Insolvency and environmental risk: what Queensland practitioners need to know

Section 493 of the EP Act says that executive officers of a corporation must ensure that the corporation complies with the EP Act and that if a corporation commits an offence against a provision of the EP Act, each of the executive officers of the corporation also commit an offence. 

An IP appointed as a receiver, administrator or liquidator of a corporation is an executive officer under the EP Act.

An EEO can be issued to a ‘prescribed person’ for a contamination incident. A prescribed person includes:

• a person causing or permitting, or who caused or permitted, the incident to happen; and
• if an EEO is issued to a corporation in relation to the incident, and the corporation fails to comply with the EEO, an executive officer of the corporation.

If (in the Department’s view) an IP caused or permitted the contamination incident to happen or was appointed to a company that failed to comply with an EEO issued to it, the Department[7] can issue an EEO to the IP.

An EEO can be issued to person who is a ‘related person’ of a company (CoRA EEO).[8] These provisions were introduced in 2016 in response to the issues surrounding Linc Energy and are known as the ‘chain of responsibility’ or ‘CoRA’[9] provisions.

A related person of a company includes a person the Department decides has a relevant connection with the company. The Department may decide a person has a relevant connection with a company if it’s satisfied that, at any time during the previous two years, the person has been in the position to influence how the company meets its obligations under the EP Act.[10] This means an IP appointed to a company could be a related person, as would other current and former officers and employees (depending on their role in the company).

Related persons also include individuals who are capable of significantly benefiting financially, or that have previous obtained such benefit, from the company’s activity.[11] That can potentially include shareholders, joint venture partners and financiers. 

Where the company is not a ‘high risk company’, a CoRA EEO can only be issued to a related person if an EEO has been issued to the company. The CoRA EEO may then impose any requirement on the related person that is, or has been, imposed on the company, as if the related person were the company.[12]

Where the company is a ‘high risk company’ (ie one which is in external administration or which is an associated entity of a company in external administration), a CoRA EEO can be issued to related persons of the company, even if one has not been issued to the company, and even where the company no longer holds an EA.[13]

The Department has three guidelines which are particularly relevant to IPs. They are: 

• Enforcement Guideline;
• Compliance under the Environmental Protection Act (Compliance Guideline); and
• Issuing ‘chain of responsibility’ environmental protection orders under chapter 7, part 5, division 2 of the Environmental Protection Act 1994 (CoRA Guideline).

Paragraph 2.7 of the Enforcement Guideline discusses the liability of external administrators and says: 

‘In terms of ensuring compliance with legislation administered by the department, external administrators (including liquidators, receivers and managers and administrators) who are responsible for the management of a corporation, will be subject to the same considerations as other executive officers. External administrators who assume control 

of a corporation and become aware of activities or conduct that contravenes legislation administered by the department should ensure that the activity or conduct ceases and that the department is informed of the activity or conduct. External administrators should also ensure that the company complies with any notices or orders given to the company by the department as far as is possible given the provisions of the Corporations Act 2001.’

Pages 14 to 18 of the Compliance Guideline discuss the issue of EEOs and the Department’s ability to issue a cost recovery notice to an EEO recipient who fails to comply and the Department organises for remedial work to be conducted.

The key principles relating to the issue of CoRA EEOs are set out on page five of the CoRA Guideline and include:

• The Department will consider issuing a CoRA EEO to a related person where a company has avoided, or attempted to avoid, its environmental obligations and the related person was in a position to influence the company’s conduct and failed to take all reasonable steps to ensure the company complied with its obligations under the EP Act.[14]
• Being a related person does not in and of itself trigger the issue of a CoRA EEO. Culpability of the related person must be established prior to a related person being issued a CoRA EEO.

The CoRA Guideline goes on to explain by reference to various examples, how the Department will assess culpability. Paragraph 5.1.1 explains that an IP will not be considered culpable for pre-existing harm, and as a result, will not be issued with a CoRA EEO requiring rehabilitation of pre-existing harm. An IP may be found culpable for environmental harm resulting from acts or omissions during their involvement with the company.

It should be noted that not all IPs will be in a position to influence the conduct of the company to which they are appointed. In Joiner (Liquidator), in the matter of CuDeco Limited (Receivers and Managers Appointed) (in liq) [2020] FCA 1661, the Federal Court was willing to make orders that:

• CuDeco’s mineral assets had been at all times, since the liquidators’ appointment, subject to the control of the receivers and managers appointed over those assets, to the exclusion of the liquidators; and
• the liquidators were justified in proceeding on the basis the receivers and managers were responsible for and entitled to make all decisions relating to the responses by CuDeco to EPOs issued to CuDeco by the Department, and the liquidators were not responsible for, nor entitled to make, such decisions or influence the receivers and managers in the making of those decisions,

such that it was clear the liquidators were not in a position to influence the conduct of the company in relation to its environmental obligations and its response to the EPOs.

Linc Energy remains the leading authority in Queensland on a liquidator’s ability to disclaim away environmental obligations.

