Guide to Restructuring in Australia

Due diligence is critical before accepting your appointment over a company that has a history of environmental concerns, operates in an industry which has a higher environmental risk profile, or which owns or occupies contaminated land (even if contaminated by other entities in the past). Environmental liabilities may include compliance, contractual, remediation, rehabilitation and compensation obligations, as well as fines and penalties (with resulting impact on social licence and reputation). You should ascertain whether there are any actual or potential environmental liabilities affecting assets owned, occupied, managed or controlled by the company and the extent to which those liabilities affect the value of those assets and your risk exposure.

Environmental permissions (such as licences), and planning permits/development consents, are often essential to the business. In circumstances where there is scope for the company to continue to operate as a going concern, it is important that you audit all existing permissions and understand and comply with all conditions. It is also important that you undertake an audit of current operations, to ascertain whether there are any "gaps" in the permissions held (eg missing permissions, ongoing non-compliances, situations where permissions do not reflect current site operations).

Environmental licences or permits are usually issued to the person undertaking the relevant activity or the occupier of a site, and may therefore be held by specific individuals or particular companies within a corporate group. If you are contemplating a sale process, you should consider the extent to which the licences are transferrable, and whether the transferee will be considered a fit and proper person to hold the permission in the eyes of the relevant regulator. 

An insolvency practitioner may be an "occupier" of land under the Victorian Environment Protection Act, despite legal ownership of the land remaining with the company and regardless of whether the practitioner is in physical occupation of a site. In these circumstances, you may be personally responsible for compliance, remediation and rehabilitation obligations, as well as any fines and penalties for breaches of environmental laws.

Legal advice is critical so that you understand the extent of your potential personal exposure to any environmental liabilities.

An insolvency practitioner may disclaim property (s 568, Corporations Act). However, disclaiming land is not a panacea and you may be unable to disclaim land where there are significant remediation costs or remedial notice obligations (eg see Australian Sawmilling Company Pty Ltd (in liq) v EPA [2021] VSCA 294). In Victoria, in response to the Australian Sawmilling case, if the Environment Legislation Amendment (Circular Economy and Other Matters) Bill 2022 (Vic) is passed, the EPA's cost recovery powers would expressly apply despite anything to the contrary in chapter 5 of the Corporations Act (ie new sections, if passed, would expressly displace the disclaimer provisions in the Corporations Act).

If possible, you should seek an uncapped indemnity from the parent company or shareholders in respect of all environmental liabilities in connection with the company.

If you are unable to procure an indemnity, you should consider seeking court directions upfront so as to avoid or minimise personal exposure to key environmental liabilities.

Insolvency practitioners should consider liaising with the relevant planning authority (eg the relevant local council) and environmental regulator (eg the relevant Environment Protection Authority (EPA)), prior to appointment. This will assist with your due diligence investigations and assessment of environmental risk, and upfront court directions are more likely to be made when supported by the EPA. Early communication may also reduce the risk that the EPA will escalate its response (eg by issuing statutory notices) or challenge a disclaimer of land. However, communication with the EPA is not always appropriate (eg where the validity of EPA action may be challenged), so it is important to seek legal advice before contacting the EPA.

Your decisions and actions may be subsequently reviewed or challenged. It is important to maintain and keep good records, documenting, among other things, any correspondence with the EPA and the Council, your compliance with environmental and planning obligations, how you have responded to any community complaints, and any steps you take to rehabilitate land affected by pollution, waste or contamination.