22 April 2022
This week’s TGIF focuses on The Australian Sawmilling Company Pty Ltd (in liq) v Environment Protection Authority [2021] VSCA 294 in which the Court set aside a disclaimer of onerous property, such that liquidators were held liable under environment protection legislation.
The applicant liquidators (the Liquidators) were appointed to the Australian Sawmilling Company (TASCO) on 14 March 2019 following a voluntary winding up by the company’s creditors (the Creditors).
TASCO was the registered proprietor of land in Lara, Victoria which contained around 320,000 cubic metres of mixed construction and demolition waste left by a former licensee. The land had also been subject to orders by the Victorian Civil and Administrative Tribunal in 2018 regarding fire management and rehabilitation.
The Liquidators accepted their appointment on the condition that TASCO’s sole shareholder indemnify them for an unlimited amount as to any environmental liabilities.
On 29 April 2019, the Victorian Environment Protection Authority (EPA) determined to conduct its own clean-up pursuant to the Environment Protection Act 1970 (Vic) (EP Act), due to the ongoing fire, health and environmental risks.
The next day, the Liquidators lodged a notice of disclaimer under section 568 of the Corporations Act 2001 (Cth) (Corporations Act).
Section 568(1) of the Corporations Act allows a liquidator to disclaim property:
The EPA then successfully applied to have the disclaimer set aside under section 568B of the Corporations Act. This resulted in the EPA being able to seek to recover the clean-up costs from the Liquidators (limited to the amount recovered by them under the indemnity).
Section 568B(3) allows the Court to set aside a disclaimer if satisfied that it would cause prejudice to a person who has, or claims to have, an interest in the property that is out of proportion to the prejudice that setting aside the disclaimer would cause to the company’s Creditors.
Section 62 of the EP Act allows the EPA to recover costs from an ‘occupier’, which, by definition, includes a person in control of premises.
The Court of Appeal (COA) held that:
TASCO made an application to the High Court of Australia for special leave to appeal the decision of the COA.
On 16 March 2022, the High Court refused special leave to appeal because the EP Act had been repealed, such that there was no issue of public importance. While this effectively affirms the decision of the COA, it does not rule out future litigation under the successor to the EP Act, the Environment Protection Act 2017 (Vic).
The new legislation confers the EPA with a new power to recover the costs of a clean-up from an occupier of premises. However, unlike the EP Act, it does not expressly define ‘occupier’. Additionally, there are now duties that apply to a person with ‘management or control’ of land, which would likely apply to liquidators under the COA’s reasoning.
The COA’s reasoning highlights the significant personal risks to liquidators of accepting appointments involving potential environmental liabilities. Although the COA’s reasoning was limited to the now repealed EP Act, the COA’s finding that liquidators were ‘occupiers’ by reason of their appointment alone was significant.
In addition, there appears to be a fine balance as to whether a liquidator should obtain an indemnity in respect of environmental liabilities. Under the COA’s reasoning, the fact that the Liquidators were fully indemnified in respect of environmental liabilities was relevant to the discretion to set aside the disclaimer. However, it remains possible that even without an indemnity a disclaimer could be set aside, leaving the liquidator personally exposed.
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Head of Restructuring, Insolvency and Special Situations