This question arose in Queensland recently in Linc Energy Ltd (in liq): Longley & Ors v Chief Executive Dept of Environment & Heritage Protection.  The Supreme Court of Queensland found that the liquidators of Linc Energy were not justified in causing the company not to comply with an environmental protection order that required the company to maintain equipment that the liquidators had disclaimed.

Linc Energy had a pilot underground coal gasification plant in Chinchilla, Queensland.  After Linc Energy was put into administration, the Queensland environmental authority issued an environmental protection order (EPO) requiring the company to keep on the land and maintain the equipment that was necessary to comply with the EPO.  Linc Energy's creditors then put it into liquidation and its liquidators disclaimed the land and equipment associated with the pilot project.  That disclaimer extended to any liabilities "in respect of" the disclaimed property.  The liquidators sought the Court's guidance as to whether they were justified in causing the company not to comply with the EPO. The Court found that the EPO obligations were liabilities in respect of disclaimed property and as such there was a direct conflict between the disclaimer provisions in the Corporations Act 2001 (Cth) and the EPO provisions in the Environmental Protection Act 1994 (Qld).  Based on the application of statutory priority provision, the Court held that the EPO provisions of the Environmental Protection Act 1994 (Qld) overrode the disclaimer provisions in the Corporations Act 2001 (Cth).  As such, the liquidators were not justified in causing the company not to comply with the EPO.  The judge was at pains to point out, however, that he had confined his analysis and directions to the specific set of facts.

There is no direct authority on this point in New Zealand. It is unclear whether a similar finding would be made here as there are pertinent differences between the environmental and insolvency regimes in Queensland and New Zealand.  The timing and content of any enforcement order or abatement notice issued against the company under the Resource Management Act 1991, along with the scope of any applicable resource consent condition or rule will be relevant to whether a disclaimer would be held to be effective in ridding the company of its environmental obligations.  However, there is New Zealand case law suggesting that the Courts do not view favourably the use of disclaimer to avoid environmental obligations when the liquidators have funds available to fulfil those obligations.  In Tubbs v Futurity Investments Ltd and Buchanans Foundry Ltd [1998] 1 NZLR 471 (HC), the liquidators' application to disclaim capacitors containing hazardous substances was declined on the basis that disclaimer should not be used to transfer environmental obligations onto the Crown simply to increase the payout to unsecured creditors.  In this case, the company in liquidation had sufficient funds to cover the disposal of the hazardous substances, even though it would not be able to satisfy its unsecured debts in full.  Tubbs was decided under the previous disclaimer regime, which required liquidators to apply for leave to disclaim onerous property.  Nonetheless, while liquidators no longer have to apply to the Court to disclaim onerous property, Tubbs is likely to be relevant if a creditor applies to the Court to reverse a disclaimer decision of a liquidator under section 284 of the Companies Act 1993.

It seems that the Crown is more likely to allow disclaimer of property burdened with onerous environmental obligations when there are no funds available in the company to discharge those obligations.  In Timaru District Council v R [2016] NZHC 2170, there were no funds in the relevant company to remediate contaminated land that it owned.  Various Crown agencies took a pragmatic approach to the disclaimer of contaminated land, so as to allow it to be remediated using Crown funds set aside for that purpose.

It is also important to note the judge's finding that the liquidators were 'executive officers' of the company for the purpose of s 493 of the Environmental Protection Act 1994 (Qld), which provides that executive officers commit an offence under the EPA if the company does.  Section 340 of New Zealand's Resource Management Act 1991 similarly provides that if a company is convicted of an offence under the Act, "a person involved in the management of the defendant" is guilty of the same offence if it is proved that:

  • The act or omission that constituted the offence took place with his or her authority, permission, or consent
  • That he or she knew, or could reasonably be expected to have known, that the offence was to be or was being committed and failed to take all reasonable steps to prevent or stop it.

However, while liquidators would likely fall into the category of "a person involved in the management of the defendant", they could only be liable under that provision for breaches that occurred after the company came under their control and only if the enforcement authority had first been able to secure a conviction against the company.  The enforcement authority would have had to have been given leave by the Court to pursue any such enforcement action against the company in liquidation.

Read the full Supreme Court of Queensland decision here.