Byers swamped by Railtrack writs

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The Independent Online

Stephen Byers, the Transport Secretary, is facing the prospect of the administration of Railtrack collapsing into disarray under a flurry of legal actions.

Up to seven different cases brought by the rail operator's parent company, its shareholders, its bond investors and a financial institution which wants to buy the business, threaten to unravel Mr Byers' hopes of restructuring Railtrack.

The most serious accusation against Mr Byers is that he failed to put all the relevant facts before Mr Justice Gavin Lightman, the judge who granted the administration order on 7 October.

If that is proven, then the administration order could be revoked. A precedent exists in the 1992 case of Cornhill Insurance versus Cornhill Financial Services, when the court ruled that: "All facts relevant to the exercise of the discretion to appoint an administrator must be revealed even though to do so may be embarrassing to the applicant."

Railtrack Group, the parent company of Railtrack plc, has claimed that Mr Byers did not tell the court the whole truth about the events that led to the administration. In particular, a report by accountants Andersen failed to detail the possibility of £162m being released to the company under a funding deal called Renewco. Railtrack's finance director, David Harding, believes that another £445m could have been raised from the City if that money had been released.

Also Mr Byers did not tell the judge about the discussion on Friday, 5 October with the rail regulator, Tom Winsor, when Mr Byers is said to have threatened to overrule Mr Winsor if he came to the aid of Railtrack.

Applying to have the administration set aside is one of three courses of action being considered by Railtrack Group. The others are to sue Mr Byers for misfeasance in public office and to take an injunction preventing the administrators of Railtrack from selling the business to the company limited by guarantee, with which Mr Byers hopes to replaceRailtrack.

This action would be against the administrators, Ernst & Young. Under the administration order, they only need to go to Mr Byers to have any plan to sell Railtrack approved. But the amount that can be recovered by Railtrack Group for its shareholders depends on this valuation, and if it is not happy with the price it may take out an injunction to stop the sale.

The administrators also face potential legal actions by bondholders who claim that as much as £3bn worth of property assets within Railtrack plc should not form part of the administration.

A misfeasance action is also being considered by shareholders in Railtrack Group, who saw their shares suspended at 280p and now fear they are worthless. A group of institutional investors Hermes, Fidelity, Invesco, Morley and Franklin have formed an action group and are ready to sue Mr Byers.

A final legal action is in prospect from WestLB, the German bank which wants to buy Railtrack. It believes Mr Byers may have a conflict of interest and wants another cabinet minister to be put in charge.

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