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Monday, 15 October, 2001, 17:25 GMT 18:25 UK
Railtrack: What happens now?

The collapse of Railtrack plc has become a long-running saga. BBC News Online reports on the latest developments for shareholders, passengers, employees and creditors.

How much compensation will Railtrack shareholders get?

Last week, the government indicated it would hand back 370m frozen in Railtrack's bank account to shareholders - amounting to about 70p a share.

Transport secretary Stephen Byers is also said to be considering allowing Railtrack Group the right to run the Channel Tunnel rail link - which, if sold, could provide another boost for shareholders.

Selling the right could bring in 400m or the equivalent of an extra 75p per share - although Mr Byers failed to discuss this as an option during his address to Parliament on Monday.

Railtrack is adamant that it will not rest until compensation amounts to 1.6bn or 360p a share, slightly below Railtrack's 1996 float price.

In his Parliamentary address, Mr Byers said it would cost 1.5bn of taxpayers' money to achieve this level of compensation.

"We believe it would be wrong to make new money available. We will not do it," he added.

Why is the government considering compensation for shareholders?

Typically when a company becomes insolvent, shareholders are unlikely to get anything back.

But in this case, the shareholders were given very little indication that the company was on the verge of collapse.

The fact that Railtrack shares were trading before suspension at 2.80, rather than 2p for example, is reflective of this.

Some insiders say the government, by failing to make sufficient investor announcements, broke London Stock Exchange rules when winding up the company.

This may be one reason why the government is mulling ways of returning some money to shareholders.

Will train services be affected?

Train services will continue to run according to existing timetables and fares will not be affected.

The administrators of Railtrack plc - accountancy firm Ernst & Young - plan to run the company as normal while it is under their control.

Services will also continue unchanged once a new company is set up to replace Railtrack, says the Department for Transport, Local Government and the Regions (DTLR).

What exactly will happen to Railtrack?

Railtrack plc as we know it will no longer exist.

For the next three to six months, Ernst & Young will take over management of the former Railtrack, including the national rail network.

During that time, E&Y will determine the value of the company and decide whether to accept the government's proposal to set up a new company to manage the network.

Theoretically Ernst & Young could turn down the government's proposal, although it is unlikely.

Another fly in the ointment is a bid by a consortium of banks to take over Railtrack. The banks are believed to be canvassing support in the City for such a move.

How would the government's new company work?

The government wants to set up a new private company that would not have shareholders - mainly because it believes Railtrack was hampered by having to please its shareholders.

Instead the new company would have "members", like a port authority or a housing association.

In this case the members would include organisations like the Strategic Rail Authority, train companies, freight companies and passenger groups.

Such members would have no financial share in the company, but they would be able to ensure that their interests were represented.

Any operating surpluses - in other words profits - would be reinvested in the company.

What will happen to Railtrack's employees?

E&Y is keen to point out that no employees will lose their jobs as a direct result of Railtrack going into administration.

However, Railtrack was considering some job cuts prior to its collapse and these could be enacted in the future.

On the bright side, the new company does plan to take on employees from Railtrack as part of its undertakings.

In the meantime, employee pay will not be affected while Railtrack is in administration.

Unfortunately, about 90% of employees had shares in Railtrack and will be waiting to hear what compensation they can expect (see above).

Many of them accepted shares as part of a bonus package.

What will happen to Railtrack's creditors?

For the next 45 days, the government will continue to service Railtrack's debt and pay bills to contractors and other suppliers.

After that the government will have to decide how to deal with creditors and there will be a review of any large contracts with suppliers.

Most creditors have been asked to sign a standstill agreement now that Railtrack has gone into administration.

E&Y declined to comment on whether creditors may have been asked to give up some of their claims, as a result of signing the agreement.

Certainly, the administrators have a thorny problem repaying creditors as many of Railtrack's assets will be passed to the new company.

What will happen to the work on improving the rail network?

The new company plans to take a more flexible approach to upgrading and building the country's rail network.

It definitely plans to work with the private sector on building new track.

However, it is possible that in some cases, the new company may choose to lease the track from other private companies, rather than own it outright.

The train operating companies, such as Stagecoach and National Express, expect to be given a bigger role in track maintenance under Railtrack's replacement.

The government will also stick to its plan to spend 30bn on rail infrastructure over the next 10 years.

See also:

08 Oct 01 | Business
Rail users promised 'fresh start'
05 Oct 01 | Business
Q&A: Bankruptcy made simple
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