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.
1.1 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
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.
2.1 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
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
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.
5.1 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.
6.1 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
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
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.
8.1 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.
9.1 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
PLC BEING PLACED
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
11. THE FINANCIAL
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
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
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