Out-Law News 4 min. read
22 Jul 2013, 3:45 pm
The Court of Session has initially directed that the cost of complying with certain permits granted by the Scottish Environmental Protection Agency (SEPA) under devolved Scottish law was reducing the amount of money remaining to settle with the company's creditors. This interfered with the liquidator's duty under UK insolvency law to act in the best interests of the company's creditors, it said.
Environmental law expert Ross McDowall of Pinsent Masons, the law firm behind Out-Law.com, said that the Court's direction was significant for a number of areas of law, particularly because environmental protection is devolved to the Scottish Government, while the corporate insolvency regime is reserved to the UK Government.
"If an insolvency practitioner was unable to unilaterally hand back the relevant water use licence, in effect the Water Environment (Controlled Activities) (Scotland) Regulations (the CAR regime) would have amended UK insolvency law by requiring the liquidator to seek the licence surrender under the relevant statutory mechanism and possibly after the carrying out of works, thereby applying funds in a different manner to that set out in insolvency law," he said.
"Although the UK Parliament could say that environmental law can trump insolvency law, the Scottish Government cannot," he said.
Scottish environmental protection regulator SEPA said that it was appealing the decision, as they "believe that [the directions] would result in unacceptable risks to the environment". It is intended that the appeal will be heard in September and so a final position is still to be reached.
SCC carried on several businesses at the time of the insolvency, including the operation of open-cast mining at seven sites across Scotland. The court ordered that the business be wound up in April, and liquidators were appointed last month. Since the liquidators were appointed mining operations have ceased, but the liquidators have continued pumping operations and securing the safety of the sites. In addition, several sites and parts of other sites have been sold off to Hargreaves Surface Mining Ltd, a third party.
Mining operations in Scotland are subject to various statutory obligations including protecting the environment from the discharge of polluted water from the sites, obligations under planning legislation to restore the sites, protection of habitats and birds and ensuring the safety of the public by fencing disused mines and quarries. Some of these are governed by the CAR regime and by EU legislation, and can carry "significant" compliance costs.
Petitioning the court for permission to abandon the land, the liquidators said that they had been spending about £1.4 million per month complying with environmental obligations over the sites. After the sale to Hargreaves, which they said would earn them between £9.7m and £10.5m, they would continue to spend around £478,000 per month on maintaining the sites that they still controlled, they said. They would run out of money with which to maintain the sites in between 20 and 22 months, without paying back any of SCC's creditors, they said.
Liquidators of a Scottish registered company do not have the express statutory power to hand back, or 'disclaim', land owned by the relevant company that is onerous or burdensome and the court was unable to find any previous cases dealing with the issue. However, Lord Hodge ruled that as the owner of property was able to abandon its land a liquidator could do likewise. Disclaimed land would vest in the Crown, unless the Crown waived its right to the property. Importantly the power to disclaim would, however, depend on the terms of any statutory permits granted in respect of the land, he said.
"I consider that it may be possible for an owner to abandon land and circumstances may arise when, on a disclaimed by the Crown, land becomes ownerless," Lord Hodge said in his ruling. "I see no reason in principle why this should not be the case. If it is possible to abandon corporeal moveable property, it should be possible to abandon land. But in the absence of a statutory regime, it seems to me that the court should regulate such abandonment to prevent its abuse as a means of avoiding obligations."
"I conclude, as a matter of generality, that a liquidator has a power to disclaim land either by declining to use the funds on the creditors' patrimony to deal with it or by taking steps to terminate the company's ownership of the land. But where the company's use of the land is governed by statutory permits, his ability to disclaim in either sense will depend upon the terms of the statutory provision and the permits," he said.
Moving on to look specifically at the water use licences that applied in this case under the CAR regime, Lord Hodge said that difficulties arose as environmental law is a devolved Scottish matter, while insolvency law is governed (a reserved matter) at UK level. Unlike some of the English environmental permitting regimes, the CAR regime specifically provides that liquidators are 'responsible persons' that must ensure that a relevant licence is complied with.
Were it not for the issue of devolved and reserved matters, the Court would have been persuaded to deny the liquidators the right to hand back the CAR licence on these grounds, Lord Hodge said. However, removing the liquidator's right to disclaim property or to refuse to carry out environmental obligations in relation to that property would have the effect of "creating a new liquidation expense which would have to be met before the claims of preferential creditors" and would, he said, effectively "modify the law on reserved matters," (i.e. UK insolvency law). That was not, he said, permissible.
"It's therefore interesting that SEPA intends to appeal the direction and I am curious to see what their arguments will be," said environmental law expert Ross McDowall.
"The reason for the appeal is clear however - if the land is disclaimed and the permit handed back without remediation or preventative works being done, SEPA will have no recourse against a site owner or operator for ongoing discharges or environmental problems arising from the site. The practical effect is that whilst the liquidation may proceed as normal, the ongoing environmental liability will need to be picked up by the public purse," he said.
Litigation expert Craig Connal QC of Pinsent Masons said that the "unexpected effect" of the legal point highlighted in the judgment was that it prevented the CAR regime from operating both as seemed to have been intended, and as the judge would have held the liquidators to. .
"Between the land 'abandonment' issue and the legal impact of onerous regulatory obligations, there is a lot in this case with implications – or, given the appeal - possible implications for almost every sector of business. "
See: The decision http://www.scotcourts.gov.uk/opinions/2013CSOH124.html
