Sanctions imposed by courts for breaches of competition or regulatory laws have to tread a line between being so severe as to put an otherwise worthwhile company out of business, but severe enough for the purposes of deterrence and reprobation. Focus on the future of the company as impacted by the financial cost of the penalty will depend on the extent of its misconduct and its readiness to comply with the law in the future.
Two recent decisions, although quite different in facts, have some useful parallels.
A power company Sumo had engaged in ‘bait and switch’ on-line marketing and sales. In accepting agreed outcomes as to findings and penalty with the ACCC, the Federal Court noted that the prospect of Sumo’s insolvency from paying the agree $1.2 penalty should not subvert the primary objective in deterring other energy retailers from engaging in similar conduct.
But Sumo’s cash flow limitations could and were taken into account in that it was agreed that the penalty be paid over 3 years. That concession was supported by the fact that Sumo had new management, committed to a program designed to ensure that there would be no repetition of its past offending. The Judge also commented that the ACCC might have seen the continued presence in the market as a worthwhile competitor in the electricity market: ACCC v Sumo Power Pty Ltd  FCA 712.
The other matter involved a mandatory injunction imposed on a company Dincel for dumping potentially contaminated fill on land, with the ordered costs of restoration being around $19.5 million. Its appeal claimed that the remediation order did not have regard to the potential for its insolvency and the consequences for its employees.
Dincel had dumped the fill for its own commercial purposes in circumstances where it knew that development consent had not been obtained but it persisted in the face of the clear risk that it may be ordered to remediate. Such deliberate and serious breaches required a response otherwise “the equal and orderly enforcement of the Act would be seriously undermined”.
So, and as in Sumo, Dincel’s potential insolvency was not determinative but also as with Sumo, the NSW Court of Appeal accepted that proper regard to Dincel’s position had been taken by a 10 month postponement of the time for remediation. Dincel Construction System Pty Ltd v Penrith City Council  NSWCA 133 (2 July 2021) (austlii.edu.au)
myriad reconstruction possibilities?
One extra point made in Dincel was that it was a successful business and the remediation orders were made accordingly. But the Court said that even assuming that insolvency were a likely outcome of complying with the orders, there
“would be myriad reconstruction possibilities available to an administrator or liquidator, which would have the likelihood of protecting the positions of employees”.
Maybe, but it’s not all about the employees, and they have their separate protections, and under the Fair Entitlements Guarantee as necessary; and whatever myriad restructuring options, a formal insolvency appointment is generally best avoided, including because it would not involve remediation of the land. In some cases however, including those where a business was making ‘profits’ from on-going unlawful conduct such that it could not properly be said to be solvent, a winding up may be the best and just and equitable option.