Insolvency disclaimer or state control – furnaces and coke ovens, pyrophoric iron sulphide and methane, effluent lagoons and asbestos …

The High Court of Australia has dismissed the liquidators’ application for special leave to appeal in Australian Sawmilling because the legislation from which it arose has in the meantime been repealed and replaced, hence the application did “not raise an issue of sufficient public importance to warrant the grant of special leave to appeal”.[1] 

In any event, the tension between insolvency and environmental law is best resolved through a change in the law, not through the courts.    That being said, the personal liability of liquidators under the new Victorian law – the Environment Protection Act 2017 – probably remains as unclear as before.

To consent, or not

A recent and wise caution from an experienced insolvency lawyer is that if a liquidator can’t be satisfied about

“how clean-up costs will be addressed, it may be prudent not to take the appointment. This simply emphasises a glaring issue – that discouraging liquidators from taking appointments simply leaves an insolvent company continuing to trade under the control of those who caused the issue in the first place”.[2]

What I would see as a gap in the system is based on the valid point as to the extent to which a private insolvency practitioner should agree to assume any responsibility and risk of such a public interest nature on behalf of a private body of creditors. If no liquidator consents, what happens? The government’s response to such a scenario in the SME context, to simply deregister, is not feasible.

British Steel and other examples

The answer in the UK, and other countries, is to have a government official receiver handle the matter.  In the collapse of British Steel, the two main accounting firms involved would not accept the appointment as liquidator given the risks involved.  The company’s main site was regulated under major accident hazard laws as a ‘highest risk’ site – its furnaces and coke ovens contained pyrophoric iron sulphide and methane and needed to be maintained at pressure, which would be lost if the plant were shut down; the site was prone to flooding; and there were very significant amounts of hazardous materials, including effluent lagoons and asbestos. “The hazards were such that if the company were to cease operations without careful supervision under a formal insolvency process, the risks would increase significantly”.

The government Official Receiver was appointed, with the two insolvency firms as special managers.  The outcome is explained here:  Major corporate collapses and the public interest – British Steel and more | Murrays Legal

There are another 30 or so articles of mine on environmental law and insolvency here: Search Results for “environmental” – Murrays Legal

 

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[1] The Australian Sawmilling Company Pty Ltd (in liq) v EPA [2022] HCASL 54; M79/2021

[2] Contaminated land and dangerous goods – who is responsible when the music stops? (2022) 34(1) ARITA J 16, Sam Kingston.  See also Chris Symes’ Environmental Protection Orders and Insolvency: It Is Onerous to Disclaim, or to Prioritise or to Resolve the Conflict of Two Public Interests? (2018) 37 Australian Resources and Energy Law Journal 29.

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