The Court of Session has ruled that where a company in liquidation has an outstanding obligation to carry out environmental remediation works, the cost of the works are an expense in the liquidation. However, the expense may rank behind the liquidators’ own remuneration and outlays.
Doonin Plant Limited was a company which carried on a waste management business in Scotland. Scottish Environmental Protection Agency (SEPA) had issued notices to Doonin under section 59 of the Environmental Protection Act 1900 (EPA). These notices required Doonin to carry out remediation work in respect of waste which it had deposited unlawfully. Doonin had failed to comply with these notices. Thereafter, Doonin went into liquidation. Doonin’s liquidators estimated that the work would cost £2.3 million. However, the company’s funds were just under £635,000, before payment of any liquidation expenses.
The question for the court was whether the cost of the environmental remediation work was liquidation expense.
Lord Doherty decided that the cost of the work was liquidation expense. This was because the aims and objectives of SEPA are to protect human health and the environment against the harmful effects of the disposal of waste. The polluter should pay for such effects. If the cost of the work was not a high-ranking liability in an insolvency event, polluters could escape paying for the damage they caused to the environment.
However, Insolvency Practitioners will be reassured that Lord Doherty ordered that the liquidators’ remuneration and outlays were to rank ahead of the cost of remediation works.
Where a company was subject to a statutory liability before becoming insolvent, whether that liability is an expense of liquidation will depend on the liability in question. However, this case will be of interest to Insolvency Practitioners, who should be aware that obligations for environmental remediation works are expenses of the liquidation.
Where a company in liquidation’s assets are not sufficient to cover the expenses of the liquation, the court has discretion whether to make an order as to the order of priority. Such an order will be based on what is just in the particular circumstances. Though it is unlikely that the reimbursement and remuneration of an Insolvency Practitioner would ever be ranked behind other expenses of liquidation, Practitioners would be prudent to take legal advice as early as possible where it appears that the cost of complying with a statutory liability will be greater than a company in insolvency’s assets.