Stay informed with updates on UK water company insolvency laws and financial health concerns

The UK government is taking proactive steps to update water company insolvency laws amidst concerns over the financial health of privatised monopolies, including Thames Water, the country’s largest water provider. The Department for Environment, Food and Rural Affairs recently issued legislation to modernize the special administration regime for water monopolies in England and Wales, providing more options for restructuring companies unable to repay debts.

Thames Water, owned by private equity firms, pension funds, and sovereign wealth funds, is currently struggling with an £18.3bn debt burden. The new law aims to prevent the government from being forced into renationalising water utilities by allowing special administrators to restructure companies and potentially retain existing shareholders.

The legislation includes provisions for water monopolies to enter administration, restructure borrowings, and exit as a “going concern,” rather than being forced to sell off assets and liquidate the corporate entity. This change could help the government avoid the costs of renationalisation, but creditors may face larger losses under the new regime.

Additionally, the updated law allows special administrators to transfer a water company’s assets to a subsidiary and sell shares in that subsidiary, maximizing value on a sale. The government emphasized that it would not take ownership or management of a company under the special administration regime.

Experts suggest that the special administration regime could be used as an enforcement tool against water companies with performance issues, such as breaching statutory functions or licensed activities. This could include issues related to water supply and sewage pollution, for which water companies are currently facing court cases.

Overall, the government aims to modernize the legislation to reflect current insolvency and business practices and ensure the uninterrupted provision of vital public services. With concerns over the financial stability of several water companies, regulators are considering steep increases to customer bills between 2025 and 2030. Thames Water maintains that it is in a solid financial position with supportive shareholders, while Ofwat, the regulator, declined to comment on the matter.