Linc Energy Limited (Linc) operated a pilot underground coal gasification project at Chinchilla, in Southern Qld. It held a Mineral Development Licence (MDL) and a Petroleum Facility Licence (PFL). Linc also held EAs associated with each of these licences. 

Administrators were appointed to Linc in April 2016. In May 2016, whilst Linc was in administration, the Department[15] issued an EPO to Linc which required it to comply with the general environmental duty. Linc went into liquidation soon afterwards. The liquidators disclaimed the MDL, the PFL, the associated EAs, and certain property and equipment located on the licenced land, under section 568 of the Corporations Act 2001 (Cth) (Corporations Act). 

The Department contended that, despite the disclaimer, the company remained obligated to comply with the EPO, and the liquidators were required under section 493 of the EP Act to ensure Linc complied with the EPO. The Department, however, agreed that they would only require the liquidators to do so to the extent there were funds available in the winding up.

The liquidators sought directions as to their obligations. At first instance, the Supreme Court of Queensland held -

• the disclaimer of the licences and on-site equipment needed to comply with the obligations under the EPO was (if the disclaimer laws applied) sufficient to discharge Linc’s obligations under the EPO;
• there was a direct inconsistency between an obligation to comply with the EPO under provisions of the EP Act and the effect of the disclaimer of the licences and equipment needed to comply with the obligations under the EPO and, but for section 5G of the Corporations Act, the EP Act provisions would have been overridden by the Corporations Act disclaimer provisions under section 109 of the Constitution[16];
• however, because the EP Act provisions were ‘pre-commencement (commenced) provisions’ under section 5G(3) of the Corporations Act[17], the EP Act provisions remained effective by reason of section 5G(11) of the Corporations Act despite their inconsistency with the disclaimer provisions in the Corporations Act; and
• he would not give the liquidators a direction that they were justified in not causing Linc to comply with the EPO.

On appeal, the Court of Appeal decided differently. Whilst they agreed with the first and second paragraphs above, they:

• decided the Department had accepted in correspondence that the disclaimer was effective and could not resile from that admission, and hence there was no need to consider section 5G of the Corporations Act; but
• if they did need to consider the application of section 5G of the Corporations Act, they would have decided that section 5G(11) of the Corporations Act did not operate to make the EP Act provisions override the Corporations Act disclaimer provisions because doing so would have meant that the disclaimer provisions would operate fully in some states and not in others, and Parliament could not have intended that to happen.[18] 

Despite the liquidators’ success, some important matters need to be remembered in relation to Linc Energy. 

1. Neither the Court at first instance or on appeal decided whether an EA was property and could therefore be disclaimed – they did not need to give their findings that an effective disclaimer of the MDL and PFL had the effect that the company did not need to comply with the EA or the EPO.
2. The Department did not issue a separate Clean-up Notice (now an EEO)) to the administrators or liquidators, which they could have issued once Linc failed to comply with the EPO, and so the question of whether the liquidators’ disclaimer of the MDL and PFL would absolve them of the obligation to comply with a Clean-up Notice issued directly to them did not arise.
3. The disclaimer only absolved Linc and the liquidators from complying with any obligations which arose after the disclaimer took effect (it is well known that disclaimer only affects future obligations). 

Linc Energy confirms that a liquidator of a company holding a mineral or petroleum tenement may disclaim the tenement and any equipment on it, provided they are onerous property. This releases both the company and the liquidator from obligations which arose under the tenement, any associated EA, and any EEO issued to the company to the extent the EEO creates liabilities relating to the disclaimed property.

However, Linc Energy is not authority that a liquidator can disclaim EEOs issued to them as a prescribed or related persons.

When an EEO is issued to an IP as a prescribed person or as a related person of a company (ie in relation to a contamination incident), it’s unclear whether disclaiming the tenement or land involved would also discharge the IP from any obligation to comply with the EEO. 

In that regard, the wording of the EEO may be critical. For example, if the EEO directs the IP to ensure the company fulfils its obligations, the disclaimer of the tenement or land may discharge the IPs obligations under the EEO, as (post disclaimer) the company would have no further obligations for the IP to cause it to comply with. But, if the EEO directs the IP to do specific things independent of, and separate to, the company, disclaimer of the tenement or land would be less likely to discharge the EEO obligations. 

Another relevant decision for IPs dealing with assets in Queensland is The Australian Sawmilling Company Pty Ltd (in liq) v Environment Protection Authority (2021) 64 VR 523 (Australian Sawmilling). 

The Victorian Supreme Court of Appeal (Court of Appeal) dismissed an appeal by the liquidators of The Australian Sawmilling Company Pty Ltd (TASCO) against a decision of the Victorian Supreme Court (Court) setting aside the liquidators’ disclaimer of land subject to significant environmental ‘clean up’ costs.

Although dealing with Victorian environmental legislation and its application to a site in Victoria, the court’s reasoning behind setting aside the liquidators’ disclaimer is applicable to disclaimer of property in Queensland. 

TASCO owned land previously used for a materials recycling business. A former tenant left behind construction and demolition waste. When the liquidators were appointed under a creditors’ voluntary winding up, and prior to their appointment, conscious of potential environmental liabilities, they obtained an unlimited indemnity from TASCO’s parent company in respect of ‘environmental liabilities’ incurred by the liquidators arising from or in connection with the liquidation.

