Disclaimers and the obligation to comply with environmental protection orders

The Queensland Court of Appeal last week confirmed that, from the date of a disclaimer under the Corporations Act 2001, the liquidators of Linc Energy Limited (Linc) do not have an obligation to ensure that Linc complies with an environmental protection order.  This case has significant implications for the operation of environmental enforcement tools under the Queensland Environmental Protection Act 1994 (EP Act) in situations where a company is in liquidation.

What happened?

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 an environmental protection order (EPO) under the EP Act to Linc.  That EPO contained a number of requirements that were stated to have to be fulfilled for Linc to comply with the general environmental duty under the EP Act.  The general environmental duty requires that a person who is carrying out an activity that causes or is likely to cause environmental harm, take all reasonable and practicable measures to prevent or minimise the harm from the activity.

The particular terms of the EPO included requirements on Linc to undertake sampling, monitoring and reporting and maintain infrastructure on the site.

On 30 June 2016, the liquidators gave notice under the Corporations Act 2001 disclaiming the land, and, amongst other things, the MDL and the EAs.

The State accepted that the liquidators had validly disclaimed the land, including plant and equipment and the MDL, but disputed that the EAs were capable of being disclaimed.  The State wrote to the liquidators to say that:

• the State would secure the site and take control of it;
• any ownership of removable plant and equipment on the site vested in the State; and
• no one was to enter the site without the State's prior written consent.

Despite this, 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 with the EPO.

Why the liquidators were not bound by the EPO

Ultimately, the Court of Appeal overturned the decision at first instance and found that the liquidators were not bound to cause Linc to comply with the EPO from the date of the disclaimer.  The Court found in favour of the liquidators for a number of reasons, including that:

• the requirements of the EPO were liabilities in respect of disclaimed property, and therefore those liabilities were terminated upon the disclaimer;
• 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.This finding was made in circumstances where:
  • there is no obligation in the EP Act to continue carrying on an activity;
  • there are provisions in the EP Act that require the recipient of an EPO to give notice where they have ceased carrying on an activity;
  • the majority of the requirements of the EPO required Linc to be on site; and
  • the EPO did not require Linc to continue to carry on any relevant activity; and
  • it was impossible for Linc to carry on its activity where the MDL, the land and the infrastructure had been validly disclaimed, and the State had written to Linc confirming that disclaimer.This supported a conclusion that there was a clear and immediate link between the disclaimed property and Linc's liabilities.
• the case involved much discussion about the possible inconsistency between the Corporations Act 2001 and the EP Act, in the context of section 5G of the Corporations Act which operates to preserve the State law despite an inconsistency.The Court found that this provision had no operation 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.

Implications for liquidators

The case has important implications for liquidators in respect of their obligations as executive officers of a corporation under the EP Act.  Although in this particular case the EPO was issued on narrow grounds, in circumstances where the State acted to explicitly accept the disclaimed property and exclude Linc's access, the case is likely to be more broadly applicable in defining the environmental obligations of liquidators where property is disclaimed under the Corporations Act.