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CRC: Environment Agency issues new guidance on insolvency, administration, winding up and cessation of business
Practical Law UK Legal Update 6-503-0046 (Approx. 6 pages)
CRC: Environment Agency issues new guidance on insolvency, administration, winding up and cessation of business
by PLC Environment
| Published on 10 Aug 2010 • UK |
An update on a new guidance document published by the Environment Agency on 6 August 2010, on how companies that went into administration or receivership, were wound up or ceased trading during the qualification year or prior to registration will be treated under the CRC Energy Efficiency Scheme (CRC).
Speedread
An update on a new guidance document published by the Environment Agency regarding how companies which:
- went into administration;
- went into receivership;
- were wound up; or
- ceased trading;
during the qualification year or prior to registration will be treated under the CRC Energy Efficiency Scheme (CRC).
Background: the CRC
Terms that appear in capital letters in this update are defined in Practice note, CRC Energy Efficiency Scheme: PLC glossary and abbreviations.
The CRC Energy Efficiency Scheme (CRC) is a new emissions trading scheme for the private and public sector in the UK.
The deadline for registering as a Participant in Phase 1 of the CRC or making an Information Disclosure is 30 September 2010. Failure to register or to make an Information Disclosure is subject to civil penalties.
For more information about:
- The CRC, see the CRC Survival Kit.
- How the CRC applies in general insolvency and restructuring situations, see Practice note, CRC Energy Efficiency Scheme: restructuring and insolvency issues.
- Corporate insolvency, see PLC Corporate and PLC Finance, Practice note, Corporate insolvency: a guide.
EA guidance: insolvency, administration, winding up and cessation of business
On 6 August 2010, the Environment Agency (EA) published a new guidance document on how companies that went into administration or receivership, were wound up or ceased trading during the Qualification Year or prior to registration should register for the CRC (EA guidance).
The guidance also sets out the responsibilities of administrators and receivers as regards registration for the CRC of companies over which they exercise control.
Separate guidance will be published in due course on what will happen under the CRC to Undertakings or Groups that go into administration or receivership, are wound up or cease trading once they become Participants.
Administration/receivership
Administration/receivership that is ongoing at registration
If an Undertaking is in administration or receivership at the time it registers for the CRC, it should register normally if it meets the Qualification Criteria.
For more information about the Qualification Criteria, see Practice note, CRC Energy Efficiency Scheme: overview: Qualification Criteria.
The registration obligations will be fulfilled by the administrator or receiver on behalf of the Undertaking. The EA guidance says that, as the terms of a receiver's appointment can vary, depending on the terms of the appointment, the responsibility for registering the company for the CRC may remain with the company's directors.
If a Group of Undertakings has a Group member that is in:
- administration; or
- receivership;
at the time the Group registers for the CRC, the Group will have to register if it meets the Qualification Criteria.
The EA guidance says that the administrator(s) or receiver(s) of the Group member that is in administration or receivership should co-operate with the Account Holder of the Group in registering the Group.
The EA guidance says that a company in administration or receivership should not be selected as the Account Holder for a Group.
Administration/receivership that terminates prior to registration
If an Undertaking was in administration or receivership during the Qualification Year or after the Qualification Day (which is 31 December 2008 in relation to the Introductory Phase) but before registration (that is, during the Post-qualification Period), and the administration or receivership ends before registration, as the Undertaking is no longer subject to the insolvency regime it should register normally if it meets the Qualification Criteria.
The EA guidance says that this is the case even if, as a result of a sale of assets as part of the administration or receivership, the company has little or no assets. So where a company has fewer property assets and therefore, its electricity supplies are now below the Qualifying Amount, its registration information regarding Half Hourly Meters and its Qualifying Electricity supplies will include meters and supplies that relate to these sold assets.
The EA guidance says that any sale of assets should be documented in the company's Evidence Pack.
The situation is the same where a Group member was in administration or receivership during the Qualification Year or the Post-qualification Period.
