Counsel General for Wales v Gareth Allen (as Official Receiver) (in his capacity as the liquidator of Baglan Operations Ltd (in compulsory liquidation))
| Jurisdiction | England & Wales |
| Judge | Sir Alastair Norris |
| Judgment Date | 21 March 2022 |
| Neutral Citation | [2022] EWHC 647 (Ch) |
| Docket Number | Case No: CR-2021-00547 |
| Court | Chancery Division |
[2022] EWHC 647 (Ch)
IN THE HIGH COURT OF JUSTICE
BUSINESS AND PROPERTY COURTS OF ENGLAND AND WALES
INSOLVENCY AND COMPANIES LIST (ChD)
Royal Courts of Justice
The Rolls Building
Fetter Lane
London EC4A 1NL
Sir Alastair Norris
Case No: CR-2021-00547
In the Matter of Baglan Operations Limited (in compulsory liquidation)
And in the Matter of the Insolvency Act 1986
Ian Rogers QC and Owain Rhys James (instructed by Geldards LLP) for the First and Second Applicants
Ian Rogers QC, Thomas Robinson, Francesca Mitchell and Daniel Petrides (instructed by Foot Anstey LLP) for the Third and Fourth Applicants
Ian Rogers QC and Daniel Scott (instructed by Dorsey & Whitney LLP) for the Fifth Applicant
Jessica Simor QC, Daniel Bayfield QC and Roseanna Darcy (instructed by Clifford Chance LLP) for the Respondents
Hearing dates: 21 and 22 February 2022
APPROVED JUDGMENT
By these two applications the Applicants seek to prevent the Respondents from completing the winding up of Baglan Operations Ltd (“the Company”) until such time as the Applicants have managed to secure the provision by Western Power Distribution (“Western Power”) of an electricity supply to premises at Baglan; and in the meantime they seek to secure the continued supply of electricity to those premises through the Company. As argued, the Applications raised fundamental issues of potentially wide import. But I intend to decide only what is necessary for the disposition of the Applications before me.
The relevant facts are relatively straightforward, because they were in large part uncontested: though notwithstanding the absence of challenge there remain important areas of uncertainty.
The Company was part of the Calon Group (“the Group”) an independent UK power producer. The Group had three combined cycle gas turbine plants. One of those was a 525 MW plant at Baglan Bay near Port Talbot (“the Baglan Plant”) of which the Company was the main operating entity. The Baglan Plant was served by a 12 km gas pipeline (“the Pipeline”) which connected the site to the main gas infrastructure. It was also served by a pipe drawing water from the Port Tennant canal for generation purposes (“the Waterpipe”). The electricity generated by the gas turbine was fed into the National Grid via an on-site connection (“the Connection”) and also distributed via a private wire network (“PWN”) by means of a substation on the site. The PWN operated outside the scope of the Electricity Act 1989 and was not regulated by Ofgem, and so was not subject to any “supplier of last resort” regime.
The Baglan Plant was near the end of its working life and as part of a cost-cutting exercise caused by the financial distress of the Group (resulting from the growth of renewable energy sources) it ceased generating electricity in July 2020 and was “mothballed”. Whilst it generated power the Baglan Plant supplied (i) certain sites on the adjacent business parks known as the Baglan Energy Park and the Mardon Park; and (ii) other local customers. Upon ceasing to generate electricity, the Company reversed the Connection and imported high voltage electricity from an external supplier both for its own use (in safety and control systems) and also for on supply to its former customers on a conduit basis. Three customers are relevant to the present applications (though there are other such customers).
(a) Electricity was supplied (either via the PWN or via the Connection) to four pumping stations belonging to the Third Applicant (“Welsh Water”).
(b) Electricity was supplied to the Fourth Applicant (“the Council”) for the purpose of street lighting in Baglan Park and operating a pumping station adjacent to the M4.
(c) Electricity and water were supplied to the Fifth Applicant (“Sofidel”).
I must explain more about these customers.
