Analysis – Blood on the tracks.

‘To me this sounds like a recipe for disaster. It is a political not a commercial solution to a very difficult problem. It’s a bit disingenuous to talk about a non-profit-making trust when Railtrack never made any money in the first place and the infrastructure needs so much money that government subsidies for it would have to go on for years.’

The comments are as damning of every party involved in the greatest railway saga of recent years as they are sceptical that a solution has now been found.

But they come not from some disgruntled Railtrack shareholder or an angry company director. They come from one of the country’s most senior insolvency experts – David Buchler, vice-president of R3, the association of business recovery professionals and chairman of business recovery firm Kroll Buchler Phillips

According to Buchler, in agreeing to take on the role of special administrator to Railtrack, Ernst & Young has accepted from the government nothing less than a poisoned chalice. ‘Railtrack,’ he adds with some understatement, ‘is going to need a complete review of its assets.’

The beleaguered company’s finances are as complicated as the rail network itself. Senior figures close to Railtrack suggest there is some uncertainty about how valuable its asset base is. But there is more certainty about its liabilities.

If the rail network is ever going to run anything like as smoothly as the level expected by the travelling public, those liabilities are going to run into the millions of pounds.

Buchler adds: ‘Its liabilities are huge and it has 250,000 shareholders, most of whom are members of the public. So you have #5bn finance debt and quarter of a million shareholders that have all been alienated.

‘The administrator will have to find a solution to these issues in the package that it puts together.

‘The other issues are the fact that shareholders have relied on confirmation to Railtrack from the government that it would support Railtrack plc and pay grants to it. This was withdrawn when the administration order came in.’

Disgruntled shareholders have already said they will sue the government after it said it would not give public money for their shares. Last Thursday, the government said it would make available #370m belonging to Railtrack Group to pay off shareholders, giving them 70p per share.

Confirming the administration order last week, Byers said: ‘We are committed to spending over #30bn of public money on the rail network over the next ten years.

‘But public taxpayers’ money, which would otherwise be spent on key public services such as schools and hospitals as well as railways, should not be used to compensate for poor performance of private sector companies.’

But this is unlikely to satisfy shareholders who were asking for 360p per share – the price they had initially paid when the railways were privatised by the last government.

Buchler says the whole administration process could take years and get more complicated. And he warns Railtrack Group could appoint its own administrator independent of Ernst & Young.

But for now Buchler recognises there are more pressing concerns than these: ‘There is a shorter-term process of stabilisation and reorganisation for the future and here a solution will have to be found during the course of the next six or 12 months.’

Railways analyst John Stittle agrees that this is a unique case: ‘This is not like a conventional private sector company where shareholder money has been lost, in this case several billion pounds of public money has been lost.’

Railtrack is split between the publicly owned Railtrack plc and Railtrack Group, its parent company. Only Railtrack plc has gone into administration, which already creates the problem of what happens to the parent company.

For E&Y this means dealing with different legal provisions. The company was put into administration under section 60 of the 1993 Railways Act – not the 1986 Insolvency Act – when Byers petitioned the High Court on the grounds that the company was unable to pay its debts.

Ernst & Young partners Alan Bloom, Chris Hill, Scott Martin and Mark Rollings now find themselves in a slightly different role – that of ‘joint special railway administrators’.

The Railways Act states: ‘the sole purpose of the railway administration order is the transfer of the relevant activities to another company as a going concern pending the transfer.’

And it warns that administrators have to ensure ‘continued provision of necessary passenger services in terms of continued operation of the trains, the track, the stations and the light maintenance depots involved should any of the operators of those services or facilities become insolvent.’

When the administration order came through, E&Y said it was retaining the company directors and the company would continue to run as normal.

The government also said it would make the necessary funding available for administrators to continue operating the rail network.

What Bloom’s team must now concern themselves with is meeting the Act’s requirement that they sell the company as a going concern to a guaranteed buyer.

In the few days he has been in the hot seat, Bloom has already met with representatives of the Strategic Rail Authority, unions and banks. And in interviews over the weekend he talked of the need for any prospective buyer – including German bank WestLB, which is mooted to be in the frame – to have a better idea of what any post-Railtrack world looks like.

Byers favours a non-profit making trust. But whatever happens the new operator will face an uncertain future. Much of the responsibility for injecting a dose of certainty into the affair rests with Bloom.

Details of the Railtrack Shareholders’ Action Group can be found at


Stephen Marshall

This CIMA-qualified accountant was the last chief executive of Railtrack, taking up the challenge of heading the beleaguered rail infrastructure company after Corbett. Although he was kept on by the administrators, Marshall quit accusing the government of ‘unacceptable’ and ‘shoddy’ behaviour towards Railtrack. He said the last two years at Railtrack were ‘torrid’ and ‘unique’ and insists the company could have made good if the government had not pulled the rug out from under it.

Nick Montagu

The current chairman of the Inland Revenue was deputy secretary of the department of transport when Railtrack was privatised. He headed the special project under which Railtrack floated on the stock exchange in 1996, leading it through last-minute problems which included Railtrack’s debt.

Gerald Corbett

Currently executive chairman at Kingfisher, Corbett was chief executive of the company at the time of the Hatfield crash. He was appointed to lead the company in September 1997. His experience includes overseeing the merger of Guinness and Grand Metropolitan – where he was group FD. There were four rail crashes during his time at Railtrack, and he dealt with the fallout from the last two almost single-handedly.

Stephen Byers

The current secretary of state for transport, Byers put Railtrack into administration, refusing to continue giving it money and staunchly defending his stance. He said the rail company failed to run the network and promised commuters a ‘fresh start’. He denies breaking promises to the company.

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