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Water special administration regime - Modernisation (Updated 12 August 2025)

 

UPDATED - 12 August 2025

Introduction

 

The water industry is heavily regulated in England and Wales and given its importance to the general public, it has its own bespoke special administration regime (‘SAR’) to protect public interests in the event of an insolvency:      

 

  • the Water Industry Act 1991 ('WIA91')—sets out the main powers and duties of the water and sewerage companies, defines the powers of the Office of Water Services (Ofwat)) and creates the right to appoint special administrators

 

 

A SAR enables an insolvent company which provides vital public services such as water, energy, rail to be put into a protective process in order to prevent individual creditor action with a requirement that the public service will continue to be provided.

 

As part of the modernisation, the statutory purpose of a SAR for a water company has been updated. Previously, it only focused on ensuring the provision of services to customers by transferring the regulated functions to another provider. Now, with the enactment of the new legislation, the purpose has been expanded to also allow for a rescue of the company as a going concern.

 

The water company SAR can only be used where a company either:

 

  • fails to meet its legal obligations and does not or cannot take remedial action; or
  • is unable to finance its functions.

 

It is worth noting that only Ofwat (The Water Services Regulation Authority) or the Secretary of State (SoS) may petition the court for an order to place a regulated operating company into special administration. Creditors do not have a right to apply for such an order, and there is no right for secured creditors to appoint an administrator, unlike the “plain” administration regime under Sch B1 Insolvency Act 1986 (IA86).

 

The water company SAR is not only accessible where there is an (imminent) insolvency; the SoS may also intervene if there have been any regulatory breaches. To date, the SAR provisions have never been implemented in practice.

 

Modernisation

 

As part of a modernisation exercise, the UK Government introduced and subsequently enacted several statutory instruments to bring the current SAR up to date with modern insolvency law and business practices. The goal was to align the water industry SAR powers with SAR legislation for other sectors (e.g., energy, financial services) across the Government.

 

The instruments that were laid before Parliament in January 2024 are now in force:

 

  • The Water Industry Act 1991 (Amendment) Order 2024: This provides that, on special administration of a water or sewerage company, a transfer as a going concern may be affected by transferring the company’s undertaking to a wholly owned subsidiary, followed by a transfer of securities in the subsidiary. This is known as “transfer by hive-down.”

 

 

The instruments have been introduced to enable the UK Government to facilitate a more effective and efficient water industry SAR if required.

 

The Water Industry (Special Administration) (England and Wales) Rules 2024 came into effect on 19 March 2024, aligning the water sector SAR with the SchB1 IA86 administration regime.  

 

 

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