Groups of Undertakings are required under article 24(2) of the CRC Energy Efficiency Scheme Order 2010 (SI 2010/768) (the CRC Order) to apply for registration as a Participant. It is the Group as a whole that is required to register.

However, the government developed the concept of a Primary Member (also known as the Account Holder) to ensure that the Administrator only has to deal with one party where a Participant consists of a Group of Undertakings. The Department for Energy and Climate Change (DECC) CRC Energy Efficiency Scheme User Guide (January 2010) (the CRC User Guide) defines the Primary Member as "the organisation within an organisational group nominated to act as the participant in CRC on behalf of all parts of that group and who is taken as representing that group in its dealings with the Administrators."

The CRC Order refers to Account Holder but the Environment Agency's guidance refers to Primary Member. We take the view that Primary Member (which is the term that appeared in earlier drafts of the consultation documents, guidance and the draft of the CRC Order published in March 2009) is the same concept as Account Holder. We think that the difference in terminology between the CRC Order and the various guidance documents is a result of the significant number of changes that were made to the draft CRC Order, which (amongst other things) rationalised the amount of defined terms.

Article 73 of the CRC Order specifies that a Group of Undertakings can choose an Account Holder for the Group from either:

Alternatively, where the HPU is an overseas entity and there is no member of the Group with its Principal Place of Activity in the UK, the HPU must appoint a third party representative with a Principal Place of Activity in the UK as the Account Holder.

Article 8(2) of the CRC Order provides that each member of a Group will be "jointly and severally liable to comply with the requirements placed on the group under Parts 2 to 14" and "may be liable to a criminal penalty under Part 15".

This means that all Group members are, in theory, liable for non-compliance with the duty on the Group to register as a Participant (Part 2) and could incur a civil penalty (Part 14) if the Group fails to comply with the requirements in Parts 2-14 of the CRC Order. However, in relation to criminal offences (Part 15), the member within a Group that might be the subject of enforcement action will depend on whether the action (or inaction) of any Group member falls within the offences listed in article 106.

So piecing all of this together, the HPU of the Group will be the Account Holder (Primary Member) and it will be responsible for managing compliance on behalf of the Group unless any other Group member (or third party representative) is appointed to be the Account Holder. All the Group members will be jointly and severally liable for compliance.

As regards enforcement policy, at a conference on the CRC that the Environment Agency (EA) held in February 2010, the EA indicated that it intends to pursue the Primary Member first and foremost and recover any unpaid fines or other sums from that party, but it did not discount the possibility of pursuing other Group members if this did not work (see Legal update, Summary of Environment Agency CRC conference).

Any Undertaking that has Qualifying Electricity supplies in the Qualification Year of a Phase is required to participate in the CRC for that Phase.

"Undertaking" is defined by reference to the definition in section 1161 of the Companies Act 2006 and will cover an overseas body corporate.

Page 25 of the Consultation on the Draft Order to Implement the Carbon Reduction Commitment - Government Response and Policy Decisions (7 October 2009) (DECC) (the Government Response) reiterated the government's view expressed in the Consultation on the Draft Order to Implement the Carbon Reduction Commitment (March 2009) (the Consultation on the Draft Order) that it did not want to give differential treatment to organisations owned by overseas parents. As with any other UK law, overseas entities that have UK subsidiaries or operations in the UK will have to comply with UK laws. All states are entitled to regulate activities that take place within their territory.

An overseas company will be required to comply with the CRC if any members of its Group are responsible for electricity supplies in the UK. This position is no different to that under other UK laws that regulate any other activities taking place in the UK.

Non-compliance with the majority of the CRC's requirements are subject to a civil penalty (such as a civil fine). However, some breaches amount to a criminal offence (which are subject to either a criminal fine and/or imprisonment). For more information, see Practice note, CRC Energy Efficiency Scheme: enforcement and penalties.

As noted above, Group members will be jointly and severally liable for civil penalties imposed under Part 14 of the CRC Order. The Administrator is likely to take enforcement action against the Primary Member in the first instance. Primary Members have to be based in the UK. If the Primary Member were to fail to comply, the Administrator could, in theory, take enforcement action against another UK-based Group member or the overseas HPU. However, we think that the Administrator is more likely to take the easier option of pursuing a UK-based Group member.

Article 93(2)(b) provides that financial penalties are recoverable as a civil debt by the Administrator where they are unpaid. So if an overseas HPU did not pay a civil fine levied for a breach of the CRC Order, the Administrator could bring civil proceedings for recovery of the debt against the overseas company. For more information about enforcement of a debt in a foreign court or against an overseas company, see PLC Dispute Resolution, Practice note, Reciprocal enforcement of judgments and PLC Dispute Resolution, Practice note, European Order for Payment.

Where a breach of the CRC Order amounts to a criminal offence under Part 15 (for example, where a company fails to comply with an Enforcement Notice), the Administrator can issue criminal proceedings against the Group member that committed the offence (for example, the Group member that was the subject of the Enforcement Notice). For more information on the prosecution of environmental offences in England and Wales, see Practice note, How are environmental offences prosecuted?

If an overseas HPU of a Group that was required to register for the CRC failed to appoint a UK-based Group member or a third party representative (as appropriate) as its Primary Member (Account Holder) and failed to register the Group as a Participant in the CRC by the relevant Registration Deadline, this would be a breach of articles 73 and 11 (respectively) of the CRC Order.

The EA has said that it will be checking which organisations should have registered for the Introductory Phase of the CRC by reference to the lists of Settled HHMs that it has already obtained from the various electricity suppliers (see Legal update, Summary of Environment Agency CRC conference).

We have assumed in the following paragraphs that the breaches by the HPU in the scenario set out in this Ask the team are discovered by the Administrator.

Failure to register is subject to the civil penalties set out in article 95. As noted above, Group members (that is, the overseas HPU and the other members of its Group) are jointly and severally liable. Article 92(1)(b) of the CRC Order states that the Administrator must give the person affected by a civil penalty a written notice. We think it is likely that the Administrator would notify the UK-based Group members of the penalty (at least in the first instance) as they are the "easiest target", but the Administrator could also decide to notify the overseas HPU of the civil penalty.

If neither the overseas HPU or one of the other Group members pay the fine, the Administrator can recover this as a civil debt. Again, we think it is likely that the Administrator would bring civil proceedings for recovery of the debt against the UK-based Group members as this is likely to be an easier process for them to follow, but, technically, it is possible for the Administrator to bring proceedings against the overseas HPU.

As article 95(2)(b) gives the Administrator the power to publish details of the non-compliance, the Administrator might decide to impose the civil penalty on the overseas HPU if it is a more well known brand, with a view to achieving the maximum impact on the Group's reputation.

If the HPU continues to fail to register, the Administrator could serve an Enforcement Notice on either the overseas HPU or any of the UK-based Group members. As noted above, failure to comply with an Enforcement Notice is a criminal offence under article 106(2)(a) and so the party that is served with the Notice would be at risk of prosecution if it were to fail to comply with the Notice.

Where an offence is committed with the consent or connivance of a company officer, or as a result of that officer's neglect, both the officer and the body corporate are guilty of the offence and both can be prosecuted under article 108. An officer is defined in the CRC Order as a director, manager, secretary or other similar officer of the body or a person purporting to act in any such capacity. Note that this is a wider definition than that of "officer" under section 1173(1) of the Companies Act 2006.

Therefore, if an officer of the HPU or a UK-based Group member had taken a deliberate decision not to register for the CRC on the basis that the Group is owned by an overseas company, this might be considered by the Administrator to be a situation that warrants enforcement action against those officers.