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Energy Bill [HL]

My Lords, we are grateful to my noble friend for raising this important issue, which enables us to clarify further and to put the arrangements on the record. We understand that there might be concerns that the tests for insolvency set out in these provisions appear to be rather wide, but they are statutory tests for insolvency as set out in the Insolvency Act 1986. As my noble friend has indicated, it is also a matter of balancing the interests of the companies, consumers and the public interest. 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 also be entered when a company is likely to become unable to pay its debts, which was the focus of what my noble friend said. The clauses on special administration in the Bill follow these principles. When seeking to bring an energy supply company administration to an end, the administrator’s primary objective will be to rescue the company as a going concern. Therefore, these provisions apply the same tests for insolvency as the Insolvency Act. My noble friend argued that the process is different. As he has already picked up, the Secretary of State and Ofgem will no doubt want to discuss with the company’s directors in advance any application for an energy supply company administration order. However, enshrining in the legislation a duty to consult directors in could lead to delay. This is significant; the Secretary of State needs flexibility to act quickly if the company’s position poses a threat to the rest of the market. That is extremely important to remember in this case. The 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. It is therefore conceivable that an application by the Secretary of State for an energy supply company administration order could be dismissed, while an application for ordinary administration by a creditor of the company could succeed. This could lead to the very situation that the provisions in the Bill are intended to address. The fact that a court process is required provides an important safeguard for companies, as the directors of the company have the opportunity to contest the order in court. They will no doubt use the kind of material that my noble friend has just mentioned. My noble friend mentioned Railtrack. In October 2001, the High Court granted a railway administration order in relation to Railtrack. When granting the administration order, Mr Justice Lightman said: "““This is clearly a case where the making of a railway administration order is not only appropriate, but absolutely essential””." If my noble friend would like, I can fill him in at another time on the reason for that judgment being made. The company was put into administration to ensure that the railway network continued to operate and was properly maintained and managed, and that it was done in the public interest. I make it absolutely clear that it is intended 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. It is important to balance duties to the public with the rights of the companies. Energy supply is vital to the public and to the economy. It is therefore very important that this matter is looked at in the context of the public interest. The balance must be right. What we have seen recently in the banking industry, for example, shows how important it is to be very careful in this area. I hope, therefore, that I have sufficiently reassured my noble friend and that he will now withdraw his amendment.