Home News Business Law Energy Crisis – Court Sanctions State-Funded Bulb Energy Administration

Energy Crisis – Court Sanctions State-Funded Bulb Energy Administration

Only someone with zero exposure to news would be unaware of the chaos reigning in the energy supply industry due to the rocketing cost of electricity and gas. A High Court ruling, however, showed how the state – and in particular the legal system – can address such crises in an urgent but orderly fashion.

The case concerned Bulb Energy Limited, which supplies energy to about 1.6 million domestic customers and almost 15,000 small and medium-size businesses. Due to a mandatory price cap, the company was unable to pass on the increased wholesale cost of electricity and gas to its clients. It was at the same time legally obliged to continue supplying its customers and the enormous losses that it was encountering were therefore entirely unavoidable.

In the case of many smaller energy suppliers facing similar difficulties, customers’ accounts had been moved to suppliers of last resort. Bulb was, however, considered too large a business for that course to be viable. The Gas and Electricity Markets Authority, operating through Ofgem, therefore took the alternative step of applying to the Court for an Energy Supply Company Administration Order (ESCA order) under the terms of the Energy Act 2004 and the Energy Act 2011.

The objective of the ESCA order was to keep Bulb trading as a going concern with a view to it being rescued, if possible, in due course. To that end, it was proposed to enter into a funding agreement with the government whereby the latter would, by way of loans, provide the company with a £1.69 billion working capital facility.

Such debts would ordinarily enjoy super priority status in the administration, meaning that the government would stand first in the line of Bulb’s creditors. The government had, however, contractually agreed to subordinate its right to repayment to those of the administrators, in respect of their expenses. The government’s claim would also be subordinated to certain debts owed to Bulb’s principal secured creditor with the objective of ensuring that its position would not be worsened. Creditor claims that would otherwise have been unsecured would be paid in full.

In ruling it appropriate to make the ESCA order sought, the Court found that its objective was reasonably achievable. In order to continue trading, as it had to, Bulb required cash and, so far as that was concerned, the government funding agreement was the only show in town. The administrators had the power to make the momentous decision to enter into that agreement and the Court found that to do so would be a proper exercise of their statutory function.

Published in
31 March 2022
Last Updated
20 April 2022