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Michael Murray’s on-going commentary on issues in corporate and personal insolvency law and related policy and law reform, in Australia and internationally. Given the scope of insolvency, this extends to business, consumer and professional conduct, and ethics, governance and regulation, criminal, tax, environmental and administrative law, and the courts and government.

 

Chains of responsibility – Queensland’s environmental protection law – part 2

The Queensland government has on 27 January 2017 issued a guideline under its new ‘chain of responsibility’ environmental protection legislation whereby a range of persons associated with a company in breach of environmental laws can be made liable for those breaches.

The guideline is issued under the Environmental Protection Act 1994 (EPA), in relation to new Division 2 of Part 5 of Chapter 7 of the EPA, introduced by the Environmental Protection (Chain of Responsibility) Amendment Act 2016 (CORA). The guideline operates from 27 January 2017.  The EPA is administered by the Queensland Department of Environment and Heritage Protection.

The guideline had been out for public consultation since late 2016 and its final details will no doubt be the subject of comment by those affected – financiers, management, directors, joint venturers – in the mining and other environmentally sensitive industries.  The consultation process with the 14 parties involved is here

In relation to insolvency practitioners, the guideline now accommodates many of the issues raised in my earlier 2016 commentary, which were noted by the Department at the time.  These were that liabilities and responsibilities of the company up to the point of its liquidation are not those of the liquidator; the cost of those is generally a provable debt in the liquidation; but post-liquidation liabilities may be incurred by a liquidator in any trading-on of the business.  The guideline does acknowledge that ‘given the nature of their relationship with the company an insolvency practitioner will not be considered culpable for pre-existing harm’ but closer examination of the 43 page guideline is needed.  Nevertheless, the EPA does still allow, under s 363AD, the Department to issue an EPO to a liquidator as a related party to take action to remediate land contaminated by activity which the company has carried out.  In insolvency terms, that would require the liquidator to prefer one creditor – the Queensland government – over others. The Department however “must have regard to” the guideline now issued in deciding whether to issue an EPO: s 363ABA.

Why and how?

The objectives of the Bill were said in its Explanatory Notes to be to facilitate enhanced environmental protection for sites operated by companies in financial difficulty and to avoid the State bearing the costs for managing and rehabilitating those sites.  This is said to have emerged as a looming major problem with the downturn in the mining sector.  As a fall back when confronted with non-compliance by a struggling or insolvent company, with limited or no capacity to pay, the law potentially imposes liability on others.  

CORA seeks to implement that policy by allowing environmental protection orders (EPOs) to be issued to a party that has some relevant relationship to the company in financial difficulty, which may include, for example, a parent company or executive officer. If an EPO is issued, and the recipient fails to comply, the Department may require the recipient to pay the costs of taking action required under the order.

The Notes go on to say that “there are no other viable alternatives that would achieve the policy objectives other than the proposed Bill”.

Comment

This law does smack of the usual Australian state government response of addressing a compliance problem by increasing and broadening the penalties for breach, a typical approach in criminal law, as an alternative to more effective regulation.  That may work, in a sledgehammer way, by having all the affected parties respond to the message of deterrence in what is a severe legal regime.  But on the other hand, as I said in my earlier July 2016 commentary, CORA does allow an examination of the broader group of those who benefit economically and financially from a company’s operations, and their involvement in the company’s attention to its social responsibilities.    

COAG principles

That in itself raises the major Commonwealth-State issue of the tendency of all governments to skirt the protection of the corporate veil and impose personal liabilities upon directors or management.  That has been addressed by the agreed Council of Australian Governments (COAG) principles that lay down criteria by which personal liability for corporate fault should be imposed in legislation: see for example the Directors’ Liability Reform Act 2015 (Cth).

The EPA Explanatory Notes accept this,  saying that

“some concerns were raised regarding the extension of provisions to executive officers. However, the review of directors’ liability provisions by COAG in 2012 did not lead to any changes to the EP Act. The existing directors’ liability provisions in the EP Act were retained and the new provisions proposed by this Bill can be considered to be an extension of these”.

That the new CORA provisions in the EPA can be considered to be an extension of existing law seems mere political-speak.

