Tension between creditor protection and environmental protection
England’s approach so far
Scottish recent events
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When a company goes into bankruptcy, there is often an imbalance between protecting the interests of creditors and protecting the environment. As economists talk about the UK recession, this article examines the current legal position, possible evolutions and implications for business owners and investors.
Tension between creditor protection and environmental protection
In the words of new Prime Minister Rishi Sunak, the UK faces a “severe economic crisis” and “difficult decisions” lie ahead, but Prime Minister Sunak said that “protecting our environment” is his responsibility. governments claim to be a manifesto commitment to deliver.
Responsibility for environmental damage and responsibility for restoration are governed by a complex interplay of regulatory regimes and common law responsibilities, and removing these responsibilities often proves difficult. In many cases, there is no need to engage in forensic analysis. The business simply accepts responsibility and engages in programs to address the problem at hand (whether remediation programs, waste management, or other mitigation measures). The question of who should pay to address environmental concerns only arises when a business comes to a sudden halt (such as bankruptcy).
These questions are rarely easily answered and sometimes require court intervention. A recent judgment from a series of Scottish lawsuits has considered a balance between environmental cleanup and creditor claims, raising the question of whether previous creditor-first UK lawsuits will be reconsidered. ing.
England’s approach so far
The main UK case is the judgment of the Court of Appeal. celtic extract(1) Passed in 1999. In that case, the failed business held a large amount of waste under a license issued by the UK’s Environment Agency (EA), the terms of which stipulated specific requirements to manage and dispose of the waste. action was required. Insolvency Practitioners (IPs) sought to waive the license as a “troublesome property” so as not to be bound by its stringent terms. EA argued that IP could not do so and that bankruptcy law should be interpreted in light of the “polluter pays” doctrine when it concerns environmental protection issues. The Court of Appeal found her IP, and Judge Morritt concluded:
nothing . The “polluter pays” principle applies where the polluter is unable to pay and requires the polluter’s unsecured creditors to pay to the extent of their assets distributable among them. suggest.
The cost of cleaning up the waste was borne by EA, funded by public funds.
Scottish recent events
There have been cases in Scotland in the last five years where the logic that the creditor is not the polluter and therefore does not need to pay trumps all other considerations. Each case differs in its own facts, but there is a consistent thread where environmental protection is given more weight.
Dunes Plant
Doonin Plant Limited was also involved in waste management under the regulatory oversight of the Scottish Environmental Protection Agency (SEPA). SEPA determined that the company was illegally depositing waste and in 2012 issued a notice requiring removal of the illegal waste deposit under Section 59(1) of the Environmental Protection Act 1990. did. The Doonin Plant did not. A second notice was issued in 2015, at which time the company was bankrupt and was in liquidation. The cost of cleaning up the waste far exceeded funds available for distribution to creditors, so IP sought directions from the court. The court was asked where environmental responsibility ranks on the hierarchy of funding allocation. Was it a contingent demonstrable liability or liquidation costs? And if a cost, should IP fees take precedence?
The presiding judge, Lord Doherty, found that the costs of the restoration had to be paid before distribution to the creditors. Doherty says courts rarely refuse to order IP compensation to take precedence over liquidation costs, which makes him more willing to take on litigation involving difficult environmental issues. Said guaranteed.
Doherty said this was a decision based on statutory interpretation rather than policy, but prepared to interpret environmental protection law with reference to the EU Waste Framework Directive 2008 and its implementation of the ‘polluter pays’ principle. It is worth noting that
Dawson International
Unlike Dunes Plant If cleanup was required, Dawson International(2) concerned the progress of voluntary restoration projects. Responsible companies often do not wait for regulatory orders to remediate environmental harm. Dawson International, the company was engaged in a multi-year restoration program at the time it became insolvent. To further complicate things, although the company was Scottish, the site in question was located in the UK and was under EA’s responsibility.
Among the several questions posed to the Scottish Court at the preliminary question hearing was whether the EA was valid. The vast majority of creditors will not, at the creditor’s expense, because the EA is neither a creditor nor a contingent creditor (the fact that the EA had the power to issue notice did not make it so). They argued that they could not force the continuation of the restoration project.
Lord Clarke sided with EA, stating that the company “willfully failed to take care of contaminated subjects and take reasonable steps to remediate the contamination at the site, and therefore knowingly allowed the contamination. ‘s actions could well have given rise to contingent liability.” Therefore, “the measures taken by the firm have ‘some legal effect’, are subject to ‘some legal obligation or relationship’, and as a result are ‘vulnerable to the specific liability in question’.” In such circumstances, EA’s power to give notice creates a legal relationship and gives EA status.
In particular, Clark concludes:
Clarke’s logic contrasts with that of the Court of Appeals. celtic extract – Where the pre-existing liability to clean up waste under the terms of a waste management license has not been held in favor of creditors. It will be watched with interest across the UK how the UK courts will handle this issue the next time it is raised.
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Each case is decided on the basis of facts, but they all share a common lesson.
- It is clear that the limits of the ‘polluter pays’ principle may be stretched further than simply the original polluter if the original polluter is unable to pay, and creditors are at risk of environmental performance and long-tail environmental risks. should pay attention to.
- The regimes governing environmental responsibility and accountability are complex. Careful analysis of these liabilities is therefore important risk management for all companies and investors, even if those liabilities are currently managed voluntarily.
- For Environmental, Social and Governance (ESG) investments that consider a broader basket of indicators beyond purely financial measures of performance, environmental concerns, both as a risk mitigation and as an opportunity, require particular attention. Proactively addressing traditional environmental issues and improving the environment can increase asset value and contribute to a strong ESG message if the risks and rewards are carefully assessed and undertaken.
For more information on this topic, contact Simon Tilling or Tom Gillett at Steptoe by calling +44 20 7367 8000 or emailing[email protected] Also [email protected]). You can visit his website for Steptoe at www.steptoe.com.
endnote
(1) [2000] Environment LR 86.
(2) [2018] CSOH52.