First, Welsh Water. The Baglan Plant originally (and now the Connection) supplies four Welsh Water pumps. Two of these pumping stations are supplied via the PWN and two (it was discovered relatively recently) by direct supply from the Connection. The usage was small, being about £300 per month. Three of the Welsh Water pumping stations are sewerage pumps directly serving Baglan Energy Park and Mardon Park; they ensure the transfer of foul wastewater to a larger pumping station in another location. The fourth controls the flow of waste and storm water from underground storage facilities to a nearby wastewater treatment works. This station ensures that at times of excessive rainfall or high tides raw sewage is not discharged into the sea, to the detriment of local bathing beaches and the commercial shellfishery in Swansea Bay. Together the four pumping stations provide part of the infrastructure serving 40 industrial and commercial users and about 69,000 ordinary customers, clearing foul water and protecting against flood risk. Whilst the system, when operating, is robust enough to cope with low-probability (1-in-30 year) high rainfall/high tide events, any failures could have a high impact in a matter of hours. Mr Wilson of Welsh Water (who has worked in the water industry for 29 years) states in evidence his opinion that (in a worst case scenario) if multiple pumping station failure were to coincide with a period of excessive rainfall (i) there would be major flooding in the Baglan Energy Park and in the wider area; and (ii) that in as little as four hours there would be severe environmental damage due to additional discharge into the sea and into protected shellfish waters and the risk of septicity from static sewage. He acknowledges that this impact would be short lived but notes that there would be long term damage to local confidence and considers it potentially catastrophic. (I should note that Mr Wilson's opinion is not universally shared within Welsh Water, and that one of his colleagues who has been directly involved in detailed discussions over the closure of the Baglan Plant has, in correspondence, described the flooding risk as “low impact”). It is, however, unchallenged that these “1-in-30” events are occurring much more frequently: for example, in February 2020 Storm Dennis caused severe flooding and disabled 35 pumping stations.
Next, the Council. The Council is the local flood authority pursuant to the Flood and Water Management Act 2010 and the Flood Risk Regulations 2009 and has the statutory duty to prevent or mitigate the risk of flooding within its area. Surface water flooding presents a particular risk. As part of the Council's responsibilities it operates a pumping station near to the M4 to assist with the management of the highway and other surface water. The station is marked as a piece of critical infrastructure on the Flood Risk Management Plan. It is served by the PWN. So, also, is the street lighting around the Baglan Energy Park, including a designated “safe school route” for the 1400 pupils of Ysgol Bae Baglan. Two Council buildings originally connected to the PWN were subsequently connected to the National Grid.
Finally, Sofidel. Sofidel is part of an Italian group which produces tissue paper for sanitary and domestic use. Its Baglan operation is a fully integrated plant employing 328 people and producing about 7000 tons of product per month (about 10% by volume of all branded tissue products sold in the UK). It is successful and there are plans for its extension onto an adjoining site. The Company supplies it with electricity through the PWN (at the 11KV required by Sofidel) and with raw water from local canals for its manufacturing operation. Sofidel now consumes about 95% of the power supplied through the PWN.
Once it ceased to generate electricity the Company lost its revenue stream. But it continued to incur the costs of keeping the Baglan Plant safe and secure and of supplying electricity to its former customers at a significant financial loss. It faced insolvency. An attempted “pre-pack” administration involving a new company supported by the tenants of the Baglan Energy Park and the Mardon Business Park could not be finalised because it was not supported by the principal secured creditor. On the 24 March 2021 the Company was placed into liquidation by Marcus Smith J. The Official Receiver was appointed liquidator. No firm of insolvency practitioners would have accepted the appointment given the absence of funding for the liquidation process and the health and safety risks relating to decommissioning the Pipeline, the Waterpipe and the Connection.
At the time of his appointment the Official Receiver received a letter of indemnity from the Department for Business Energy and Industrial Strategy (“BEIS”). It was in these terms (so far as material):-
“This letter is intended to provide you with assurances on your appointment as liquidator of the Baglan Group Companies…(“the Companies”) and ensure that the Companies' sites and operations can be secured and that health and safety concerns associated with the site can be addressed. Provided you have acted honestly and in good faith, and subject to you having used all reasonable endeavours to obtain value for money in relation to costs incurred in carrying out the liquidation, the Secretary of State for BEIS agrees to indemnify you and keep you indemnified against all costs arising from any claims incurred in connection with your appointment as Official Receiver and...
To continue reading
Request your trial