Liability of a liquidator for environmental orders applying to disclaimed property

Thursday, 20 July 2017

The Queensland Supreme Court recently held that a liquidator is an 'executive officer' for the purposes of the Environmental Protection Act 1994 (Qld) (EP Act) and therefore liable to comply with the requirements of an Environmental Protection Order (EPO) issued under the EP Act, despite a purported disclaimer of relevant property under the Corporations Act 2001 (Cth) (Act).

Background

The case, Linc Energy Ltd (in Liq) v Chief Executive Dept of Environment & Heritage Protection [2017] QSC 053, was a result of the liquidators of Linc Energy Ltd (Company) applying for a direction that they need not comply with an EPO issued against the Company.

Linc Energy Ltd was a mining company operating from a property in Chincilla, Queensland. In April 2016, administrators were appointed to the Company and shortly thereafter, the Company was put into liquidation. In May 2016, the Queensland Environmental Protection Authority (EPA) issued an EPO against the Company, imposing conditions such as environmental monitoring and reporting.

The liquidators sought directions from the Queensland Supreme Court that:

  • They were not 'executive officers' under the EP Act and therefore were not required to comply with the EPO and not liable for any failure of the Company to comply with the EPO; and
  • They were not required to comply with the EPO, as they had 'disclaimed' the relevant property of the company, including all rights and liabilities attached to it, in accordance with the Corporations Act.

Liquidator is an executive officer

The liquidators submitted that the broad definition of 'executive officer' should not extend to a liquidator because a liquidator's powers are limited to the winding up of a company, and accordingly, that a liquidator should not be personally liable to comply with the EPO.

The Court had no difficulty in rejecting the liquidators' submissions, holding that they were 'executive officers', relying on a decision of the UK High Court and noting that "...cases in other contexts generally would support the conclusion that a liquidator is in a general sense an executive officer".

Personal liability of a liquidator

While this is one of the first cases in Australia to confirm that a liquidator is an executive officer for the purposes of environmental legislation, the industry has generally accepted that both an administrator and a liquidator are, in this sense, an executive officer or person concerned in the management of the relevant company.

This has implications for the personal liability under environmental law of administrators and liquidators operating in all Australian jurisdictions. A summary of the relevant personal liability provisions of each State and Territory's environmental protection laws is set out below.

Jurisdiction Derivative Liability Applies to liquidators

VIC

NSW

WA

Each person who is a director or who is concerned in the management the offending corporation, is also guilty of the same offence.  Applying the decision Linc, yes.

SA

TAS

An officer of the offending corporation is also guilty of a contravention of the Act.  Yes: the definition of 'officer' expressly includes liquidators under the relevant Act.

QLD

ACT

NT

'Executive Officer' who is concerned in the management of the corporation is also guilty of the same offence. 

'Executive officer' is defined as a Director or a person who is concerned in the management of the offending corporation. 

Applying the Linc Energy decision, yes. 

(Linc Energy considered the QLD provisions, which are substantially the same in ACT & NT)

Disclaimer of property

The liquidators also sought to rely on section 568D of the Act to disclaim the Chincilla property, the Company's Mineral Deposit Licence (MDL) and Petroleum Facility Licence (PFL), and the associated Environmental Authorities applying to the MDL and PFL (EAs). Environmental Authorities are the Queensland equivalent of Environmental Protection Licences in New South Wales, and Environmental Licences in Victoria, and essentially allow high environmental risk activities to be undertaken, typically on strict conditions.

The liquidators submitted that:

  • The Chincilla property, the MDL, the PFL, and the EAs were all 'property' that was validly disclaimed in accordance with the Corporations Act; and
  • Therefore, the liabilities arising from the EPO were liabilities attached to disclaimed property (because the EPO was issued by the Queensland EPA in order to enforce the requirements of the EAs and the EP Act), and therefore those liabilities were also validly disclaimed.

The Court did not rule as to whether the liabilities of the EPO were attached to the disclaimed property (or indeed, which property they were attached to) on the basis that the terms of the EPO itself, together with the enforcement provisions of the EP Act, required that the Company not dispose of, and maintain the site infrastructure, in order to comply with the EPO.

As a result, the issue of disclaimer did not arise. The Court expressly stated that whether an EPO was a liability that could be disclaimed, or whether an EA was property that could be disclaimed, are still live issues.

It is important to note that the question of whether mining licences and environmental licences are property for the purposes of the Act is somewhat unclear. In Victoria, the Supreme Court has held that mining licenses are property for the purposes of the Act, and this decision has been cited with approval in other jurisdictions. However, whether this classification extends to environmental licenses (which do not necessarily confer the same type of property rights that mining licenses do) is unclear. Accordingly, the issue of whether an environmental licence itself is property and therefore can be disclaimed remains an open issue.

State environmental law prevails over Commonwealth law

The Court's decision on disclaimer appears, at first glance, to be contrary to section 109 of the Commonwealth Constitution, which provides that where State and Commonwealth laws are inconsistent, the Commonwealth law shall prevail.  In this case, the Court ruled that State law (the EP Act and the EPO issued pursuant to it) prevailed over Commonwealth law (the disclaimer provisions of the Act).

The Court relied on an often-overlooked section of the Act in ruling that the EP Act should prevail over the Act. Section 5G expressly considers the effect of inconsistency between State laws and the Act and provides that, in certain circumstances, the State law shall prevail.

Essentially, section 5G was 'part of the deal' under which the States referred their powers in respect of all corporations matters to the Commonwealth in 2001, and was intended to provide that a State law enacted before the enactment of the Commonwealth Corporations Act in 2001 will prevail if an inconsistency arises. Given that all relevant State and Territory environmental laws were enacted before 2001, section 5G will apply such that environmental orders could be binding despite an inconsistency with Commonwealth laws.

Implications for business

The Court's decision has potentially significant implications for liquidators and administrators of companies that are subject to environmental orders. In particular, liquidators and administrators should be aware that:

  • Liquidators and administrators are likely to be considered 'executive officers' for the purposes of environmental legislation, and therefore may be personally liable for the failure of a company to comply with environmental legislation in all Australian jurisdictions. The cost of compliance for a liquidator is likely to be a priority expense pursuant to section 556 of the Act;
  • It is unclear whether an environmental authority is property capable of being disclaimed under the Act;
  • It is also unclear in what circumstances an environmental order made in respect of disclaimed property will also be capable of being disclaimed. The terms of the order itself may prevent an effective disclaimer of liability; and
  • Accordingly, it is important to review the relevant orders and approvals applying to a company to determine whether any liabilities can be disclaimed. 

The liquidators of Linc Energy have recently indicated their intention to appeal the decision to the Queensland Court of Appeal.

This article was written by Meredith Gibbs, Partner and Dan McQuinn, Solicitor in our Melbourne office. Publication Editor: Grant Whatley.

Important disclaimer: The material contained in this publication is of a general nature only and is based on the law as at 20 July 2017. It is not, nor is intended to be, legal advice. If you wish to take any action based on the content of this publication we recommend that you seek professional advice.