WBD leads on landmark directions case with huge impact for UK energy sector

Womble Bond Dickinson (UK) LLP, along with Counsel from South Square, has advised officeholders of eight insolvent energy suppliers^[1] from Alvarez & Marsal Europe LLP (A&M), as lead Applicants, on an application for directions in relation to a number of previously untested and unresolved legal issues in the domestic energy supplier sector.

Mr Justice Zacaroli, sitting in the High Court in London, has today handed down judgment in a case which will be of interest and importance to the energy industry and stakeholders alike.

In the first ever application of its type, the officeholders applied to Court for directions concerning the treatment of certain creditor claims in the estates of these insolvent energy suppliers.

Whilst the judgment is lengthy and grapples with some highly technical legal principles, the important takeaway points for interested observers are:

1. The Authority (Ofgem) does have a provable claim in the insolvent estates for the Renewables Obligation (RO), being an obligation under energy legislation for energy suppliers to source a proportion of electricity from renewable sources. Prior to 1 September of each year, this is a contingent payment liability (contingent upon the relevant electricity supplier not producing the requisite number of renewables obligation certificates (ROCs) to satisfy its renewables obligation), which from 1 September becomes a present payment liability which is provable in the insolvency estates, if the contingency has not been satisfied by 1 September.
2. The Supplier of Last Resort (SoLR)^[2] does have a provable claim in the insolvent estates for the credit balances of former customers that it has assumed, paid or otherwise honoured as part of the Supplier of Last Resort Process^[3]. This is a claim in unjust enrichment against the insolvent supplier, which is satisfied by an equitable right of subrogation to the customers’ claims against the failed supplier in respect of their credit balances.

In a follow-up article, we will provide some in-depth analysis on the legal issues that the Court considered including how energy supplier payment obligations to Ofgem and the SoLRs arise, how such debts may or may not be discharged, as well as a consideration of legal principles that were relevant to the SoLR claims including subrogation, restitution and unjust enrichment.

However, for now, this judgment provides some much-needed clarity on a range of issues that have, until now, beset the domestic energy supplier sector and ultimately prevented officeholders from adjudicating creditor claims and returning money to the creditors of insolvent estates.

In that context, the judicial clarification provided by this case is most welcome and long overdue. 

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^[1] Utility Point Limited (in liquidation), Igloo Energy Supply Limited (in liquidation), PFP Energy Supplies Limited (in administration), PFP Energy Limited (in administration), Green Supplier Limited (in liquidation), Neon Reef Limited (in administration), People's Energy (Supply) Limited (in administration) and Avro Energy Limited (in liquidation).

^[2] The energy supplier that becomes responsible for supplying electricity and gas to the former customers of the insolvent energy supplier.

^[3] The process by which a SoLR is appointed by Ofgem to supply electricity and gas to the former customers of the insolvent energy supplier, following the revocation of the insolvent supplier's electricity and/or gas supply licences.