Royal Mail – what next if it enters postal administration?
The long-running row between Royal Mail staff and their union over pay and conditions has been widely reported in recent weeks.
In a positive development, Royal Mail and the Communication Workers Union (CWU) are now reported to have reached an agreement on pay. That agreement follows previous warnings from Royal Mail that a return to industrial action by the CWU could result in it entering special administration, but what would that mean in practice?
The universal postal service
Royal Mail Group Ltd is the UK’s largest postal operator, the only postal operator currently providing UK-wide end-to-end letter delivery services, and the UK’s universal postal service provider.
The requirements for the universal postal service in the UK are set out in the Universal Postal Service Order (UPSO), a document first published in 2012 and enforced by Ofcom (the UK’s communication regulator).
The UPSO is designed to ensure that all people in the UK have access to affordable, reliable, and timely postal services. It sets out the requirements for the universal postal service in the UK, including:
- At least one delivery of letters every Monday to Saturday, and at least one delivery of other postal packets every Monday to Friday;
- A service of conveying postal packets from one place to another by post at affordable, geographically uniform prices throughout the UK; and
- A registered item service at affordable, geographically uniform prices throughout the UK.
The Special Administration Regime
A Special Administration Regime (SAR) was introduced by the Postal Services Act 2011 (PSA 2011) to allow for the application of a postal administration order (PAO) and the appointment of a postal administrator to manage the affairs of a universal service provider (Royal Mail) that is in financial difficulty.
Ordinarily, if a company were to enter administration the administrator has to achieve a result that is primarily in the interests of the company’s creditors. A SAR is a modified insolvency procedure that gives an administrator special objectives.
In the case of postal administration, the objective of the SAR is to secure the continued provision of the universal postal service if a privately-owned Royal Mail (or other provider of the universal postal service) is at risk of entering insolvency proceedings. That is to be achieved by:
- A rescue of the company as a going concern, and/or
- A transfer of the company as a going concern (either as a whole to another company or a transfer of different parts of the undertaking of the company to two or more different companies).
An application for a PAO may be made only by the government or Ofcom (with the government’s consent).
The postal administrator
The postal administrator appointed must be a licensed insolvency practitioner who would manage the company’s affairs, business and property with a view to achieving the objective of the postal administration as quickly and as efficiently as is reasonably practicable.
Schedule 10 of the PSA 2011 sets out provisions relating to the conduct of the postal administration, including relevant modifications of Schedule B1 to the Insolvency Act 1986, which sets out the legal framework for administrations.
If Royal Mail were to enter into postal administration, it would clearly raise serious questions over its future with no guarantee of its rescue as a going concern. While the postal administrator would look to secure the continued provision of the universal postal service, Royal Mail’s insolvency would lead to huge uncertainty for its staff and undoubtedly have the potential to lead to significant service disruption for businesses and individuals, at least in the short term.
Whether Royal Mail or another provider is designated as the UK’s universal service provider, there are undoubtedly questions as to whether the universal postal service is workable in its current format. Indeed, Royal Mail recently approached Government seeking a move to a minimum five-day delivery service for letters, in place of the current six-day delivery service.
Although the Government indicated that is has no current plans to change the statutory minimum requirements, the request perhaps indicates that the terms of the universal postal service are not sustainable, pointing to a less frequent and/or more expensive service for customers in the long term.