Liquidator Alert: Recent Queensland Supreme Court Decision Expands Liquidator’s Personal Liability

A recent decision of the Supreme Court is a timely reminder for liquidators about the personal liability that comes with accepting an appointment. The ability to simply disclaim property under section 568 of the Corporations Act 2001 (Cth) (‘CA’) may not always be available to deal with liability that attaches to property for which office bearers are responsible under the Environmental Protection Act 1994 (Qld) (‘EPA Act’).

Background

On 13 April 2017, Justice Jackson directed that the applicant, the liquidators of Linc Energy Ltd (in Liq) (‘Linc Energy’), were not justified in failing to cause Linc Energy to comply with an Environment Protection Order (‘EPO’) that had been issued by the Department of Environment and Heritage Protection (‘DEHP’). [1]

The central issue for the liquidators was whether section 568D of the CA had the effect of discharging the company in liquidation from future compliance with its obligations under an EPO if they disclaimed Environmental Authorities and mineral and petroleum licenses.

The liquidators sought directions from the court as to whether they would be justified in not causing Linc Energy to comply with the EPO or any further environmental protection orders issued by the DEHP.

After considering submissions, relevant statutory provisions and the common law, the Court concluded that section 568D operated subject to the EPA Act so that in circumstances where an EPO order was in place, it could not be disclaimed by a liquidator under section 568. The Court also determined that liquidators are ‘executive officers’ of a company as defined by section 493 the EPA Act.

Impact on Liquidators

The decision potentially widens the scope of a liquidator’s personal liability. Liquidators should be aware that if they accept an appointment where property of the company is subject to an EPO, they may be unable to disclaim that property under section 568. Further, as liquidators are ‘executive officers’ as defined by the EPA Act, liquidators should be aware that they may potentially commit an offence under the EPA Act if the company that is subject to an EPO does not comply with the order. Executive officers can face fines of up $495,000 for a company’s non-compliance with an EPO or up to $687,600 or 5 years in prison for a wilful breach of an EPO.

On a positive note, the respondents in Linc Energy contended that the liquidators should have been required to comply with the EPO while the company had sufficient funds to do so. This point was not addressed directly, but it was made clear that the directions made related to the specific set of facts in the proceedings. The door is left open for a liquidator to argue that a company in liquidation should not be required to comply with an EPO where the company has insufficient funds to do so.

Finally, the case also drew a distinction between environmental activities that have ceased and that are continuing. It is not clear under the EPA Act as to whether an EPO can be validly issued in circumstances where the company has ceased environmental activities. Until clarification on this issue comes from legislation or the Courts, liquidators should proceed with caution and on the basis that a company could still be issued an EPO even if it has ceased conducting environmental activities.

[1] Linc Energy Ltd (in Liq) [2017] QSC 53.