Liability of administrators and receivers
The EA guidance says that as administrators and receivers are individuals, the company in administration or receivership will not have to be grouped with the Undertaking for which its administrator(s) or receiver(s) (as relevant) work even though the administrator(s) or receiver(s) are likely to satisfy the control tests in section 1162 of the Companies Act 2006.
For more information on the:
- Personal liability of insolvency practitioners, see Practice note, CRC Energy Efficiency Scheme: restructuring and insolvency issues: Can an insolvency practitioner be personally liable under the CRC?
- Control tests under the Companies Act 2006, see Practice note, CRC Energy Efficiency Scheme: impact on corporate structures: Groups of Undertakings.
Winding up/liquidation
During the Qualification Year
An Undertaking that was placed in:
- compulsory liquidation (winding up);
during the Qualification Year (that is during 2008 in respect of the Introductory Phase) has no obligations under the CRC and, therefore, will not have to register.
If a Group of Undertakings has a Group member that was placed in:
- voluntary liquidation; or
- compulsory liquidation;
during the Qualification Year, the Group will have to register if it meets the Qualification Criteria.
The EA guidance says that the Group must not include the liquidated Group member in its group structure chart. This is because the information that an organisation needs to provide at registration should reflect the structure that exists at the point that it registers. For more information, see page 40 of Environment Agency guidance: CRC Energy Efficiency Scheme: Registering as a CRC Participant.
The EA Guidance says that the Group should notify the EA of any meters through which Qualifying Electricity was supplied during the Qualification Year.
After the Qualification Day but before registration
An Undertaking that was placed in:
- voluntary liquidation; or
- compulsory liquidation;
during the Post-qualification Period will not have to register.
However, if a Group of Undertakings has a Group member that was placed in:
- voluntary liquidation; or
- compulsory liquidation;
during the Post-qualification Period, the Group will have to include Qualifying Electricity supplies to the liquidated Group member when assessing if the Group is required to participate in the CRC for the relevant Phase. Assuming the Group meets the Qualification Criteria, it will have to register for that Phase.
The EA guidance says that the Group should include the liquidated Group member in its group structure chart and also notify the identity of the liquidated Group member to the EA.
Cessation of business
If a company ceases trading but is not placed in liquidation, the EA guidance says that it will need to register for the CRC if it meets the Qualification Criteria. Of course, if the company ceased trading in the Qualification Year, its Qualifying Electricity supplies may not reach the Qualifying Amount of 6,000 MWh.
Enforcement of security over shares
Where an Undertaking (A) that holds security over a majority shareholding in a company (B) enforces that security it may become the legal owner of those shares. If that shareholding causes A to meet any of the "control tests" in section 1162 of the Companies Act 2006, it will be the Parent Undertaking of B (and any subsidiaries of B). B (and any of its subsidiaries) will become a member of A's Group for the purposes of the CRC.
If the security was enforced before the Qualification Day then A must include B (and any of its subsidiaries) in its group structure chart when it registers for the CRC.
If the security was enforced after the Qualification Day but before registration, the EA guidance says that A should not include B in its group structure chart at registration but must notify the EA of the change to its group structure since the Qualification Day. Only changes that involve Significant Group Undertakings (SGUs) need to be notified to the EA (Section 1, Part 3 of Schedule 6, CRC Order).
For more information about the impact of changes to a private sector organisation in the Post-qualification Period, see:
Debt for equity swaps
The EA guidance says that where an Undertaking (A) takes equity in a company that is in financial difficulties (B) (for example, in exchange for unpaid debts), A may become the Parent Undertaking of B depending on the stake acquired and the control exercised. A (if it is required to participate in the relevant Phase of the CRC) may have to include B in its Group when it registers for the CRC.
For more information on how debt for equity swaps can affect a creditor, see Practice note, CRC Energy Efficiency Scheme: restructuring and insolvency issues: Why might liabilities under the CRC be relevant in a restructuring?