Recent Developments at the Intersection of Bankruptcy and Environmental Law
by | posted in: 363 Sale, Chapter 11, Environmental Liabilities | 0

By Thomas Goslin (Weil, Gotshal, & Manges LLP)

Retired U.S. Bankruptcy Judge Robert E. Gerber once observed that issues as to the interplay between environmental law and bankruptcy are among the thorniest on the litigation map.  Difficulties navigating this interplay largely stem from the inherent conflict between the goals of bankruptcy and environmental laws, with the former aimed at providing debtors with a fresh start, while the latter cast a broad net to hold parties (even some innocent parties) responsible for past harm to the environment.  Despite the fact that modern environmental laws have been on the books for over 40 years, and that bankruptcy laws were first enacted in the earliest days of the Republic, relatively few courts have had occasion to opine on the treatment of a bankrupt debtor’s environmental liabilities.  As such, those stuck at the intersection of bankruptcy and environmental law often lack clarity as to how or whether a debtor’s environmental liabilities can be addressed through a restructuring.  This is particularly true when the liabilities arise from contaminated property owned by a debtor, which generally cannot be discharged in a chapter 11 case.

Two recent bankruptcy cases, however, have provided debtors and their advisors with new options for managing environmental liabilities associated with contaminated land.  As discussed in detail in the article, developments in the pending chapter 11 case of Exide Holdings Inc. have both expanded the universe of cases where an environmental trust may provide an avenue for relief, as well as provided much needed clarity on when and under what circumstances a debtor may abandon contaminated real property under section 554 of the bankruptcy code.  In a separate case, involving defense contractor Wellman Dynamics Corporation, the debtor and one of its secured creditors were able to negotiate a novel settlement with state and federal environmental regulators, which facilitated the sale of the debtor’s operations, including heavily contaminated land, under an arrangement where the buyer would fund remediation efforts based on an ability-to-pay formula tied to revenues generated from the acquired operations.  While dire circumstances in both cases no doubt contributed to the unique results, the outcomes suggest that there may be more options available for debtors seeking to address liabilities arising from contaminated real property than previously thought.         

The full article is available here.

Reviewing Redwater: An Analysis of the U.S. and Canadian Approaches to Environmental Obligations in Bankruptcy
by | posted in: Bankruptcy Administration and Jurisdiction, Bankruptcy Roundtable Updates, International and Comparative | 0

By Laura N. Coordes (Associate Professor of Law, Arizona State University – Sandra Day O’Connor College of Law)

Laura N. Coordes

The United States and Canada have both seen significant litigation over the treatment of environmental obligations in bankruptcy proceedings. Both countries also have robust regulatory and statutory frameworks with respect to bankruptcy and environmental law, making the two jurisdictions ripe for comparison.

Although the U.S. legal landscape differs somewhat from Canada’s, courts in both countries have struggled to sort out the treatment of environmental obligations in bankruptcy. However, in 2019, the Supreme Court of Canada decided Orphan Well Association v. Grant Thornton Limited (“Redwater”), which characterized environmental obligations, not as claims, but as duties owed to the public that could not be compromised in bankruptcy. Meanwhile, U.S. courts continue to grapple with the question of how to treat a company’s environmental obligations in bankruptcy.

This article analyzes the impact of Redwater and highlights issues that U.S. scholars and policymakers should consider as they press for changes. In particular, the article focuses on three questions: (1) What is the role of the legislature as compared to the judiciary? (2) What is the role of federal law, as compared to provincial or state law? and (3) What is the role of the public interest?

These three questions implicate debates that go beyond the immediate issue of the role of environmental law in bankruptcy proceedings. However, considering environmental and bankruptcy law in light of these universal issues illuminates unresolved tensions that both the U.S. and Canada will likely continue to face on a larger scale.

The full article is available here.