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Clean up costs part of liquidation expenses

A recent case relating to the Doonin Plant Limited insolvency, click here to read, has held that the cost of complying with a Scottish Environmental Protection Agency (SEPA) enforcement notice is part of the expenses of a liquidation. This may have significant effects on insolvency practice, and possibly the lending market. 
The case involved a waste management company, which had been in breach of its obligations under environmental law, relating to storage of waste. SEPA had served an enforcement notice but had not exercised its right to do the work itself and recover costs from the company. The company then became insolvent, and another enforcement notice was served.  The estimated clean up costs were much more than the amount of the “surplus” funds which could have been used to pay of ordinary creditors. 
The court held that the legislation was in implement of a European Directive, the intention of which was that the polluter paid. There was nothing in the Directive or elsewhere saying that this did not apply when a company became insolvent. Accordingly the funds that remained should be used for this purpose. 
The court was not swayed by arguments that the liquidator would have to decide what was and was not to be cleaned up with the limited funds available, or that liquidators would not accept appointments as clean up costs would rank ahead of their fees (as the courts would direct that liquidators’ fees would be paid first). This will reinforce the concerns that lenders have in taking security over property that might be contaminated, or in the waste management sector, and hinder the public policy aim of  private sector led brown field development and urban regeneration.
If you have any enquiries please contact Head of Commercial, Hugh Angus.