Select Committee on Transport, Local Government and the Regions Appendices to the Minutes of Evidence


Memorandum by the Joint Special Railway Administrators (PRF 49)

  In advance of their oral evidence to the Transport Sub-Committee, on 31 October, the joint special railway administrators have sought to set out their views, in this memorandum, on the existing and future position in respect of their role. They hope the Committee will find this helpful.

1.  INTRODUCTION

  1.1  Ernst & Young LLP is one of the largest professional services firms in the UK.

  1.2  On 7 October 2001, the High Court appointed Alan Bloom, Chris Hill, Scott Martin and Mike Rollings, members of Ernst & Young LLP, as joint special railway administrators of Railtrack PLC. The joint special railway administrators are officers of the court.

  1.3  The appointments were made following the making of a Railway Administration Order by the High Court under Section 60(1) of the Railways Act 1993 (the "Railways Act").

  1.4  The Company holds a network licence under the Railways Act. It owns and operates the principal national railway networks, and is responsible for, amongst other things, the provision, maintenance and management of the railway infrastructure. The Company's principal activities are to provide train operating companies which are franchised to operate passenger and freight services with access to track, to maintain and renew the railway infrastructure, to undertake major projects and to manage timetabling, train planning and signalling.

  1.5  Railtrack PLC is a wholly owned subsidiary of Railtrack Group PLC, the listed company. Railtrack Group PLC also holds all of the shares in Railway Safety, a not for profit operation, the Railtrack Pension Scheme, Railtrack Insurance Ltd, and other companies carrying on non-regulated businesses. Railtrack Group PLC has a concession over the Phase 1 of the Channel Tunnel Rail Link. Trading in shares in Railtrack Group PLC were suspended on the London Stock Exchange on 8 October 2001, following the appointment of joint special railway administrators to Railtrack PLC. The joint special railway administrators are not administrators of Railtarck Group PLC.

2.  PROCESS

  2.1  The appointment of the joint special railway administrators of Railtrack PLC, followed the presentation of a petition by the Secretary of State for Transport, Local Government and the Regions (the "Secretary of State") on one of the grounds specified by Section 60 of the Railways Act 1993. This ground was that Railtrack PLC is or is likely to be unable to pay its debts.

3.  ROLE AND DUTIES

  3.1  Under the provisions of the Railways Act 1993, a railway administration order has two distinct purposes:

    3.1.1  To effect a transfer, as a going concern, of so much of the undertaking of Railtrack PLC as it is necessary to transfer in order to ensure that the management of the rail network may be properly carried on; and

    3.1.2  To carry on the management of the rail network in the interim period.

  3.2  The joint special railway administrators must manage Railtrack PLC so as to achieve these purposes and in a manner which protects the respective interests of the members and creditors of Railtrack PLC.

4.  TRANSFER SCHEME

  4.1  A company in railway administration (the "existing appointee"), acting by its joint special railway administrator, may make a scheme under Schedule 7 to the Railways Act for the transfer of property, rights and liabilities of the existing appointee to a successor company (see also section 11 below).

  4.2  The Secretary of State must approve a transfer scheme made under Schedule 7 and it takes effect from a date appointed by the court.

5.  OPERATIONS

  5.1  Following the appointment of the special railway administrators, the court made an order entitling them to consent to the continued exercise by Railtrack PLC and its directors of all functions relating to the health and safety of any person and all other functions to the extent that the special railway administrators consider fit and proper. This means that the executive directors of Railtrack PLC continue to have day to day operational responsibility.

  5.2  The Government has made facilities available to Railtrack PLC to ensure the continuation of the operations of the rail network.

6.  SAFETY

  6.1  During the period of railway administration, safety will remain a priority.

  6.2  Futher to an order of the High Court, made on 7 October 2001, Railtrack PLC and its directors continue to exercise all functions relating to the health and safety of any person.

  6.3  The Health & Safety Executive and the joint special railway administrators have agreed that Railtrack PLC's Safety Case will be reviewed and revised as necessary. Railtrack PLC's directors, officers and staff dealing with safety will be operating this review.

7.  FINANCE CREDITORS

  7.1  On 7 October 2001, the Secretary of State wrote to creditors of Railtrack PLC. The letter states that, as regards Railtrack PLC's finance creditors, the Secretary of State has agreed, for an initial period of 45 days (now extended to 14 December 2001) from the date of the railway administration order, to provide facilities to Railtrack PLC to pay non-default finance charges and scheduled principal repayments (excluding principal that would be rolled over in the normal course) on their due dates.

  7.2  The letter further states that this arrangement will continue for finance creditors who have signed up to certain standstill arrangements acceptable to the Secretary of State until a transfer scheme is proposed.

  7.3  Suppliers who provided goods or services to Railtrack PLC prior to 7 October 2001, and whose invoices are approved for payment by the Railtrack PLC in the normal way, will continue to be paid.

  7.4  Suppliers who provide goods and services during the Railway Administration will be paid from Railtrack PLC's operating cash flow. In his 7 October 2001 letter, the Secretary of State also stated that funds would be made available to Railtrack PLC in administration to ensure that trade creditors are paid as their debts fall due in the ordinary course. Orders will continue to be issued by Railtrack PLC's staff.

8.  RAILTRACK PLC'S SHAREHOLDER, RAILTRACK GROUP PLC

  8.1  The sole shareholder of Railtrack PLC is Railtrack Group PLC. The joint special railway administrator's legal responsibility is to achieve the purposes set out in paragraph 3.1 above and in a manner which protects the respective interests of the members and creditors of Railtrack PLC. The sole member of Railtrack PLC is Railtrack Group PLC. The interests of the shareholders of Railtrack Group PLC is a matter for the directors of Railtrack Group PLC.

9.  TIMESCALE

  9.1  This is a large and complicated task and it is too early to make an estimate of the timescale for concluding the period of railway administration. However, this process is unlikely to be concluded in less than six months.

10.  THE IMPACT OF RAILTRACK PLC BEING PLACED IN RAILWAY ADMINISTRATION ON THE GOVERNMENT'S FRANCHISING POLICY

  10.1  The joint special railway administrators are not aware that the railway administration will impact on the Government's franchising policy. The Government will continue in the future, as in the past, to make decisions relating to franchising policy.

11.  THE FINANCIAL STRUCTURE OF RAILTRACK PLC'S SUCCESSOR

  11.1  The joint special railway administrators will assess proposals to enable Railtrack PLC to be transferred to one or more successor entities. The Secretary of State will approve any such Schemes of Transfer. Any Scheme of Transfer under Schedule 7 of the Railway Act will require the approval of the Secretary of State. The joint special railway administrators are working to attract interest in the creation of such successor entities, which may have differing financial structures.

12.  THE RELATIONSHIP OF RAILTRACK PLC'S SUCCESSOR TO THE TRAIN OPERATING COMPANIES, THE RAILWAY REGULATORY BODIES AND THE SRA

  12.1  The role of the joint special railway administrators does not provide for dealing with anything other than the regulatory framework that is in place at the time, which is a matter for the Secretary of State.

13.  THE ALLOCATION OF RISK BETWEEN THE NEW COMPANY AND THE GOVERNMENT

  13.1  At this time, in the early stages of railway administration, it is too early to tell what the allocation of risk between the successor entity and the Government will be.

  The joint special railway administrators hope that the Committee will have found this memorandum helpful.

25 October 2001


 
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