GAS and Electricity Markets Authority v GB Energy Supply Ltd

Where an energy supplier is unable to pay its debts within the meaning of its supply licence and the Insolvency Act 1986, the licensing authority may revoke the licence and appoint a Supplier of Last Resort. The High Court may determine that issue by an urgent out-of-hours final declaration where the evidence is clear, the supplier does not dispute its insolvency, and delay would materially prejudice market participants or consumers. The court may proceed by telephone where that course is proportionate and the hearing remains sufficiently public. A final declaration is preferable to an interim declaration when the declaration is intended to trigger immediate regulatory consequences.

GEMA applied for declarations that GB Energy Supply Ltd was unable to pay its debts and that the corresponding revocation conditions in its gas and electricity supply licences were satisfied. The application arose urgently after a proposed sale of the business failed, the company’s cash position deteriorated, and its directors had been advised to cease accepting further direct debit payments. The company did not dispute its insolvency. GEMA sought to revoke the licences and appoint a Supplier of Last Resort, rather than pursue an Energy Supply Company Administration Order. The central issues were whether the court should determine the matter urgently and whether the evidence established the contractual and statutory insolvency condition.

1. Procedure and urgency. The court could entertain the application as an urgent out-of-hours matter. GEMA was best placed to assess the regulatory response required to fulfil its statutory objectives, had selected licence revocation consistently with its published guidance, and was supported by BEIS. The evidence established a serious risk to other market participants and to consumer confidence if intervention were delayed.
2. The application could be dealt with on undertakings to issue and serve the Part 8 claim and confirm the evidence. Although the relief was sought by telephone, the hearing was sufficiently public because its recording was not private and the reasons were given in a public judgment. Requiring attendance in court on a Saturday evening would have been disproportionate.
3. A final declaration, rather than an interim declaration, was appropriate. Where the declaration was intended to produce immediate consequences under the licences, the issue should be determined finally on its merits; if that was not possible, an interim declaration should not ordinarily be made.
4. Insolvency and licence conditions. Schedule 2(1)(f)(i) of each licence permitted revocation on 24 hours’ notice if the licensee was unable to pay its debts within the meaning of section 123(1) or (2) of the Insolvency Act 1986, subject to the stated qualifications. The evidence showed substantial immediate funding requirements, no realistic continuing income, outstanding trade creditors and net liabilities. The company was clearly insolvent on both a cash-flow and balance-sheet basis.
5. The court therefore declared that GB Energy Supply Ltd was unable to pay its debts, that the condition in Schedule 2(1)(f)(i) of each licence was satisfied, and that the latter followed from the former. The declaration enabled GEMA to revoke the licences and appoint a Supplier of Last Resort.