Upon their appointment, the liquidators took various steps, including preparing fire management and remediation plans, but ran out of funds to do anything more.

Under the Environment Protection Act 1970 (Vic), which was in effect at the time[19], the Victorian Environment Protection Authority (EPAV) was able to enter land, undertake a clean-up and seek payment from any occupier of the land for the clean-up costs incurred. EPAV advised the liquidators in writing that they were going to do this, and they may seek payment of the clean-up costs from the liquidators personally. The next day the liquidators allowed the EPAV’s contractors access to the land and then disclaimed the land. The EPA applied to set aside the disclaimer.

The Court set aside the disclaimer and, in doing so, found:

• that the liquidators were occupiers of the land;
• EPAV and the State of Victoria were both persons who had an interest in the land (as was necessary for them to have status to apply to set aside the disclaimer);
• the liquidators’ disclaimer caused prejudice to EPAV and the State of Victoria that was grossly out of proportion to the prejudice that setting aside the disclaimer would cause to TASCO’s creditors; and
• it should exercise its discretion to set aside the disclaimer.

The Court considered it significant that the liquidators had an indemnity and that EPAV had agreed to limit recovery to the amount available under that indemnity. Essentially, the Court was comfortable allowing EPAV to access the indemnity to the extent it was available, but not with the liquidators having to put their hands in their own pockets. 

The liquidators also argued that section 545(1) of the Corporations Act, which states that ’a liquidator is not liable to incur any expense in relation to the winding up of a company unless there is sufficient available property’, prevented them from being liable for the clean-up costs. The Court found that the indemnity was ‘available property’ and so section 545 limited the liquidators’ personal liability to amounts recoverable either from the assets of the company or under the indemnity. This limitation of liability weighed in favour of exercising its discretion to set aside the disclaimer. 

The Court’s decision was upheld on appeal, but the Court of Appeal disagreed with one aspect of the decision. On appeal, the liquidators argued that section 62(2) of the Environment Protection Act 1970 (Vic), which allowed EPAV to recover clean-up costs from the liquidators as occupiers, was inconsistent with section 545(1) of the Corporations Act, and was therefore void under section 109 of the Constitution.

The Court of Appeal found there was no inconsistency. It held that section 545 didn’t apply because it only limits a liquidator’s obligation to voluntarily incur expenses, not liabilities imposed unilaterally by statute, as under section 62(2). 

As a result, the Court of Appeal rejected the argument that section 545 of the Corporations Act offered protection against personal liability for clean-up costs once a disclaimer was set aside. 

For IP’s in Queensland, Australian Sawmilling highlights that where a company in liquidation has available assets or the liquidators have access to an indemnity, in addition to issuing an EEO to the liquidator personally, the Department may seek to set aside a disclaimer of land or a tenement in order to require the liquidator to use the available assets or access the indemnity to enforce compliance with environmental obligations.

The recent Victorian case of Re Fordex Pty Ltd (in liq) [2025] VSC 180 highlights an important issue for liquidators appointed to companies with outstanding environmental obligations that occupies premises as lessee.

Fordex Pty Ltd operated a business that generated hazardous waste from leased premises. The day after Fordex was wound up by the Court, the liquidator issued a notice disclaiming Fordex’s property (including the hazardous waste on the leased premises) and the lease itself. Seven days later the landlord re-entered the premises under its right of re-entry, which arose on the liquidator’s appointment.

The State of Victoria (State) applied to set aside the disclaimer because it was concerned that it would result in the waste becoming property of the State under the doctrine of bona vacantia. 

The Court observed that under the terms of the lease:

• the lease was terminated upon the landlord re-entering the premises; and
• the tenant’s property on the premises, including the waste, was deemed to be abandoned, and vest in the landlord automatically, if not removed by the tenant within a reasonable period of time after termination.

Because of the State’s application to set aside the disclaimer, it had not taken effect and would not take effect until the court decided the application. By the time the matter was heard, many months had passed since the termination of the lease, and consequently a reasonable period had passed, so the waste was deemed abandoned and was now the landlord’s property. This meant the waste would not vest in the State when the disclaimer eventually took effect, and so there was no reason to set the disclaimer aside. 

Importantly, the Court held that although a disclaimer is deemed to take effect from the date it was lodged with ASIC (or notice of it was given to interested persons), that does not invalidate matters which occur during the period before it takes effect, such as the termination of the lease and the vesting of the tenant’s property in the landlord in this case. 

When considering the impact of a disclaimer on the rights and liabilities of the company and those affected, it is necessary to account for rights that have already accrued prior to the disclaimer becoming effective. Here, the disclaimer did not need to terminate the lease, as it had already been terminated. 

For example, the disclaimer would terminate the company’s obligations which remained on foot after termination of the lease, such as the obligation to pay the landlord’s costs of removing the hazardous waste (although the loss incurred by paying these costs could be claimed by the landlord in the liquidation under section 568D(2) of the Corporations Act).