Mark Howard
Posted on 30 Oct 2014

Personal liability of an insolvency practitioner under environmental law

The spectre of personal liability is something that haunts the dreams of insolvency practitioners.  Environmental liability can be particularly troublesome − it is virtually strict liability, it can be extremely costly, and it gives rise to criminal liability.  So, how much do insolvency practitioners need to be concerned?

The insolvency of a company does not automatically eliminate its liabilities under environmental law, they will continue until its dissolution.  During the insolvency procedure there is the possibility of a more personal risk arising for any insolvency practitioners who are involved in the process.

The risk of incurring personal liability will not only differ depending on the status of the company, and on the particular insolvency procedure that is being followed, but will also vary depending on the status of the practitioner that has been appointed. 

Contaminated Land Regime

Under the EPA 1990 if a local authority decides to serve a remediation notice on the basis that land is contaminated, then two categories of people are potentially liable for compliance with the notice:

  • “People who caused or knowingly permitted the land to become or remain contaminated (Class A), or if they cannot be found;
  • People who are the current owners or occupiers of the contaminated land (Class B).”

Defra’s guidance to the contaminated land regime provides that in order to be ‘found’ a party must be ‘in existence’.  The dissolution of a company means that it is no longer ‘in existence’ and therefore cannot incur liability.  Such circumstances may result in the current owners or occupiers of the land becoming liable for any offences committed.  

The EPA 1990 affords an insolvency practitioner a certain amount of protection from incurring personal liability in relation to the contaminated land regime.  Section 78X provides that an insolvency practitioner shall not be held to be personally liable for remediation except when the contamination; “is a result of any act done or omission made by him which it was unreasonable for a person acting in that capacity to do or make”.  Furthermore, they will not be guilty of failure to comply with a remediation notice unless it is required as a result of, “some particular thing for which he is personally liable to bear the whole or any part of the cost.” 

The unreasonableness of the act or omission of the insolvency practitioner is usually measured on a case by case basis but generally, in order to be guilty of an offence they would need to be acting outside of their role as the company’s agent.  It would likely be viewed as unreasonable behaviour if an insolvency practitioner failed to take any action in order to prevent land contamination of which they were aware. 

Due to an administrator's responsibility for making decisions regarding the management of the company, the more wide-ranging their powers under their terms of appointment, the more vulnerable they become to incurring personal liability.  Conversely, a liquidator is less vulnerable in this sense, due to the fact that unlike administrators they are not agents of the company and consequently are less involved in its management.  Although both receivers and liquidators may risk incurring liability through their management of company property if they are considered to be an occupier of the premises, they are arguably less susceptible given the protection provided by the limitations of their terms of appointment. 

When assessing the unreasonableness of an insolvency practitioners' behaviour in relation to an omission, the argument could be made that a failure to act would not be unreasonable if it was not within the practitioner's power to act.  In any event it will be essential to ascertain the powers of the insolvency practitioner in question by reviewing their terms of appointment.

Neighbour Claims

If pollution contaminates and damages any land belonging to a neighbouring property, the owners/occupiers of that property may be able to claim not only against the primary polluter but also against any subsequent/current owners/occupiers, if the pollution is continuing at the relevant time. 

Such a claim will predominantly hinge on whether the damage was reasonably foreseeable by the defendant.  Although reasonable foreseeability of damage, like unreasonableness, will be determined with regard to the circumstances of the particular case; given their role in relation to the activities of the company, there will be an assumption that an insolvency practitioner will possess a high level of knowledge in such circumstances. 

Water Pollution Offences/Waste management offences

Usually it is the case that any liability incurred under these regimes will be assigned to the corporation which has committed the offence.  Consequently, in order to commit an offence and incur personal liability under such regimes, an insolvency practitioner would have to be acting in a personal capacity and outside their role as agent of the company. 

However, it is necessary to note that an insolvency practitioner could be caught by the legislative provisions which provide that if the offence is

“proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, secretary or other similar officer of the body corporate...then he, as well as the body corporate, shall be guilty of that offence and shall be liable to be proceeded against and punished accordingly”.  

Breaches of environmental permits and authorisations

Although not yet tested by court, it is potentially possible for a company on the verge of liquidation to disclaim its environmental permit, on the basis that it has insufficient resources to act in accordance with its conditions. 

Under the old regime, the courts have allowed a waste management licence to be treated as 'onerous property' and consequently held that they may be disclaimed.  However, such a disclaimer is only available to liquidators and not to any other insolvency practitioner and it should be noted that in the case of Re Wilmott Trading, it was made clear that,

"so long as a company has some resources which would enable it to comply with a Licence, it should not be able to get rid of the Licence by going into liquidation and having a liquidator disclaim the Licence.  However, once such a company ceases to have any assets, so that it is in practice wholly incapable of complying with the Licence, there is no good reason for the company, and therefore for the Licence, to continue to exist”. 

Insolvency practitioners are protected to a large degree from personal liability under environmental law.  It is likely that an insolvency practitioner will not be held to be personally liable under environmental law unless they have been personally responsible for the offence.  However, the law in this area is still very undeveloped and there is a degree of uncertainty, so it is essential that any insolvency practitioner is aware of their potential liabilities in this respect.

In practice it would appear that an insolvency practitioner's behaviour would have to be particularly unreasonable and involve them acting beyond their designated powers in order for them to be held personally liable under environmental legislation.  So perhaps only the wilfully guilty need be concerned about the haunting of their sleep by ghosts and spectres!