Introduction
Facts
Decision
Comment



Introduction

Who is responsible for compliance with environmental regulations when a company is declared bankrupt? Who is liable in these circumstances to pay penalties imposed by the competent environmental authority? This issue has been brought before the Netherlands' highest environmental court – the Council of State – just three times.

On February 13 2013 the Council of State reaffirmed its existing case law, comprising two decisions dating from July 1997 and May 2007. These decisions held that after a company is declared bankrupt, the receiver is responsible and liable for the facility's environmental compliance in estate. This is because only the receiver can be regarded as the operator of the facility, and only it has the power to comply with environmental regulations and remedy existing permit violations. Under Dutch environmental law, an environmental permit is attached to a facility.

The Council of State's February 2013 decision reiterated this, but also clarified the issue of penalties incurred both before and after the court's insolvency decision.

Facts

In June 2010 a waste treatment and storage facility went bankrupt. The court-appointed receiver attempted to sell the plant to a neighbour. In the period before the insolvency, the environmental authority – the Province of Zuid-Holland – had already imposed on the owner an order subject to a penalty to cease permit violation. Imposing such an order is one thing, but collecting the money is quite another. After the penalties had been incurred, the company went bankrupt; the province subsequently tried to collect the money from the receiver.

Decision

In its February 2013 ruling, the Council of State held that the penalties did not fall within the insolvency estate and thus the receiver was not required to pay them. In practice, this meant that the province would receive no money at all. Had the province tried to collect the incurred penalties before the insolvency decision, they would have fallen within the insolvency estate, meaning that if the estate had sufficient assets, the province might have had an opportunity to collect (a proportion of) the money.

After the company had been declared bankrupt, the province again issued orders subject to a penalty, this time to the receiver in order to provide it with impetus to comply with environmental regulations. According to the court's 1997 and 2007 decisions, this was stated as the only and correct way to enforce compliance. This was reconfirmed by the 2013 decision.

Comment

This latest decision clarifies that once penalties have been incurred, the competent authority may collect them from the receiver, because only the receiver has the power to comply. In case of non-compliance, the receiver will be liable for the payment of penalties. This liability – incurred after the court's insolvency decision – implies that penalties rank first in the list of payments to be made from the estate – taking priority over all other creditor claims, which are subject to validation.

However, in most cases there will be little money with which to pay any creditors. Therefore, issuing enforcement orders subject to a penalty in a case of insolvency usually transpires to be a paper tiger, unless the receiver has sufficient assets or decides to operate the facility during insolvency.

For further information on this topic please contact Norbert de Munnik at NautaDutilh by telephone (+31 10 224 0000), fax (+31 10 414 8444) or email (Norbert.deMunnik@nautadutilh.com).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.