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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.

 

Cleaning up the law – WA’s old diamond and other mines

The collapse of WA’s Ellendale diamond mine, and the liquidators’ prompt disclaimer of the mining site, leaving the clean up costs for the WA government, raises yet another difficult intersection between mining regulation and insolvency law. COAG has been enlisted to propose a national approach.

At a time when unfunded environmental clean-ups after mine closures are the subject of focus in the Linc Energy and the Canadian Redwater Energy appeals courts, and of a Senate Environment Committee, the issue is also being examined by COAG, the Council of Australian Governments.  See Cleaning up after a failed miner- who pays – Part 2.In late 2017, COAG’s Energy Council[1] endorsed Western Australia’s proposal to examine improved transparency measures for mine closure costs, along with, in its terms,

“how to prevent companies from avoiding their closure and decommissioning obligations”.

Disclaimer, and AABS

One focus is on the ability of mining companies to close down under an insolvency arrangement, with the liquidator then being able to ‘disclaim’ the contaminated land under the disclaimer rights in the Corporations Act. A related focus, also raised before the current Senate committee inquiry, is the recording of a mining company’s rehabilitation obligations under the Australian Accounting Board Standards, to ensure mining companies “improve their accounting standards and be more transparent when disclosing their environmental liabilities”.

A Resources and Engagement Working Group of the Energy Council is therefore tasked with investigating a nationally consistent approach to these issues and to report back to ministers by mid-2018.

Ellendale

WA’s concern follows the collapse of the Ellendale diamond mine. It was owned by Kimberly Diamond Company, KDC, which went into voluntary administration under the Corporations Act and then liquidation, in August 2015. In October 2015, the liquidators disclaimed their interest in the Ellendale mine, with the result that the mine reverted to the WA government.

But in the words of the WA Minister, the liquidators

“used a provision of the Corporations Act to renege on [the company’s] environmental and financial responsibilities”.[2]

The WA Minister is reported as saying that

“We don’t want irresponsible mining companies offloading their clean-up costs onto the Mining Rehabilitation Fund, because this means responsible companies will be subsiding irresponsible companies. That’s not fair, which is why we’re calling on the Commonwealth to ensure action is taken quickly.”

What “action” is to be taken?

What action is to be taken in relation to the Corporations Act is not stated, unless it be to remove the right of disclaimer from the Corporations Act, which, while dramatic, would not stop companies collapsing and thereby, in some way “reneging on their environmental and financial responsibilities”. Those responsibilities are largely regulated, in Australia, by the states, and the solution seems to be, in WA at least, that appropriate regulation be enacted and enforced.

Whether some constitutional arrangement can be devised by WA to somehow side-step Commonwealth corporate insolvency law, as Queensland is arguing in Linc Energy, is another matter.

WA’s last such attempt was not very successful: Bell Group NV (in liq) v WA [2016] HCA 21.

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[1] The Council consists of petroleum, energy and mining ministers from all States and Territories, and the Australian Government.

 

[2] As a side issue, KDC’s sole shareholder, Kimberley Diamonds Limited (KDL) had concerns about the disclaimer process and it obtained authority from ASIC to allow it to have one of the liquidators publicly examined, and to produce various documents: see Kimberley Diamonds Ltd v Arnautovic [2017] FCAFC 91

 

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