Power players may face legal action over Jackgreen

INTEGRAL ENERGY and the Australian Energy Market Operator could face legal action over their role in the collapse of the renewable energy company Jackgreen.

By InvestSMART · 19 Apr 2010

By InvestSMART ·
19 Apr 2010

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INTEGRAL ENERGY and the Australian Energy Market Operator could face legal action over their role in the collapse of the renewable energy company Jackgreen.

Jackgreen, which was Australia's largest specialist renewable retailer, went into voluntary administration in December after it failed to pay a $500,000 bill to the NSW government-owned Integral Energy.

At the time, the company claimed it was squeezed out of business by its bigger rival, which acquired most of its customers soon after the corporate paramedics were appointed.

Now its administrator, PKF, is mulling possible actions against state-owned power companies and the Australian Energy Market Operator, which suspended Jackgreen's power retail licence soon after the administrators took charge.

In a report to creditors of Jackgreen International, a wholly owned subsidiary of the listed company, PKF recommended creditors put the company into liquidation at a meeting this week.

This could pave the way for potential action against Integral, which is estimated to have acquired 15,000 of Jackgreen's customers. According to industry rules of thumb, acquiring Jackgreen's customers would have been worth between $10 million and $17 million to the government-owned retailer, which is up for sale this year.

"Further investigations may reveal that there may be a claim against state government-owned electricity businesses or the regulator," one of the administrators, Atle Crowe-Maxwell said. The report estimated that trade creditors, which include Origin Energy and AGL Energy, will receive between 0.5? and 3.6? in the dollar. Most of Jackgreen's 100 staff have been sacked, and shares in the group are effectively worthless.

In the highly concentrated industry of power retailing, Jackgreen's collapse highlights the difficulties of small players trying to salvage value once they are in financial stress.

Almost as soon as administrators were appointed they were required to move all of Jackgreen's customers to a rival because of restrictions to ensure power supply was not threatened. This destroyed nearly all the value in the business, whereas administrators to other companies retain control of key assets, salvaging more for creditors.

Mr Crowe-Maxwell said: "In my opinion there's a conflict between the Corporations Act and National Electricity Market rules, which don't allow for a company similar to Jackgreen to appoint an administrator for the purpose of restructuring the company, or maximising the chances of staying in existence."

Separately, the administrators have said the listed parent company, Jackgreen Limited, may have traded while insolvent from May last year until December.

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Frequently Asked Questions about this Article…

What happened in the Jackgreen collapse and why should investors care?

Jackgreen, once Australia’s largest specialist renewable retailer, went into voluntary administration in December after it failed to pay a $500,000 bill to NSW government‑owned Integral Energy. Administrators were appointed, most of the company’s 100 staff were sacked and the listed parent’s shares are effectively worthless. For everyday investors this illustrates how quickly a small energy retailer can lose value and wipe out equity when financial stress and regulatory actions collide.

Who could face legal action over Jackgreen’s collapse?

The administrators (PKF) have said they’re looking into potential claims against state‑owned electricity businesses such as Integral Energy and the Australian Energy Market Operator (AEMO). The report to creditors flagged that further investigations may reveal claims against those entities or the market regulator.

Why is Integral Energy specifically mentioned as a possible target for legal action?

PKF’s report notes Integral Energy is estimated to have acquired about 15,000 of Jackgreen’s customers after administrators were appointed. Industry rules of thumb put the commercial value of those customers at roughly $10 million to $17 million, and the transfer may be part of why the administrators are considering claims against the state‑owned retailer.

What role did the Australian Energy Market Operator (AEMO) play in Jackgreen’s administration?

According to the article, AEMO suspended Jackgreen’s power retail licence soon after the administrators took charge. That suspension, and related National Electricity Market processes, is one of the actions PKF is reviewing and could form part of any potential legal claim.

What did the administrators recommend for Jackgreen International and the listed parent?

PKF recommended that creditors put Jackgreen International, a wholly owned subsidiary of the listed company, into liquidation at a creditors’ meeting. Separately, the administrators said the listed parent company, Jackgreen Limited, may have traded while insolvent from about May until December.

How much can trade creditors expect to recover from Jackgreen’s collapse?

The administrators’ report estimated that trade creditors — which include companies such as Origin Energy and AGL Energy — will receive between 0.5 and 3.6 in the dollar, according to the figures cited in the report.

How did moving Jackgreen’s customers to rivals affect the company’s value?

When administrators were appointed they were required to transfer all of Jackgreen’s customers to a rival to protect power supply. That immediate transfer destroyed nearly all of the business’s value, unlike other administrations where key assets can be retained to salvage more value for creditors.

What does the Jackgreen case tell everyday investors about risks in power retailing?

The collapse highlights how concentrated the power‑retailing industry is and the difficulty small players face when under financial stress. Regulatory rules and emergency customer transfers can quickly eliminate a small retailer’s value, leaving shareholders with worthless stock and creditors with limited recovery — a cautionary example for investors considering exposure to small energy retail companies.