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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.

 

Linc Energy – how not to regulate and enforce environmental laws

Last Week’s Linc Energy decision out of Queensland – Linc Energy Ltd (in Liq) [2017] QSC 053 – could be seen as merely an arcane constitutional outcome arising from distant Commonwealth-State negotiations leading to a finding that a state environmental law prevailed over settled principles of insolvency law under the Corporations Act. Liquidators should take their own advice on its impact in any given administration.

To a large extent it was a limited constitutional issue, as Justice Jackson acknowledges, but the decision does raise the continued frustration of government regulators when confronted by what they see as the ‘easy option’ of a liquidation of their target company, leaving, in this case, unfunded environmental liabilities, and only the liquidator remaining.  I explained regulators’ often unrealistic and uninformed responses in my recent article ‘The last man standing’ [2017] 18(2) INSLB 38.

Justice Jackson explained this well when he referred to the submission of the Chief Executive of the Queensland Department of Environment and Heritage Protection as being that:

“failure to accept his submissions would allow those who cause environmental harm to escape scot free if a company causes environmental harm and then goes into liquidation.  As well, the (Chief Executive) submits that there are cases in which the courts have accepted that protection of the environment is a higher order of purpose that the administration of insolvent companies for the benefit of creditors”.

As to ‘cases’, the one court decision the Chief Executive relied upon was not so much the 2013 Scottish court decision footnoted, but that court’s reliance on the authority of Lord Neuberger saying that

“there is nothing surprising in the notion that the legislature should have intended that continued compliance with a waste management licence should override what the interests of the creditors or contributories of a company, and administrative concerns, namely the speedy winding up of companies”,

which, in that instance, the English legislature may well have decided. 

The liquidators of Linc Energy sensibly sought directions under the Corporations Act from the Queensland Supreme Court, thus giving them, as the Judge said, the protection from liability of authorizing a priority payment to the Department over other creditors, otherwise inconsistent with the Corporations Act and inconsistent with both domestic and international standards of insolvency law. 

It is an issue, as the Judge says, for parliament to resolve. A national parliament rather than a local one.

In any event, little purpose is often served by trying to have an insolvent company remediate its environment; far better to regulate and monitor from the beginning of its operations. The maintenance of the environment is a significant issue internationally, in the face of the economic need to exploit its resources.  It is best dealt with by environmental law, not insolvency law. 

Canada

In my article, I refer to a legislative resolution of that tension between environmental and insolvency law in Canada, at least as far as the liquidator is concerned. The law there provides that an insolvency practitioner “is not personally liable in that position for any environmental condition that arose or environmental damage that occurred … before [their] appointment”, the law then going on to set a standard of acceptable liquidator conduct after their appointment, one requiring proof of the trustee’s gross negligence or their wilful misconduct: Bankruptcy and Insolvency Act 1992 (CA), section 14.06(2). That clear delineation should be considered for Australian insolvency law. 

The article refers to an important Canadian decision on that delineation, in Redwater, from which an appeal was heard by the Alberta Court of Appeal on 11 October 2016, with its decision still reserved.  The trial judge in Redwater (Chief Justice Wittman) confirmed the right of a liquidator to disclaim contaminated oil well sites, which was resisted by the Canadian environmental regulator on similar bases to the view taken by the Queensland Department here.  

Comment

This tension is an example of the often unreal expectations of insolvency, explained by Jason Harris and I in our text book – that insolvency is not the panacea for all financial ills, rather it takes its place among a whole range of other laws that themselves should provide their own protections for their respective constituents: Keay’s Insolvency, 9th ed at [21.35]; 10th ed pending. This is so in respect of regulators often “caught out” by an insolvency, regulators who, like any creditors, have options to secure compliance by licensing and regulation and by taking security, a precaution that most trade creditors know to put in place.

The Commonwealth?

As a postscript, the Commonwealth did not respond to the constitutional issue and appear in this case possibly because its position would have not raised issues not already raised by the

As a postscript, the Commonwealth did not appear in this case possibly because its constitutional position would have not raised issues not already raised by the parties. That is separate from viewing the policy outcome as satisfactory.

Under the Corporations Act, the transitional provisions for the referral of powers are very broad. Before 2001, specific corporations insolvency provisions would have prevailed over other Queensland laws and normal statutory interpretation rules regarding apparently conflicting provisions would have applied. The transitional provisions provide however that all other Queensland legislation (at the time of referral) will always override the Commonwealth Corporations Act.  Could therefore state laws regarding debt collection of state taxes perhaps override stays in liquidations?

The Corporations Act does prevail over post-referral state laws; that is, unless other provisions in the Corporations Act are available and are invoked.

 

 

 

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