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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 – environmental law v insolvency law

“It is a simplistic statement but one that is necessary to emphasize: insolvency statutes … do not mesh very well with environmental legislation”: Justice Geoffrey Morawetz, Ontario Superior Court of Justice, Re Nortel Networks Corporation 2012 ONSC 1213 at [101].

The outcome of the Linc Energy decision is explained here.

In directing the liquidators to use available funds to remediate land used by Linc, pursuant to an order under the Environmental Protection Act, Justice Jackson’s finding in effect resulted in a priority being given to one creditor, at the expense of others.  It seems that the decision is correct in law, but the policy is not.

Whether the remaining assets of an insolvent company should be used for particular purposes is a matter for parliament. In circumstances outside the fraught and no doubt petty arguments between the Commonwealth and the States, in relation to the conditions on which state corporations powers were referred in 2001, any such exception to insolvency laws would be decided as a matter of national policy.

Parliament could decide that:

  • funding the cost of remediating environmental harm caused by a company is to be a priority payment in its insolvency, over and above all other trade and other creditors; or
  • that the recall or rectification of defective products of an insolvent business should likewise have that priority; or
  • that payments to gift card holders by an insolvent business should prevail over trade creditors.

 

 

It is a significant policy decision to create a statutory priority in insolvency, supported by confidence in its efficacy. Are there many instances of failed mining companies having significant unspent reserves to fund remediation? Is there any comparison with the reasons why the ATO lost its statutory priority in insolvency in 1993 because of the deleterious impact of moral hazard on its recoveries? What of other competing public policy claims, such as funding on-going health impacts on employees? Or conducting investigations into corporate or criminal wrongdoing?

In contrast, the Judge conveniently (if that is the right word) endorses the common response described in my article, that “the last man standing”, the liquidator, is the only one around to accept responsibility.

The Judge says:

“The limit on the exercise of a liquidator’s power to the purpose of winding up the affairs and distributing the property of a company does not relieve the company from its obligations. The extension by statute of an obligation of a corporation to an executive officer of the corporation does not, per se, differentiate between obligations incurred before the commencement of the winding up and post-commencement obligations. And it does not differentiate, per se, between an obligation that is beneficial to the winding up process and one that might not assist in that process”.

Justice Jackson does not go on to say this, but on the face of his comments the liquidator must meet these obligations as ‘executive officer’ regardless of whether any funds are left to meet those obligations, an ‘unreasonable’ request.

He sees the liquidator as the last man standing, in the same way that an AUSTRAC bulletin once said that “as an agent of the company, a practitioner must comply with all of the same (and outstanding reporting) obligations that apply to the company itself. … because the external administrator is the only person with the authority to act in the company’s name”.

Justice Jackson said:

“The general purpose of the EPA, as disclosed by its object provision, is to protect Queensland’s environment while allowing for development that improves the total quality of life, both now and in the future, in a way that maintains the ecological processes on which life depends. If the narrow construction were accepted there would be no-one with a personal statutory obligation to ensure that the obligations of the company under the EPA were met during the liquidation”.

It is now for the Australian parliament to decide if the Canadian law that I have explained sets a good precedent to resolve this and related other regulatory over-reaches. 

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