3. Potential Future Developments

Australia is not the only jurisdiction with issues raised by the intersection between insolvency law and environmental obligations. Insights to be gained from the management of this tension in other jurisdictions, or the way in which other policy considerations have been given form in Australian insolvency legislation, may prove useful in regard to future policy and law reform discussions.

3.1 Environmental Claims as Public Obligations: Canada

Canada provides an interesting basis for comparison due to it being a federation state, similar to Australia. In both jurisdictions, bankruptcy (Canadian terminology)^[1] or insolvency (Australian terminology) is dealt with at a federal level, while environmental regulation is largely the responsibility of states/territories or provinces. In Canada, this takes place through the Bankruptcy and Insolvency Act.^[2] An important distinction is that the doctrine of federal paramountcy in Canada clearly determines that bankruptcy legislation will prevail in case of inconsistency with provincial environmental legislation. This is different to the position in Australia, where environmental legislation may be paramount.

The Supreme Court of Canada, the highest court in the land, had an opportunity to decide a matter involving environmental obligations in bankruptcy in the case of Orphan Well Association v Grant Thornton^[3] (‘Redwater’). The case involved disclaimer of assets (oil and gas wells) subject to environmental obligations, without fulfilling any of the obligations. The environmental regulator asserted that Redwater had a responsibility to clean up its own wells. In the relevant province, Alberta, the court at first instance and on appeal considered the regulator’s claim that environmental obligations should be discharged prior to a distribution to creditors being made. In both cases, the court held that the regulator’s attempted use of statutory powers to enforce Redwater’s compliance with environmental obligations in bankruptcy is inconsistent with distribution rules under federal bankruptcy legislation, as it would provide the regulator with a priority ahead of other creditors in respect of payment of these ‘debts’. As a result, the doctrine of federal paramountcy was seen to render provincial environmental legislation inapplicable.

The Supreme Court of Canada overturned these decisions. It found that environmental obligations are not ‘debts’ that are provable in bankruptcy, but public obligations. As such, compliance with these obligations will not constitute payment of ‘debts’ contrary to the distribution rules under federal bankruptcy legislation. This led to a conclusion that there was no inconsistency between distribution rules under federal bankruptcy legislation and obligations under provincial environmental legislation, which meant that the bankrupt company was ordered to discharge environmental obligations under provincial environmental legislation before making a distribution to creditors. The outcome was that the company did not have any funds left for distribution, to the extent that even secured creditors were left unpaid. In this way, environmental obligations were effectively (though not in a legal–technical sense) given a ‘super-priority’ in respect of creditors.^[4]

3.2 Preferential Treatment of Environmental Claims in Distribution: France^[5]

Another way to address the issue of environmental claims in insolvency is through legislative change in respect of distribution rules. An example of such an instance can be found in the French Commercial Code. This method is supported by structured regulation requiring companies in France wishing to enter insolvency proceedings to provide information about their status in respect of environmental protection to enable the court to determine whether the company is an ‘ICPE’ (operator of facilities classified for environmental protection).

In a similar manner to many other jurisdictions, France recognises certain claims against the insolvent company as priority claims (‘privileged’ claims). Environmental claims in insolvency were not regarded as privileged claims. However, due to amendment to article L. 641–3 of the French Commercial Code on 23 October 2023, claims arising from rehabilitation of ICPE sites now have the status of privileged claims.

3.3 Guarantee Fund, Priority and Super-Priority: Protection Measures in Respect of Employee Claims in Australia

The Australian corporate insolvency framework contains examples of how policy objectives could translate into additional statutory protection for the claims of certain creditors. This is particularly apparent in respect of the claims of employees of insolvent companies.

In an insolvent liquidation, claims of employees in respect of certain employee entitlements enjoy a statutory priority, and these claims would thus have to be paid ahead of other unsecured claims against the company.^[6] Employees are also protected by way of a ‘super-priority’, in terms of which wages and entitlements have priority over the claims of a secured party in relation to a circulating security interest, where the company does not have sufficient property to meet employee claims.^[7]

Additional protection is available to employees by way of a government-funded legislative safety net scheme of last resort under the Fair Entitlements Guarantee Scheme.^[8] Under this scheme, employees may claim certain unpaid entitlements, to statutory monetary limits, from the government fund where the insolvent company does not have sufficient property to satisfy their claims.

Some suggest that similar protections should apply to environmental obligations in insolvency on the basis of policy rationales.^[9]