Railway Administration is a specific mechanism provided for in the Railways Act 1993 (as subsequently amended by the Transport Act 2000), as an alternative to conventional receivership should a railway operator fail. Its aim is to ensure that in such a case the company is not wound up, but rather that relevant services continue to be provided, and that all or part of the undertaking is transferred to another company as a going concern.<sup>22</sup> The Act gave the Secretary (Minister) for Transport the power to apply to the High Court to put the company into Administration if it was, or was likely to become, unable to pay its debts.

Following the administration order, the government immediately acted to reassure both creditors and employees that their interests would be protected. As the _Financial Times_ pointed out at the time the government, or Railtrack’s successor company, would have to rely on the capital markets in the future to finance ongoing modernization of the network. This put pressure on the government to avoid alienating financiers.<sup>23</sup> Accordingly, the government made a commitment to guarantee interest and principal repayments on Railtrack’s debt, and payment of lease rentals, while the company was in administration provided that creditors signed a standstill agreement. Under this agreement creditors agreed not to call bonds or other credits into default as long as the government honored the debt-service obligations. The government also arranged for around £7 billion of existing debt to be assumed by Railtrack’s successor company, Network Rail, and to ensure that Network Rail had a credit rating that would preserve the value of that debt for financiers.

Network Rail is a non-profit company formed to take over the rail infrastructure. It is limited by guarantee and operates at arms length from the government. Unlike a limited liability company, where shareholders’ equity can be drawn on to pay creditors should the need arise, a company limited by guarantee has no shareholders. Some party, in this case the government, provides a guarantee of the company’s obligations up to a specified amount. The guarantor’s liability is capped by the amount of the guarantee (as shareholders’ liability is capped by the amount of equity in a limited liability company). In place of shareholders, Network Rail has members drawn from the public sector, industry, and the general public.

At the same time, the government took the firm position that it would not bail out Railtrack’s shareholders. The Transport Secretary’s view was that “[t]he fact that Railtrack plc is in administration is a consequence of its failure to manage cost over a number of years” and that “taxpayer’s money ... should not be used to compensate for the poor performance of private sector companies.”<sup>24</sup> However, ultimately the government pulled back somewhat from this position, in the face of a threat by investors to sue the government. Railtrack Group and major shareholders claimed that the government had acted illegally in obtaining the order that placed Railtrack under administration, and threatened to sue for compensation.

> 22 _Winsor v Special Railway Administrators of Railtrack Plc_ , [2002] EWCA Civ 955.

> 23 _Financial Times_ , 8 October 2001.

> 24 Department of Transport, Local Government and the Regions, News Release 2001/0425, “Statement by Stephen Byers on Railtrack Shareholder Compensation”, 11 October 2001.

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