Railtrack was last night preparing to sue HSBC after the bank froze £370m in the account of its parent company, Railtrack Group, which has not been placed in administration.
Unless the money is unfrozen, then Railtrack Group, which owns the company's unregulated assets such as property and the concession to operate the Channel Tunnel Rail Link, will also be forced into administration.
This would make the prospects of Railtrack shareholders salvaging anything from the collapse of the business even slimmer. Estimates of how much shareholders might salvage from the administration, which is being carried out by Ernst & Young, range from zero to 50 pence a share, said David Rough, director of investments for Legal & General.
ABN Amro, which first warned in June that the company may be worthless and advised shareholders to sell before their equity was destroyed completely, re-iterated its view that Railtrack was worth nothing.
Railtrack plc, the business which has been placed in administration, has an overdraft with HSBC while Railtrack Group has £370m in cash in its bank account. It is common in cases like this for banks to freeze the cash and net it off against the sum it is owed. If this happens, then Railtrack Group will become a creditor of Railtrack plc, meaning that the company may be forced to sue the administrators for the return of the £370m.
The company's flotation prospectus in May 1996 warned investors that the Government had the power to place Railtrack in railway administration under the 1993 Railways Act. But most either overlooked the clause or assumed that the Government would never exploit it.
The Government has undertaken to guarantee Railtrack's existing loans and provide the administrators with sufficient funds to pay trade creditors as invoices fall due. This means that the principal function of the administrators will be to secure as much money for shareholders as they can.
Railtrack has appointed Deloitte & Touche to advise it on the consequences of the adminstration process on the remainder of the group.
Steve Marshall, who resigned yesterday as Railtrack's chief executive, called on the Government to co-operate in returning value to shareholders. "I am looking to the Government to help rescue some value for shareholders. In the circumstances I do not think that is unreasonable," he said.Reuse content