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Tuesday, 9 October, 2001, 16:35 GMT 17:35 UK
Profile: The Railtrack salvage squad
Railtrack headquarters
Railtrack will cease to exist in its current form
By BBC News Online's Jeremy Scott-Joynt

The last few months has seen a string of high-profile bankruptcies.

Dot.com after dot.com has been forced to throw in the towel, leaving staff pushed out into the cold at a moment's notice.


No-one within Railtrack can overrule administrators' decisions. The buck ends with Alan, Chris, Scott and Mike.

Rayner Peett
Ernst & Young
New locks appear on the doors, and equipment and other assets sold off at firesale prices.

But at Railtrack the story is different.

Railtrack House, located beside London's Euston station, is open, staff have come into work, and the railways are still running as well - or as badly - as they did before.

Business continues as usual, it appears.

Indeed there are large differences between liquidation - where those appointed by a court on behalf of disgruntled creditors are simply trying to maximise the payout - and administration, where an attempt is made to preserve a going concern.

Strategic asset

Another factor to consider in this case is the nature of Railtrack itself.

If the firm were allowed to collapse, and bailiffs permitted to bar the doors and auction off the furniture, then a vital slice of national infrastructure would come to a shuddering halt.

So the government has opted for administration - a period in which the company's baying creditors are, it is hoped, pacified and things are set in order for new ownership to take over a going concern.

Normal administration - in the case, for example, of Independent Insurance, which threw in the towel earlier this year - is governed by the Insolvency Act of 1986, which permits wholesale slash-and-burn of a company's operations.

In the case of Independent Insurance, this involved the sacking of half the staff within days, in an attempt to cut costs.

But for Railtrack, the Railways Act of 1993 which is also paramount - and this, unsurprisingly, prioritises the maintenance of rail services.

In the building

But what happens when the administrator arrives?

Railtrack chairman John Robinson
John Robinson: Expected to chair the new company

Standard practice in a company as big as Railtrack is for a large team - in this case, 30 people - from a large accountancy and consultancy firm to take over.

So on Sunday morning, in walked Ernst & Young's 46-year-old Alan Bloom, veteran of the resuscitation of Canary Wharf, and the sale of Barings Bank after Nick Leeson brought it to its knees.

With Mr Bloom were three fellow administrators - Chris Hill, Scott Martin and Mike Rollings - all individually appointed by the court.

A further 26 staff have also been assigned to the project.

The buck stops where?

Ernst & Young stressed that, during administration, normal management structures would remain intact.

"For all practical purposes, direct responsibility for running the company rests with the directors," their statement to Railtrack employees read.

In other words, chairman John Robinson and chief executive Steve Marshall - working his notice after resigning on Monday - were still in the hot seat.

Just to make the point absolutely clear, a few paragraphs further down came the following:.

"For the avoidance of doubt, we should stress that neither we personally nor our firm, Ernst & Young LLP, have:

  • Become your employer:

  • Assumed any responsibility in relation to your contract of employment;

  • Assumed any personal liability in respect of your contract of employment."

But Rayner Peett, of E&Y, stressed that this does not mean there should be any doubt that ultimate responsibility rested with Bloom and his team.

Stephen Byers, transport secretary
Stephen Byers: Final decision on Railtrack's future rests with him

"Obviously the administrators work closely with existing management," Mr Peett said.

"No-one is suggesting they take over mending rails or writing timetables.

"But they have responsibility for administrating the company: paramount control over what goes on.

"No-one within Railtrack can overrule their decisions. The buck ends with Alan, Chris, Scott and Mike."

Ample rewards

As for bucks of a financial variety, rates for good corporate recovery specialists (as they are known) approach 500 an hour.

The size of the team, and the profile of the job, mean E&Y stands to pick up a tidy wage for Railtrack work, court case allowing.

The Canary Wharf job in 1992, for instance, brought in about 7m.

The fees for those sorting out the remnants of the Bank of Credit and Commerce International (BCCI) - a job which lasted well over 10 years - were north of 600m.

First things first

And to earn these fees? Job one, according to one experienced administrator, is to get to know the people.

"It is a pretty difficult time for everyone in the company concerned," the administrator told BBC News Online.

"They do not know whether they will have a job next week. If it is a high-profile company they are probably feeling pretty battered by press coverage. And they will not necessarily be in a mood to trust a bunch of outsiders."

The Railtrack case was slightly different, he said.

Given a shatterproof imperative to keep the company running, most staff should feel safer - and the prospect of a new business devoid of a "fat cat" image could act as an incentive.

From then on, he said, things get a bit stickier.

Because the next task - running concurrently with that of simply making sure the show stays on the road - is to work out exactly what the company actually owns, and does.

"The priority is to understand what the current situation is from a business and financial perspective," E&Y's Rayner Peett said.

After all, the point of administration is to get a company into a fit state for someone else to take it over - in this case, a decision which ultimately rests with Transport Secretary Stephen Byers.

"That is when the skeletons can come out of the cupboard," an insolvency practitioner told BBC News Online.

"It can get a bit awkward for existing management."

But given the amount of negative coverage which Railtrack has already received, he said, it is difficult to see what could come out that will make things look worse than they are already.

See also:

08 Oct 01 | Business
Rail users promised 'fresh start'
08 Oct 01 | Business
Railtrack in administration
05 Aug 01 | Business
Railtrack may axe managers
02 Aug 01 | Business
Railtrack operations chief axed
23 Jul 01 | Business
Railtrack funding under threat
24 May 01 | Business
Railtrack reports massive loss
07 Oct 01 | Business
Railtrack privatisation 'flawed'
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