The amendments follow the recent high profile decision in The Australian Sawmilling Company Pty Ltd (in liq) & Ors v EPA & Anor [2021] VSCA 294 (TASCO Judgment). Insolvency practitioners should be aware that the amendments are aimed at preventing liquidators from disclaiming liability for environmental clean-up costs.

TASCO Judgment

The TASCO Judgement has been subject to extensive commentary and is summarised in this article published in the March 2022 ARITA Journal. The following aspects of the TASCO Judgment are important in the context of the EPA amendments:

• Liquidators were appointed to TASCO pursuant to a creditors’ voluntary winding up. Prior to accepting the appointment, the liquidators had obtained an unlimited indemnity from TASCO’s parent company for environmental liabilities.
• The environmental liabilities were clean-up costs of the land on which TASCO operated its business. The clean-up costs were estimated to be at least five times the value of the land. TASCO had no other assets and substantial creditors, including the ATO and the State Revenue Office of Victoria.
• The liquidators issued a notice of disclaimer under section 568 of the Corporations Act 2001 (Cth) (Corporations Act).
• The EPA applied to have the disclaimer set aside. The application was successful.

It appears that the Court was strongly influenced to set aside the disclaimer based on the liquidators’ protection by way of the indemnity from TASCO’s parent company, and the fact that the EPA had agreed to limit the liquidators’ liability to the amount recovered under the indemnity.

At both first instance and on appeal, the Court accepted that the liquidators were 'occupiers' of the property for the purposes of the EPA and personally liable for the clean-up costs. However, the Court of Appeal disagreed with the trial judge and found that section 545 of the Corporations Act did not apply to the clean-up costs, as they were not 'incurred' by the liquidators as a result of a decision. Section 545 provides that liquidators are not generally required to incur expenses if there is insufficient assets in the liquidation.

The trial judge in TASCO commented that the courts should be 'wary of disclaimers where environmental liabilities are to be passed onto taxpayers or innocent persons'.^[1]

Amendments to the EPA

Section 297 allows the Environment Protection Authority (Authority) to recover reasonable costs incurred by the Authority including taking any prescribed action such as cleaning up contaminated sites. Section 297(2)(a) allows the Authority to recover these costs from 'the owner or occupier of the premises where the circumstances exist'.

The new section 297(5) provides that the section will apply 'despite anything to the contrary in Chapter 5 of the Corporations Act'. Section 297A states 'the provision of section 297 are declared to be Corporations legislation displacement provisions for the purposes of section 5G of the Corporations Act in relation to the provision of Chapter 5 of the Act.' The Second Reading Speech refers to the need to protect the ability of the Authority to recover its clean-up costs and other associated costs from a previous owner or occupier, such as a liquidator, in the event that the land has been disclaimed.

Impact of the new provisions

While the amendments are yet to tested, their purpose is clear; to elevate section 297 above the Corporations Act and ensure that liquidators may not use disclaimers to avoid hefty environmental costs, even if an indemnity, as that in the TASCO Judgment, is not present. The practical consequence will also be that clean-up costs must be paid in priority to other unsecured claims and priority costs, including a liquidator’s remuneration.

Following the High Court’s refusal to grant special leave in the Linc Energy case^[2], the question of conflict between state environmental law and the Corporations Act remains unsettled. The Queensland Court of Appeal had found in favour of the liquidators on the basis that the liquidators’ disclaimer had been accepted by the State of Queensland, who then took control of the relevant property, and the liquidators therefore could not comply with a clean-up notice they received. The High Court considered this a threshold issue that the applicants on appeal could not overcome. Such an issue may not be present in any case where the State seeks to rely on the amendments to the EPA.

As was already abundantly clear after the TASCO Judgment, liquidators should consider potential environmental clean-up costs before accepting any appointment. Such consideration is now more important than ever.

^{[1] EPA & Anor v Australian Sawmilling Company Pty Ltd (in liq) & Ors [2020] VSC 550, [201]
[2] Attorney-General for the State of Queensland; Chief Executive, Department of Environment and Heritage Protection v Longley, Sparks and Ford as Liquidators of Linc Energy Limited (In Liquidation) & Anor [2018] HCA Trans 185.}