When Environmental Law Confronts Bankruptcy Law

November 26, 2012Articles New Jersey Law Journal

In a prolonged financial downturn, it is an even more difficult burden for many companies to shoulder their own environmental remediation requirements. Pollock’s article examines the steps to consider if a co-liable potentially responsible party (PRP) is either showing signs of economic distress or has already filed in bankruptcy.

Although environmental prosecution of hazardous waste sites is less frequent than it was 10 years go, the overall number of environmental prosecutions and enforcement actions has remained largely steady. The government Accounting Office undertakes yearly surveys of the United States Department of Justice, the United States Environmental Protection Agency and the Fish and Wildlife offices. These surveys indicated that the overall number of prosecutions and the number of multiparty prosecutions is not significantly diminished from where they were 10 years ago.

The most common strategies for shedding environmental risk and cost are: a PRP reorganizes itself in order to shunt the remedial costs away from the parent corporation onto a subsidiary, seek bankruptcy protection, attempt to litigate with its insurance carriers to recover those costs, or attempt to establish that another PRP owes a duty under contract of indemnity or similar protection.

If liability is potentially overwhelming to a corporation, one strategy is to excise that liability and attempt to transfer. this violates the fundamental premise of most environmental statues, which impute liability indelibly to the polluter. At the same time, however, if done properly a corporation can reformulate itself to transfer liability.

Where the bankruptcy revolves in large part upon the value of the debtor’s property, and that property is contaminated, be advised that the trustee may seek to abandon the site altogether. Trustees are included to evaluate this decision clinically, i.e., does the cost or remediation exceed the fair market value of the property? If so, then abandon the site.

There are many options available to a client given the 90-day clawback under the bankruptcy code, there is a judgment or agreement with a party about to go into bankruptcy well in advance of their filing in bankruptcy. Even if you are caught unawares, however, the bankruptcy courts in New Jersey are both well equipped and experienced in handling environmental risks.