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IN FOCUS: Chain of Responsibility Legislation

11 July 2024

Chain of responsibility legislation has been implemented in various jurisdictions in response to cases where insolvent companies lacked sufficient resources to meet environmental obligations, often due to inadequate financial assurance. This legislation aims to hold related parties accountable for environmental breaches, effectively piercing the corporate veil.

Key Provisions in New South Wales (NSW):

In NSW, the Environmental Regulation Amendment Bill 2021 grants the EPA new powers to issue clean-up and prevention notices to:

  • Current and former directors, and individuals involved in management.
  • Related bodies corporate of companies responsible for pollution or contamination.

Monetary Benefits Orders:

  • If a corporation is convicted of environmental offenses, the court can order related bodies corporate and directors to pay an amount representing the monetary benefit obtained from the offense.

Offenses:

  • It is an offense for directors, persons involved in management, and related bodies corporate to receive monetary benefits from proven environmental offenses.

Key Provisions in Queensland (QLD):

The Environmental Protection (Chain of Responsibility) Amendment Act 2016 expanded the scope of liability for environmental obligations to include:

  • Directors, office holders, managers, employees, shareholders, joint venture partners, landholders, financiers, receivers, and administrators.
  • The Act allows for Environmental Protection Orders (EPOs) to be issued to related persons of high-risk companies, even if the company no longer holds an environmental authority.

Case Examples:

  1. Re Linc Energy Pty Ltd (in Liquidation) 2017 QSC 53:
  • The Queensland Court of Appeal allowed liquidators to use disclaimer provisions under the Corporations Act to avoid liabilities imposed by an EPO, highlighting the interaction between state environmental legislation and corporate insolvency laws.
  1. The Australian Sawmilling Company Pty Ltd (in liq) v Environment Protection Authority [2021] VSCA 294:
  • In Victoria, the Court of Appeal discussed the potential personal liability of liquidators and the role of indemnities in managing environmental liabilities during insolvency.

Conclusion:

Chain of responsibility legislation places significant obligations on a broad range of parties beyond just the insolvent company itself. It aims to ensure compliance with environmental obligations and prevent environmental harm, underscoring the importance of due diligence and proactive engagement with environmental agencies by insolvency practitioners.

Key Contact

Blair Pleash

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Navigating chain of responsibility legislation for proactive environmental compliance and financial assurance.

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