The Environmental Liabilities of a Bankruptcy Estate

• Date: 01 March 2017
• DOI: http://doi.org/10.1002/iir.1268
• Author: Tuula Linna
• Published date: 01 March 2017

The Environmental Liabilities of a

Bankruptcy Estate

Tuula Linna*

,†

Faculty of Law, University of Lapland, Finland

Abstract

The conflict between the bankruptcy creditors and the environmental responsi-

bilities of a bankruptcy estate is discussed globally. The creditors’receivables are

usually included in the protection of property rights regulated by Constitution.

On the other hand, one can ask whether the bankruptcy estate is breaking the

law as an operator by refusing to abolish the harmful environmental pollution.

The bankruptcy estate is deemed to be an operator when it has the legal and

factual possibility of taking the necessary environmental actions. Accordingly, the

costs of the environmental measures taken by authorities instead of the bankruptcy

estate must be paid with a super priority from the assets of the bankruptcy estate.

Instead, the question concerning the priority status of private environmental

damages is a political matter. The argumentation presented in the article may

contribute new legislation concerning the environmental liabilities of bankruptcy

estates. Copyright © 2017 INSOL International and John Wiley & Sons, Ltd.

I. Introduction

A company engaged in a mining activity has ended up in bankruptcy. The

company’s bank accounts have EUR 300 000 left when the bankruptcy procee-

dings are opened. During the previous 2 years, the operation of the company has

caused major environmental problems; for example, metalliferous water has leaked

from the overflowing collection basins to the surroundings, causing damages to

private landowners’properties. Altogether, 30 creditors, the landowners included,

are demanding their claims of up to EUR 1.6 million from the bankruptcy estate.

The environmental authorities, in turn, have obliged the bankruptcy estate to

eliminate the continuing pollution and to strengthen and heighten the edges of

*E-mail: tuula.linna@ulapland.fi

†Professor of Procedural Law

Copyright © 2017 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 26: 40–59 (2017)

Published online 17 March 2017 in Wiley Online Library

(wileyonlinelibrary.com). DOI: 10.1002/iir.1268

the basins to prevent more leakage or even collapse.

1

These improvements would

cost EUR 500 000.

What should the estate administrator do? Does the administrator distribute the

money to the creditors and leave the environment as is, or does the administrator

implement the environmental reparations until its bank accounts are empty,

resulting in zero distributions to the creditors? The same question must be

answered when no order has been given by the authorities, yet the law nonetheless

requires environmental actions. If the law stipulates that the ‘operator’must

eliminate the source of pollution, then the requirement is also targeted at the

bankruptcy estate if it is deemed as an operator.

In this article, this scenario will be studied from a general legal perspective.

The discussion starts from the premises that, in the state where the bankruptcy

proceedings have been opened, there is no specific legislation that determines

the relationship between the private interests of the bankruptcy estate’screditors

and the public environmental responsibilities of the same estate. The answer to

the question concerning conflicts of interest between the payments to the creditors

and the environmental responsibilities thus remains open in the legislation.

The protection of both private and public interests can be found ‘behind’the

environmental responsibilities. The protection of private interests implies that

causing additional damages for the landowners is prevented. The public interest, in

turn, means that a clean environment is in the interest of everybody. This mutual

interest is represented by the environmental authorities.

The essential research questions are as follows:

a Who is ‘the operator’? This is because, in the environmental laws, the responsibility to

act is placed on ‘the operator’. From this point, a decisive question is whether a

bankruptcy estate is to be deemed as an operator according to the environmental law

in question. If the answer is yes, the bankruptcy estate is then subject to the same

responsibilities as other operators.

b Do the environment al ‘claims’have priority? The logic would have it that, if the

bankruptcy estate is deemed as an operator who is responsible for preventing an

environmental risk or for restoring the surroundings, but the estate neglects its

responsibilities, and the environmental authorities must take actions in the name of

public interest on behalf of the bankruptcy estate, who, then, must bear the costs?

Originally, the estate, as an operator, has a responsibility to take environmental actions,

but does this responsibility to act transform into an obligation to cover the expenses?

The basic question is whether a negligence to act can be transformed into a monetary

claim, in other words, if the responsibility of the estate can or should transform from

an ‘acting’category to a ‘paying’category. If, again, the answer is yes, do then the

private and public environmental claims have a priority status?

1. The possibility for the environmental authorities to

mandate environmental responsibilities to a bank-

ruptcy estate is not problematized here.

The Environmental Liabilities 41

Copyright © 2017 INSOL International and John Wiley & Sons, Ltd Int. Insolv. Rev., Vol. 26: 40–59 (2017)

DOI: 10.1002/iir