ENVIRONMENTAL CLAIMS AND INSOLVENT COMPANIES: THE CONTRASTING APPROACHES OF THE UNITED KINGDOM AND THE UNITED STATES

The purposes of insolvency law and environmental law are diametrically opposed. Each regime has been developed with little, if any, consideration of the inevitability of a clash with the other law. Through re-organisation and liquidation, insolvency law pursues the objectives of enabling the debtor to make a fresh start, and maximising returns to creditors through the expeditious distribution of the debtor’s assets. The objective of environmental law is to apply the polluter pays principle to ensure that a company or other person who pollutes the environment pays to remediate it instead of the costs being met by taxpayers. Remediating contamination tends to take a long time, with the precise costs not known until the contamination has been remediated. Handling claims for remediating contamination in insolvency proceedings thus has the potential to prolong them, and consequently delay the debtor’s fresh start or the distribution of its assets. This article examines clashes between bankruptcy/insolvency law and environmental law in the United States and the United Kingdom, and the very different approaches adopted by courts in those jurisdictions in an effort to resolve the conflicts between these areas of law. Whilst there is much more case law on environmental claims in bankruptcy proceedings in the United States, the number of insolvent companies that own or occupy land that requires remediation due to their operations is increasing quite rapidly in the United Kingdom. The Scottish Coal case, especially, illustrates the critical consequences for debtors, creditors and the public purse when a company with substantial environmental liabilities enters insolvency proceedings. The article also examines a new type of proceedings involving insolvent companies and companies with limited assets; claims to remediate contamination against their directors and officers. This situation has already arisen in Ireland and Canada – again with very different approaches in each jurisdiction. The article continues the examination of this relatively new clash between claims for remediating contamination in environmental law against persons related to a company that is insolvent or has limited assets by examining the importance of developing other effective courses to follow in response to the problem of corporate environment liability. These courses include direct parent company liability and the development of directors’ duties. The article concludes that the reach of the polluter pays principle has had remarkably little effect on bankruptcy/insolvency law to date. The fundamental principle of limited liability in company law has prevailed in many, if not most, cases against the fundamental principle of the polluter pays in environmental law. It is, thus, necessary to develop a more collaborative relationship between environmental, company and insolvency law.

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