Recommendation 8

It is important that the Special Administration Regime (SAR)—and the potential loss to investors that it entails—is a credible threat on both performance and insolvency grounds to encourage sustainable company management and provide companies and investors with clarity and certainty. However, performance grounds are so vague that insolvency appears to be the only credible avenue for triggering a SAR. This allows highly distressed companies to operate in unacceptable conditions, with atrocious outcomes for customers, the environment, and the stability of the wider industry. Although automatic triggers under performance grounds might be excessive, clearer thresholds and processes are needed, particularly given the clear fundamental failures at Thames Water. Furthermore, even the insolvency grounds for starting a SAR were not designed to prevent the drawn-out process we have seen with Thames Water, and this also must change. (Conclusion, Paragraph 39)