When a company does not have enough assets to meet its debts, or is unable to pay its debts when they fall due, its directors may decide to place the company into administration. The administration procedure is governed by the Insolvency Act 1986 and is run for the benefit of all creditors.
Administration is a common debt solution, but for companies providing vital public services a bespoke insolvency process known as a special administration regime (SAR) may be necessary.
In this article, we explore SARs and examine how they operate within the water industry, with a particular focus on recent developments in the case of Thames Water.
What is a Special Administration?
A special administration is a modified insolvency procedure for businesses that provide a statutory or critical public service or supply, such as water or energy, or where there is a wider public interest in a modified insolvency procedure.
While ordinary administrations focus on creditor return, special administrations also prioritise service continuity and public interest. A special administration is initiated by court order, rather than being a decision jointly made by company directors and insolvency practitioners. Secured creditors are prevented from unilaterally triggering administration and in certain industries the appointment of a special administrator is only available to be made by the Secretary of State.
Special administrations are available in a variety of sectors, including investment banking, health services, energy supply, postal services and the water industry. Each SAR is tailored to the characteristics of its sector, with the primary aim of safeguarding those most impacted by the administration, especially consumers.
An administrator in a special administration will have particular objectives, such as maintaining the continued supply of the service or safeguarding of certain assets. A special administrator will also be required to engage with market regulators, such as the Financial Conduct Authority in the banking sector or Ofgem in the energy sector.
The Water Special Administration Regime
The water SAR was initially established under the Water Industry Act 1991 and governed by the Water Industry (Special Administration) Rules 2009.
Only the Water Services Regulation Authority (Ofwat) or the Secretary of State can apply to the court for an order to place a regulated water company into a SAR. Creditors are not entitled to make such an application and secured creditors do not have the right to nominate an administrator.
Unlike SARs in other sectors, the water SAR can be invoked even in the absence of actual or imminent insolvency, with the Secretary of State having the ability to intervene at an earlier stage in response to regulatory breaches.
Following various changes to the water SAR which came into force in January 2024 under the Water Industry (Special Administration) Regulations 2024, the primary statutory purpose of a SAR is now to rescue the regulated operating company as a going concern (if the reason for the SAR is that the company is or is likely to be unable to pay its debts). It is only where the special administrator is of the view that rescue as a going concern is not possible that the statutory purpose is to transfer the regulated functions of the operating company to another provider.
To facilitate rescue of the company as a going concern, a special administrator may propose a Company Voluntary Arrangement. In that context, the relevant provisions of the Insolvency Act 1986 and the Companies Act 2006 will be applied with certain modifications.
In addition to the current legislative framework governing water SARs, the Water (Special Measures) Bill 2024-25 is currently before Parliament. Among other things, the bill includes provisions to amend the Water Industry Act 1991 to allow the Secretary of State to modify water company licences to recover its losses from consumers following the provision of financial assistance to a water company in a SAR.
Thames Water: A SAR on the Horizon?
Amid mounting financial pressure, with debts of up to £20 billion and having recently received the largest-ever fine from regulator Ofwat, Thames Water is under intense scrutiny from the Government and regulators.
Ministers have recently stepped-up preparations for a possible SAR, explicitly rejecting lenders' attempts to secure regulatory waivers and making clear that intervention may occur even if no insolvency has formally been declared. After US private equity house KKR's withdrawal from a £4 billion rescue deal on 3 June 2025, Thames Water is now on the brink of entry into a SAR, which many contend would amount to a temporary renationalisation.
With creditors pushing ahead with a high-cost rescue plan, and the Government unwilling to offer concessions, the likelihood of SAR being triggered, even potentially before an actual insolvency arises, is very real in the coming weeks. Should this happen, both consumers and legal practitioners will be watching closely to see how the restructuring process plays out.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
