only as a last resort and to prevent the risk of financial failure spreading to other companies. I hope that I have reassured my noble friend that we are seeking simply to keep the procedure in line with that which applies elsewhere for other companies. I hope that he will withdraw his amendment.

Lord Jenkin of Roding: My Lords, I am grateful for my noble friend's explanation, but I have to say that I do not think that she has taken account of what I said. Under the Insolvency Act, which introduces this third test, the directors of a company can apply to put the company into administration. After all, they are the ones who are best able to decide whether the company is likely to be unable to pay its debts in the future. In this case, that does not apply. The directors are forbidden to do it; only the Secretary of State or Ofgem can make the call. I see that my noble friend has been given an explanation. It would nice if the Committee could hear it, too.

Baroness Northover: It is amazing what enlightenments can come when one listens to one's noble friends. Funnily enough, I have come to this conclusion: the Secretary of State will no doubt wish to discuss any application for an energy supply company administration order with company directors in advance. Directors will be able to contest the application in court. However, enshrining a duty to consult directors in the legislation could lead to delay. The Secretary of State needs the flexibility to act quickly if the company's position is posing a threat to the rest of the market. When we see what has happened recently in other areas, we realise why this is extremely important. I hope that that helps to elucidate why this is in this provision.

Lord Jenkin of Roding: My noble friend has made a persuasive case and I am grateful to her. This has caused anxiety, particularly in the light of the Railtrack case. However, having heard her, I beg leave to withdraw the amendment.

Amendment 34B withdrawn.

Clause 90 agreed.

Clauses 91 to 97 agreed.

Baroness Northover: This may be a convenient moment for the Committee to adjourn until Tuesday 8 February.

Committee adjourned at 7.27 pm.


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