Liquidators' power to disclaim environmental liabilities and obligations upheld (for now)

By Stuart MacGregor, Kathryn Pacey, Scott Sharry and Olivia Back
25 Oct 2018
Liquidators have more certainty about their ability to disclaim the environmental liabilities and responsibilities of a company in liquidation.

The operation of environmental enforcement tools under the Queensland Environmental Protection Act 1994 (EP Act) where a company is in liquidation and, more broadly, liquidators' rights to disclaim  environmental liabilities and responsibilities, irrespective of the jurisdiction or the relevant environmental legislation, have been clarified. That's the result of the decision of the High Court (Justices Keane and Gageler sitting) to refuse the application of the Queensland Government for special leave to appeal the Queensland Court of Appeal's decision in Longley v Chief Executive, Department of Environment and Heritage Protection [2018] QCA 32.

The reason this is significant is that at first instance, the Queensland Supreme Court held that a company's liquidators must ensure that it complied with an Environmental Protection Order - a decision that went against the traditional approach that, once a liquidator disclaims assets, they no longer retain liabilities (or obligations) in respect of those assets.

Environmental Protection Order and subsequent liquidation

Linc owned a pilot underground gasification plant near Chinchilla which was operated under the authority of, amongst other things, a mineral development licence (MDL) and environmental authorities (EA).

On 13 May 2016, shortly after liquidators were appointed, the Chief Executive of the then Department of Environment and Heritage issued Linc with an Environmental Protection Order (EPO), enforcing the general duty not to cause environmental harm under the EP Act.

On 30 June 2016, the liquidators gave notice under the Corporations Act disclaiming the land, and, amongst other things, the MDL and the EAs. The State disputed that the EAs had been validly disclaimed. The State argued that Linc remained bound to comply with the EPO, and that the liquidators, as executive officers of Linc, were bound to cause Linc to comply.

Environmental Protection Act 1994 (Qld) meets the Corporations Act 2001 (Cth)

Section 319 of the EP Act states that a person must not carry out an activity that causes, or is likely to cause, environmental harm unless the person takes all reasonable and practicable measures to prevent or minimise the harm. Under section 358 of the EP Act, an EPO can be issued to secure compliance by a person with the general environmental duty outlined in section 319, as occurred on the facts.

Under section 568(1)(d) of the Corporations Act, a liquidator of a company may at any time, on the company's behalf disclaim property of the company that consists of, amongst other things, property that may give rise to a liability to pay money or some other onerous obligation. The disclaimer is taken to have terminated the company's rights, interests, liabilities and property in or in respect of the disclaimed property, so far as necessary in order to release the company and its property from liability.

So the issue in this case was the possible inconsistency between the Corporations Act 2001 and the EP Act, and the operation of section 5G(11) of the Corporations Act, which says  a provision of that Act will not operate in a State or Territory to the extent necessary to ensure that no inconsistency arises between the Commonwealth and State/Territory legislation.

What happened in the Court of Appeal?

The Queensland Court of Appeal reinstated the traditional approach that had been rejected at first instance. Finding in favour of the liquidators, it was held that, after a valid disclaimer had occurred, Linc was no longer obliged to perform the requirements of the EPO, because they were 'liabilities in respect of disclaimed property and thereby terminated upon the disclaimer'.

The Court also held that the only stated ground for issuing the EPO was to secure compliance with the general environmental duty. Once the activities had ceased, there was no activity to which the general environmental duty could attach.

In relation to section 5G of the Corporations Act, the Court found that it did not operate in this case, amongst other reasons, because the EP Act is not a State law whose subject matter is the external administration of a corporation. Justice McMurdo stated that, upon its proper construction, section 5G of the Corporations Act "did not affect the operation and constitutional paramountcy of the disclaimer provisions" of the Act.

Implications for liquidators of the High Court's decision

The High Court refused to grant special leave to the State to challenge the Court of Appeal's decision, holding that the prospects of establishing the continuation of the obligations under sections 319 and 358 of the EP Act were "insufficient to warrant the grant of special leave to appeal".

The Court suggested that the State did not have strong prospects of success in establishing that the EPO, which secured compliance with the general environmental duty, could apply retrospectively. This was because the environmental damage caused by Linc had already occurred and no further environmental damage could be caused by Linc or Linc's liquidators.

In refusing to grant special leave to the State, the High Court reaffirmed the decision made by the Queensland Court of Appeal.

The High Court's refusal to grant special leave to the State indicates that the traditional approach to disclaimers and the obligations of liquidators remains intact. The Court of Appeal's decision clearly outlines the environmental obligations of liquidators where property is disclaimed under the Corporations Act.

There is, however, one issue that is still somewhat open - the question of inconsistency between the Commonwealth and State legislation. While this could conceivably be argued sometime in the future, for now the position for liquidators seems settled.

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