Vol 20 (2023) - Issue 3

Article preview

Insolvent Energy Supply Companies: Treatment of Certain Creditors and Potential Dilution in Recoveries for Unsecured Creditors Following Latest High Court Ruling

Synopsis
On 11 November 2022, the High Court handed down an important judgment which clarified several issues arising in relation to the insolvencies of energy supply companies. In the case, the administrators and liquidators of several insolvent energy supply companies asked the court to rule on: (i) whether outstanding sums (actual and contingent) relating to the obligation of energy supply companies to evidence their use of renewable sources of energy were provable; and (ii) whether a supplier of last resort (SoLR) could pursue an unjust enrichment claim in particular circumstances.
In relation to the first issue, Mr Justice Zacaroli held that the liabilities (actual and contingent) arising in connection with the above were provable; the Court concluded that an energy supply company which failed to discharge its renewables obligation had a contingent liability to make a payment in lieu before 1 September and thereafter it became an actual liability which continued beyond 31 October despite the existence of the mutualization scheme from that date.
In relation to the second issue, Mr Justice Zacaroli held that the relevant energy supply companies had been enriched by the SoLR's satisfaction of their customer balances and that this enrichment was unjust.
The SoLR's payment of the energy supply companies outstanding customer debts were held to enrich the insolvent energy supply companies on the basis that payments were implicitly requested / ratified or paid under legal compulsion, and that enrichment was at the expense of a SoLR. Whilst the liquidators and administrators of the insolvent energy supply companies pursued the claim in order to gain clarity on how sums should be correctly and fairly distributed on an insolvency – the ruling is also of particular interest to unsecured creditors whose returns could be diluted if similar circumstances are faced.
On 11 November 2022, the High Court handed down judgment in Re Utility Point Limited and Ors [2022] EWHC 2826 (Ch) – in a time of increased market volatility, this decision has far-reaching consequences for distressed energy suppliers, especially those that participate or have participated in the 'Supplier of Last Resort' process.