When an energy supplier becomes insolvent, it means that the company is unable to pay its debts and is unable to continue operating as a business. This can be a serious problem for both the energy supplier and its customers.
If an energy supplier becomes insolvent, the first priority is to ensure that the company’s customers continue to receive a reliable supply of energy. In most cases, the energy regulator will step in and arrange for the company’s customers to be transferred to a new supplier.
This process is typically seamless for the customers, and they should not experience any disruption to their energy supply. However, it is important for customers to keep track of their energy bills and ensure that they are paying their new supplier as required.
If the insolvent energy supplier has not paid its debts to other companies, it is possible that these companies may pursue legal action to recover the money owed to them. This could result in additional costs being passed on to the customers of the insolvent energy supplier.
What is a supplier of last resort?
A supplier of last resort is an energy supplier that is appointed by Ofgem when one becomes insolvent, ensuring that customers that are affected by it still have access to essential services.
As of the SoLR process, Ofgem asks suppliers whether they will be considered as a SoLR. If needed, Ofgem has the capacity to guide a particular supplier to assume control over liability regarding providing energy to the insolvent organisation’s clients.
When Ofgem has surveyed the different suppliers against specific criteria, and a SoLR has been established and delegated, the insolvent company’s gas and power supply licenses will be disavowed. At this stage, the business will not remain a regulated company, and can be set into an ordinary administration or any other insolvency process.
How does the energy supply company administration work?
Assuming Ofgem decides that the utilisation of its SoLR powers would not be possible, it will put the energy supplier into a special administration regime system known as The Energy Supply Company Administration.
The process here, which was developed through the Energy Act 2011, aims to guarantee that a large energy supply company in financial trouble could “continue trading normally, potentially with financial assistance from the Government if the company is unable to secure funding from commercial sources, until it is either rescued, sold or its customers transferred to other suppliers”.
Note that the Government emphasised that this special regime is expected as a “possibility” to the SoLR process, to “deal with a low probability, but high impact event”, and it has just whenever been utilised in the energy area.
The reason for energy supply company administration is to shield the market from the abrupt effect of the insolvent provider’s obligation, which under the market exchanging game plans could be spread across other market members, expanding the danger of monetary disappointment spreading across the market.
What happens to my account when a supplier of last resort is appointed?
When a supplier of last resort is appointed, it means that the energy regulator has intervened to ensure that the customers of an insolvent energy supplier continue to receive a reliable supply of energy. The supplier of last resort is responsible for taking over the supply of energy to the customers of the insolvent supplier and ensuring that their energy needs are met.
The appointment of a supplier of last resort typically occurs when an energy supplier becomes insolvent and is no longer able to continue operating as a business. In this situation, the energy regulator will step in and appoint a new supplier to take over the supply of energy to the customers of the insolvent supplier.
This is done to ensure that the customers continue to receive a reliable supply of energy and to protect their interests. The customers of the insolvent supplier will typically be transferred to the supplier of last resort with minimal disruption to their energy supply. However, it is important for customers to keep track of their energy bills and ensure that they are paying their new supplier as required.
Role of an insolvency practitioner in these processes?
When delegated as an ‘office holder’ in a formal insolvency procedure, including administration, insolvency practitioners have an obligation to maximise returns to the business’ creditor body. This implies their essential obligation is to the creditors of the insolvent company, and each choice taken with regards to an insolvent organisation is made considering a definitive advantage of creditors.
Notwithstanding, insolvency practitioners know about the burdens of the insolvency process and will look to work with all partners to deal with the interaction delicately and adequately.
In energy insolvencies, they are particularly aware of the need to treat clients in a reasonable and delicate manner, and office holders will normally have a policy (on a firm or practice premise) identifying with the way that they will gather debt. This arrangement will diagram the means they will take to comprehend the reason why a client might battle to pay a form of debt, typically a bill, just as how they will deal with these circumstances.
Difficulties practitioners face in energy supplier insolvencies?
Energy insolvencies are rather unique and present a wide scope of testing conditions for an insolvency practitioner who is named as an office holder (either as an executive or outlet) for an insolvent energy provider.
The insolvency specialist may be selected without much prior notification, and they can often acquire frameworks and cycles which are a long way from ideal, while needed to adjust each cost against their legal obligation to maximise returns to the organisation’s creditors. Therefore, it can be one of the hardest tasks for a practitioner to take on.
A few of the main challenges faced by office holders during energy supplier insolvencies include:
- Office holders often have to take additional time to obtain accurate and reliable information regarding customer billing positions, as poor quality of data is often help by energy suppliers in this industry
- Delays in the SoLR giving meter readings which should happen before office holders can start to make and issue final bills, which are thusly intensely dependent on the indebted organisation’s charging systems to produce
- There are sometimes difficulties in processing and managing the release of such high numbers of bills, customer queries and disputes with what is left of the company’s employees.
It isn’t only practical issues; however, office holders’ administrative system and legal obligations are urgent elements by the way they approach their tasks in these cases.
For instance, one central issue is the administrative structures that apply to the assortment of obligations from clients pre-and post-indebtedness. At the point when a provider enters an indebtedness strategy, an insolvency practitioner will be selected as an office holder and will work under an alternate arrangement of legal and administrative prerequisites to those of the energy supply area.
This is on the grounds that the indebted provider is not generally a directed business and is not generally limited by the prerequisites a dissolvable energy provider would be.
Read more: Build energy enters administration
With over three decades of experience in the business and turnaround sector, Steve Jones is one of the founders of Business Insolvency Helpline. With specialist knowledge of Insolvency, Liquidations, Administration, Pre-packs, CVA, MVL, Restructuring Advice and Company investment.