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In brief

The Supreme Court of Victoria has found liquidators can be made personally liable for clean-up costs in respect of land that was, on their appointment, polluted or environmentally hazardous as “occupiers” under the Environment Protection Act 1970 (Vic) (EP Act).[1] A disclaimer notice issued by the liquidators in respect of polluted property was set aside, preserving the liquidators’ indemnity from a related third party for that environmental liability. This left the liquidators (and consequently their indemnifiers) unable to avoid an obligation in due course to pay the Environment Protection Authority (EPA) its clean-up costs.

Civil liability for such costs is in addition to the potential criminal liability imposed on persons concerned in management under the EP Act for breaches by a company of its obligations under that legislation. The reasoning of the Court could also have implications for receivers and administrators of companies holding land that is, on their appointment, polluted or environmentally hazardous.


Key Takeaways

The Supreme Court of Victoria in EPA & Anor v Australian Sawmilling Company Pty Ltd (in liq) & Ors [2020] VSC 550 has set aside a notice of disclaimer for land the liquidators of the Australian Sawmilling Company Pty Ltd (In Liq) (TASC) had issued to avoid incurring further costs associated with the highly polluted site.

The liquidators, and not just TASC, were held to be “occupiers” as that term is defined in the EP Act because functionally they controlled the site. This was notwithstanding that they were only officers of the land owning company. The EPA has the power to issue “occupiers” with a notice to pay the EPA’s costs of cleaning up a site that is polluted or environmentally hazardous.

Key factors in this case were:

  • The liquidators had the benefit of an indemnity from a third party for environmental liabilities the liquidators incurred.  The Court’s decision served, in effect, to make that indemnity available for the benefit of the EPA.

Were that indemnity not available, indications are that the EPA would not have pursued the liquidators for the clean-up costs. The EPA gave an undertaking in the proceedings to the effect that any recovery would be strictly limited to the extent to which the liquidators’ indemnity responds.

  • TASC’s unsecured creditors were no worse off as a result of the continued ownership of the land. If either the liquidators bore the costs of that work, or avoided them by disclaiming the land, there would still be no return to those creditors.

It is not certain that the outcome of the case would have been the same had there been substantial detriment to such creditors.

The logic of the case would appear to apply equally to receivers, who would also be “occupiers” by controlling property over which they were appointed. Administrators would also exercise such control, being in a similar position to that of liquidators.

Whilst it is prudent for external administrators to have an indemnity before taking on insolvency appointments involving environmentally hazardous assets, all stakeholders need to be aware such an indemnity may itself become a source of recovery for remediation costs.

Insolvency processes do potentially provide a process for dealing with liabilities, including environmental liabilities. However, care needs to be taken by those structuring or taking such insolvency appointments to consider and manage potential environmental liabilities.

In more detail

TASC was the owner of a 14.9 hectare parcel of land located in Lara, Victoria on which was stored approximately 320,000m3 of various mixed construction and demolition waste in stockpiles, which was estimated to cost around five times the value of the property to clean up. Prior to consenting to their appointment as liquidators in a creditors’ voluntary liquidation, TASC’s liquidators obtained an uncapped indemnity from a related entity which would cover environmental liabilities incurred by the liquidators, and provided a fixed amount in respect of the liquidator’s other remuneration and expenses.  The indemnity was conditioned on the liquidators using reasonable endeavours to minimise any such environmental liability.

The liquidators issued a disclaimer notice for the land on 30 April 2019. Section 568(1) of the Corporations Act 2001 (Cth) (Corporations Act) allows a liquidator of a company to disclaim property on behalf of the company if, relevantly:

  1. the property is unsaleable or not readily saleable;
  2. the property may give rise to a liability to pay money or some other onerous obligation; or
  3. it is reasonable to expect that the costs, charges and expenses that would be incurred in realising the property would exceed the proceeds of realising the property, whether or not the liquidator has already tried to sell the property.

By this time the EPA had entered the land and was seeking proposals for the clean-up of the site. It was yet to incur those costs. Section 62 of the EP Act allows the EPA to recover the costs of such a clean-up from the “occupier” of the land. A person with an interest in the disclaimed property may ask a court to set aside the disclaimer before it takes effect under s 568B(1) of the Corporations Act. In this case, the EPA was considered to have that interest because it could assert a statutory charge over the land for its clean-up costs.

