How the Corporations Act Disclaimer Provisions operate in the context of an EPO

On 9 March 2018, the Queensland Court of Appeal¹ overturned an earlier decision of the Supreme Court and confirmed that a liquidator’s disclaimer powers under the Commonwealth Corporations Act 2001 (Corporations Act) prevail, in full, over the relevant provisions containing inconsistent environmental obligations in the Queensland Environmental Protection Act 1994 (EP Act).

Take away point

Where an Environmental Protection Order (EPO) is issued to a company placed into liquidation, if the liquidators give valid notice “disclaiming” the plant, equipment, and relevant licences and approvals, and the requirements of the EPO  are liabilities which arise in respect of specific disclaimed property (rather than liabilities which did not arise from, or otherwise cannot be attributed to, specific disclaimed property), then there is no longer an obligation to perform the requirements of the EPO.  

A summary of the background facts and the Supreme Court’s decision handed down on 13 April 2017 can be found in our earlier article.

To appreciate the importance of the Court of Appeal’s decision, it is helpful to recall that at first instance, Jackson J of the Supreme Court held that Linc remained obliged to meet the requirements of the EPO issued under the EP Act, notwithstanding the fact that liquidators had disclaimed (pursuant to section 568(1) of the Corporations Act) the land, mineral development licence, petroleum facility licence and environmental authorities in respect of which that EPO had been issued. In forming this view, Jackson J found that there was inconsistency between sections 568 and 568D of the Corporations Act (on one hand) and the relevant provisions of the EP Act (on the other), and that this inconsistency ought to be resolved by giving effect to the EP Act provisions. This conclusion relied upon a view that section 5G of the Corporations Act rolled back the operation of its other relevant provisions such that there was no inconsistency.

In arriving at the opposite conclusion, McMurdo JA (with whom the other judges generally agreed) held at paragraph [11] that:

“In my view, once the land, the plant and equipment and the MDL [mineral development licence] had been disclaimed, there was no cause and indeed no entitlement, for Linc to carry out any activity on the site, so that there was no occasion for it to perform the general environmental duty. Linc was no longer obliged to perform the requirements of the EPO, because they were liabilities in respect of disclaimed property and thereby terminated upon the disclaimer, according to section 568D. Some of the effects of a valid disclaimer could not be severed from the others, so that s5G cannot be applied to roll back the effect of the disclaimer in terminating the liabilities under the EPO. Any in any cause, upon its proper construction, s5G did not affect the operation and constitutional paramountcy of the disclaimer provisions.”

Importantly, both the Supreme Court and the Court of Appeal agreed that:

1. the liquidators had validly disclaimed certain property of Linc; and
2. on their faces, sections 568 and 568D of the Corporations Act would apply to mean that this disclaimer relieved Linc of EPO-related liability which arose in respect of that certain property. 

Where the Court of Appeal’s decision departs from that of the Supreme Court is in its application (or lack thereof) of section 5G of the Corporations Act. Justice Jackson was willing to apply section 5G in a way that would cause a disclaimer to effect the abandonment of property, but not relief from liabilities that arose in respect of that property. With respect to His Honour, the Court of Appeal was not. Put simply, the Court of Appeal adopted the view that:

• Parliament intended that liquidators be empowered to make disclaimers;
• Disclaimers are meant to be double-edged swords. They provide insolvent companies with relief from onerous liability in exchange for the abandonment of any corresponding rights and liabilities;
• The way Jackson J envisioned the application of section 5G would, in effect, cause a disclaimer to result in a company forfeiting certain property, without relieving that company of the liabilities it accrued in respect of that property; and
• This outcome would be contrary to the underlying purpose of section 568D of the Corporations Act, and could not have been what Parliament intended when it enacted section 5G of the Corporations Act. That would be, as McMurdo JA described it, an “absurd operation of law”.2  As a result, section 5G cannot displace the effect of section 568D of the Corporations Act, and that provision triumphs over the inconsistent EP Act provisions considered in this case.

Concluding Comments

A key question will always be whether the EPO imposes liabilities in respect of the disclaimed property. The EPO issued to Linc included requirements with respect to the retention and maintenance of infrastructure. Performance of those requirements became impossible once the property was disclaimed, and as such, there was a requisite connection with the disclaimed property. The effect of this decision is that if the requirements of the EPO are not in respect of specific property that has been disclaimed, then there will remain ongoing obligations under the EPO. Not all EPOs will impose obligations in respect of specific property, and those that do not will be left unaffected by disclaimers. 

For more information or discussion, please contact HopgoodGanim Lawyers’ Planning or Insolvency & Restructuring teams.

<sup>1. Longley & Ors v Chief Executive, Department of Environment and Heritage Protection & Anor; Longley & Ors v Chief Executive, Department of Environment and Heritage Protection [2018] QCA 32
2. Longley & Ors v Chief Executive, Department of Environment and Heritage Protection [2018] QCA 32 at [113] [per McMurdo JA].</sup>