2. Ofgem’s power to transfer the business: the ‘supplier of last resort’ regime allows Ofgem to appoint a competitor to take on a failing supplier’s customers. Safeguarding the continuity of supply for customers is the essential theme for Ofgem.

3. Effective cost management: suppliers must manage finances effectively and have adequate arrangements in place to meet the costs that would be mutualised if they were to exit the market.

4. Market access and hedging: a failure to comply with market access and hedging contracts can impact the availability of best pricing and efficient hedging.

5. Winding-up petitions: from 1 October 2021, it will once again be possible to present a winding-up petition against companies on the basis of insolvency, making proactive engagement with creditors critical.

Practical steps

• In times of unprecedented disruption, market participants need to manage downside risk. This requires:
• Independent advice to support decision making, having regard to creditor interests which come into focus in the zone of insolvency
• Enhanced internal procedures to ensure regular provision of up to date financial reports, enabling directors to make decisions with real time information
• Staying in touch with creditors to avoid the domino effect of precipitate action
• Efficient hedging and contract management to avoid defaults and margin calls
• Maintaining ability to draw on committed funding and exploring new financing options
• A judicious approach to asset disposals – in insolvency all actions will be scrutinised with the benefit of hindsight
• Managing set aside and personal liability risk arising from the use of formal and informal insolvency procedures

Know the options – contact the Reed Smith Restructuring & Insolvency team.

Client Alert 2021-257