Other chains – transport national law

But it may be true that

“Queensland appears to be leading in establishing chain of responsibility provisions for environmental obligations”

although that concept is not new.

It is now a principle enacted under various state transport laws, although more rationally, by imposing liability for transport accidents on other than the driver: see for example Remondis Australia Pty Ltd v Local Court of New South Wales [2016] NSWSC 1649.  There are gradations of the reach of responsibility comparable with CORA. Under the Heavy Vehicle National Law (NSW) those who are a “party in the chain of responsibility” for a ‘heavy vehicle’ are more limited in range than those in the chain for a ‘fatigue-regulated heavy vehicle’, which extend to consignors and consignees of any goods in the vehicle, and loaders and unloaders: s 227.  This is broad although not nearly to the same extent as the Queensland CORA law.

Some remaining points

The Senate Economic References Committee is presently reviewing penalties for white collar crime and took evidence from a number of major Commonwealth regulators on 6 December 2016. While not focused on environmental offences, the inquiry has the great benefit of a criminological perspective on the efficacy of different enforcement approaches and types of penalty, and what in fact serves to deter breaches of different types of white collar crime. It is not clear upon what regulatory approach the wide scattergun of liability the CORA law is based. 

The Senate Committee should be having regard to the 2014 New Zealand Law Commission’s Report 133 – Pecuniary Penalties, which among other types of regulatory law enforcement, refers to the use of penalties in environmental law. The Senate Committee is due to report on 27 February 2017.

Then there is the sadly forgotten ALRC Report 95 – Principled Regulation – Federal Civil & Administrative Penalties in Australia, 2002, which reviewed among many others the effectiveness of environmental penalties and how insolvency laws interact with penalties generally. (Very briefly, a penalty imposed by a court in respect of an offence against a law disappears on the company’s liquidation: s 553B Corporations Act.  But such a penalty remains as a personal liability of a bankrupt: s 82(3) Bankruptcy Act).

The final point, for now, if one at all, is that the WA government may as well have thought itself ‘leading’ the way in devising the “Bell Act”, which sought to rearrange creditor priorities in the WA government’s favour in the winding up of the Bell Group of companies. However the Bell Act was roundly set aside by the High Court as unconstitutional, as seeking to override or undermine the Commonwealth insolvency regime, and the Commonwealth’s rights under it as creditor: Bell Group N.V. (in liq) v Western Australia [2016] HCA 21.  Closer reading of the new CORA law, now supported by the 27 January 2017 guideline, may reveal similar concerns.

All in all the CORA may serve its purpose of encouraging environmental compliance, or more perhaps deterring, but it seems a rather heavy and complex way of doing so.

Postscript:

i. Readers are referred to INSOL International’s Special Report of May 2015, Environmental Claims in Insolvency and the Liability of Insolvency Practitioners, by Dr David Goldman of Norton Rose Fulbright. It explains the potential liabilities of practitioners in other States and in overseas jurisdictions.

ii. The CORA will shortly require amendment to address definitional and other changes under the Insolvency Law Reform Act 2016. For example, a receiver will no longer be an external administrator and will be the subject of new and separate provisions. Receivers are not the subject of particular mention in the guideline.

iii. As well, there are increased powers of creditors and of ASIC under the ILRA.  That may increase the tension between a practitioner’s need to comply with environmental responsibilities, and to attend to the wishes of creditors or directions of ASIC.  As the court said in ACCC v Phoenix Institute [2016] FCA 1246, a case brought by the ACCC under the Australian Consumer Law against a company in administration, there is a tension between the public interest in the enforcement of the ACL standards by the ACCC as the independent regulator, on the one hand, and the insolvency regime under the Corporations Act on the other: see also ACCC v Advanced Medical Institute (No 3) [2011] FCA 348.  That tension has been and remains an issue in the development of the CORA law.

 

 

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One Response

  1. way back 19 years ago I had an article published “The Dawn of Green Corporate Insolvency Law: Environmental Accountability Creeping over the Horizon” in (1998) 9 Aust Jnl of Corporate Law 64-80. it seems like the creeping I was talking about then has turned into a full blown assault in Qld.

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