Vol 2 (2005) - Issue 3

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Environmental Issues for Insolvency Officeholders

This article discusses the recent cases and new legislative provisions, which are of relevance to insolvency officeholders who are faced with environmental issues. The following topics are analysed:

1. The case law on the power of insolvency officeholders to disclaim waste management licences, and other environmental licences, as onerous property.

2. The issue of who is entitled to trust funds that are connected to disclaimed waste management licences.

3. The future for disclaiming waste management licences.

4. (a) Criminal liabilities for environmental licences, in the context of (i) an administration, and (ii) a liquidation;
(b) Personal liability of insolvency officeholders for: (i) contaminated land, (ii) pollution, and (iii) abandoned mines.

5. The UK Government’s proposals to amend the Emissions Trading Regulations to contain provisions relating to operators that become insolvent.

The conflict between insolvency law and environmental law has become a topical issue in recent years. This has become most apparent in the insolvency litigation which has arisen over the issue of who is going to be responsible for the continuing environmental liability of waste management facilities where the operators have become insolvent.
The Environmental Protection Act 1990 (the ‘EPA 1990’) provides that operators who are unable to make financial provision to discharge waste management licence obligations are not considered ‘fit and proper’ to hold such a licence. In practice, the Environment Agency gives effect to these provisions by requiring waste management operators to set aside funds to cover any environmental remediation costs before granting a waste management licence. The funds are often held in trusts, escrow accounts, or renewal bonds. However, those monies may not become available if the operator goes into liquidation and the licence is disclaimed.

1. Disclaimer of onerous property

Litigation has arisen because of the apparent conflict between the Insolvency Act 1986 (the ‘IA 1986’) and the EPA 1990, in relation to the disclaimer of waste management licences. Under section 178(3) of the IA 1986, liquidators may disclaim ‘onerous property’ which constitutes ‘any unprofitable contract and any other property of the company which is not readily saleable or which may give rise to a liability to pay money or perform any other onerous act’. Such disclaimer operates to determine any rights, interests and liabilities from the date of the disclaimer in respect of the property in question. Under section 35(11) of the EPA 1990, the existence of waste management licences is preserved until they are either revoked or the Environment Agency accepts their surrender.
So the courts have been asked to determine whether insolvency practitioners are allowed to ‘disclaim’ waste management licences, thereby allowing the insolvent companies to shed any ongoing environmental liabilities associated with the licences.
The courts have changed their position over the last five years. In Re Mineral Resources Limited [1999], it was held that a waste management site licence was ‘property’ for the purposes of the IA 1986, but could not be disclaimed under section 178, since the provisions of EPA 1990 dealing with the continuance of licences and licence surrender effectively took precedence over the rights of insolvency practitioners to disclaim onerous property.