Founders of failed energy firm ‘in line for £50m’
Founders of a failed Scottish energy supplier could be in line for a £50 million payout because of insolvency rules that protect shareholders .
The People’s Energy Company, set up by David Pike and Karen Sode, came into being with crowdfunded cash and a pledge to tackle fuel poverty in Britain.
It employed 450 staff across the UK, including 200 in Shawfair south of Edinburgh, as well as in Musselburgh and Selkirk serving 350,000 customers. In 2020 it created East Lothian Energy in a partnership with the council. They hired former Welsh rugby international Gareth Thomas to front a television advertising campaign.
However, the company folded last September, one of about 30 companies that failed as a result of the rising wholesale price of energy.
It was not such bad news for married couple Pike and Sode. Under UK insolvency law shareholders are due any money left after a business’s creditors are paid off. Research by Bloomberg has revealed that they may receive more than £50 million once company creditors are satisfied. In addition, they will not be liable for the £283 million cost of shifting their customers to Centrica’s British Gas.
Bloomberg states that it is all legal, and shareholders of other bust utilities may also be compensated.
Tony Jordan, an energy industry consultant at Auxilione, told Bloomberg: “You’ve got a large part of the country worrying about how they’ll pay their bills this winter, while a handful of executives are sitting on potential windfalls. It’s unjust.”
Prem Sikka, an accounting professor and a Labour peer in the House of Lords, said: “It’s bad management, bad regulation and bad insolvency laws.”
Some defunct companies, such as People’s Energy and BP-backed Pure Planet, still hold value after selling the contracts for energy they bought in advance — known as hedges — but never delivered.
At least £820 million in assets have been recovered from the firms being wound up, according to calculations by Bloomberg. About £315 million of that is in People’s Energy, according to administrators’ reports.
Pike and Sode launched the company after raising £487,815 from 2,059 supporters in 199 days. The company received its Ofgem licence and began trading in August 2017. They own 25% of the holding company, with the rest held in a nonprofit structure called a community interest company through which they promised to return 75% of profits to customers.
Unlike many other failed suppliers People’s Energy hedged against price fluctuations. Even so, it didn’t prove to be sufficient protection.
Pike told Bloomberg it struggled to attract new customers after raising tariffs but did not have enough cash to pay a trading partner.
“It was absolutely heart-breaking seeing PEC go into administration,” Pike said.
A court hearing in October will determine where much of People’s Energy’s and other firms’ cash will go. The regulator is working alongside several administrators to seek a change in the law that would mean it could rank as a creditor when gas and electricity companies fail, allowing it to receive money that can be then passed onto customers’ new provider.
In the meantime, Mr Pike is launching an “ethical” shopping site called Ethibuy.com that will raise capital by crowdfunding and by using proceeds from the hedge process. Ethibuy will allow customers to order goods that take account of transportation, materials, fair pay and other ethical considerations.
Sode is now a managing director of UK and Europe for YSC Consulting.
Ofgem is trying to claw back as much as half-a-billion pounds of the remaining assets in a court case to reduce the burden on customers. Resolution may take years, and any money Ofgem recovers will be at the expense of creditors or shareholders. Other failed energy suppliers may return money to shareholders, depending on the outcome of this effort.
Three-quarters of any payout will go to fuel poverty causes through the community interest company, Pike said. The remaining quarter – potentially as much as £58 million – is set to go to Pike and Sode. It is not clear if they intend to re-distribute any of these funds.