UK government updates water company insolvency regime

The UK government has updated the 30-year-old special administration regime for water companies making it possible to rescue water companies.

The new legislation (plus two draft instruments) aims to modernise water company insolvency legislation in the face of the growing challenges in the industry including higher operating costs, claims over sewage pollution and significant debt burden (Thames Water owes £18.3 billion). 

New special administration regime

• The special administrator can now transfer the operating business as a going concern to a wholly owned subsidiary through a hive-down. The company's assets are transferred, and the shares sold to a buyer potentially leaving the debts behind in the group. 
• Where the special administration is initiated on the basis that the company is "unable to pay its debts" the new provisions allow for a "rescue" purpose to apply. 
• If a rescue of the company as a going concern is pursued the special administrators may propose modified versions of a scheme of arrangement, restructuring plan or CVA. 

Impact of the changes

The new hive-down mechanism has raised questions over the effect on debt holders of their claims being "left behind" in the group structure. The proposed legislation also allows the special administrators to sell any property subject to a fixed charge with the court's permission at an "appropriate value" rather than the usual "market value" of the property. 

To discuss the issues raised in this article in more detail, please contact a member of our Restructuring & Insolvency team.