“Occupier” as defined in the EP Act refers to a person exercising control over a property.  TASC’s liquidators were considered to have the requisite control of the assets of TASC (including the land) by reason of their appointment. The EPA’s intervention at the site did not change this.

Ordinarily, section 545 of the Corporations Act permits a liquidator to avoid incurring expense in a liquidation unless there is “sufficient available property” to pay it. The liquidators’ indemnity from the related entity in respect of these expenses though was held by Court to be “property” for the purposes of paying such expenses. Therefore, the Court reasoned, the liquidators could be obliged to incur further expense in cleaning up the pollution. Here the “incurring” would be the claim made by the EPA for its clean-up costs in due course. The liquidators themselves were not expected to undertake the work.

The Court considered the potential for inconsistency between the disclaimer regime under the Corporations Act and the EP Act, but reached a different conclusion from that reached by the Queensland Court of Appeal in the Linc Energy appeal.

The Court was also influenced by the possible dangers of allowing a company to use the voluntary liquidation and disclaimer of property processes to avoid environmental responsibilities and to leave the State and taxpayers to cover the costs of environmental clean-ups.

Despite indicating an intention to exercise powers against the liquidators personally, the EPA showed a willingness to avoid reaching beyond the available property of TASC, providing an undertaking to the Court to avoid any risk that the liquidators’ personal liability would extend beyond their indemnity.

Author

Ian is a partner in the Brisbane office. He is a highly experienced insolvency, litigation and dispute resolution lawyer, having acted for a broad range of organisations in both the private and public sectors within Australia and internationally. Ian also has extensive experience gained across a range of industries in an insolvency context for financial institutions, insolvency practitioners and creditors.

Author

Peter Lucarelli is a partner in the Melbourne office of Baker McKenzie. For over fifteen years, Peter has advised on complex commercial and contractual disputes and insolvency and restructuring matters.

Author

Ilona Millar is a partner in the Environmental Markets team at Baker McKenzie's Sydney office. Ilona is an environmental and projects lawyer with a diverse range of experience in domestic and international climate change, carbon markets, environmental law and policy, and a strong background in all aspects of water management, planning and projects. She joined the Firm in 2008 from the Foundation for International Environmental Law and Development, and International Institute for Environment and Development, in London. Ilona regularly writes, teaches and presents on environmental topics — she has lectured on environmental law, environmental markets and international climate change law at UNSW, Sydney University and University College London and for the past six years has co-coordinated the international climate change law course at ANU where she is a visiting fellow at the College of Law. Ilona's extensive pro bono work includes advising a number of developing country governments and non-government organizations on international climate change negotiations, and advising the Wentworth Group of Concerned Scientists on water and natural resource management law. She is listed among the best lawyers for Climate Change by Best Lawyers Australia 2016.

Author

Maria O’Brien is the head of the Restructuring & Insolvency practice at Baker McKenzie's Australian offices. She previously led the Firm's Asia Pacific Restructuring & Insolvency Working Group and is a member of the Global Restructuring & Insolvency Steering Committee. Maria is a Fellow of INSOL International (the International Association of Restructuring, Insolvency & Bankruptcy Professionals), and a director of the Turnaround Management Association (Australia). Maria has been ranked as a Leading Individual in Restructuring/Insolvency by Chambers Asia Pacific every year since 2011 and has been ranked in the peer-assessed Best Lawyers for Insolvency and Reorganisations every year since 2009. She was the winner of the International Women's Insolvency & Restructuring Confederation NSW's inaugural Award for Outstanding Female in the Insolvency and/or Restructuring Industry in 2009.

Author

Lauren Kirkwood is a special counsel in Baker & McKenzie’s Environmental Markets practice in Brisbane. She is highly experienced in the environmental and tenure aspects of major infrastructure, energy and resources projects, as well as Australian climate change law and policy issues. She is named in Best Lawyers in Australia for Planning and Environment Law and Climate Change Law, and is a member of the Queensland Climate Advisory Council.

Author

Guy Dwyer is a senior associate in Baker McKenzie's Sydney office, practising primarily in environmental, planning and climate change law. He is valued for his ability to effectively identify the key environmental and planning law issues arising from a client's proposed course of action. Guy draws on his deep knowledge and experience in environment and planning matters to clearly and efficiently communicate advice in a manner that suits the needs of the client.