BANKRUPTCY AND ENVIRONMENTAL COMPLIANCE AND LIABILITY. New Hampshire Waste Management Seminar Nov. 2, Peter C.L.

Transcription

1 BANKRUPTCY AND ENVIRONMENTAL COMPLIANCE AND LIABILITY New Hampshire Waste Management Seminar Nov. 2, Peter C.L. Roth

2 WHAT IS BANKRUPTCY? A process in which individuals and entities can eliminate or repay some or all of their debt under the protection of federal regulation.

3 COMMON CHAPTERS Chapter 7: basic liquidation for businesses and individuals - Simple and quick - Many assets are sold to repay creditors Chapter 11: rehabilitation and reorganization - Used primarily by businesses - Generally allows a company to continue functioning while repaying debts Chapter 13: rehabilitation with a payment plan - Only applies to individuals - Must have a regular income to be eligible

4 THE AUTOMATIC STAY The automatic stay is an automatic injunction that halts all actions by creditors (with a few exceptions) to take action against a debtor that has declared bankruptcy. The automatic stay begins the moment the bankruptcy petition is filed.

5 CLAIMS A proof of claim is a written document that notifies all interested parties that a creditor wishes to assert its right to receive a distribution from the bankruptcy estate. Secured liens, mortgages, setof fs Administrative Priority professionals, costs of doing business Priority wages, taxes, consumer deposits General Unsecured

6 THE DISCHARGE A bankruptcy discharge is a statutory injunction against the commencement or continuation of collecting, recovering, or offsetting a debt. The discharge is essential to the fresh start of bankruptcy. Some Debts Are Non-dischargeable -- Individuals. Fines and Penalties owed to the government

7 POLICE AND REGULATORY POWER 28 U.S.C. 959(b)... a trustee, receiver or manager appointed in any cause pending in any court of the United States, including a debtor in possession, shall manage and operate the property in his possession as such trustee, receiver or manager according to the requirements of the valid laws of the State in which such property is situated, in the same manner that the owner or possessor thereof would be bound to do if in possession thereof.

8 POLICE AND REGULATORY POWER Exception to the Stay 11 U.S.C. 362(b)(4) The filing of a petition does not operate as a stay [when]...the commencement or continuation of an action or proceeding by a governmental unit... to enforce such governmental unit s or organization s police and regulatory power, including the enforcement of a judgment other than a money judgment, obtained in an action or proceeding by the governmental unit to enforce such governmental unit s or organization s police or regulatory power

9 WHAT DO THOSE MEAN? These provisions create an allowance for a state to enforce its laws against a debtor during the bankruptcy process. Regardless of who is operating the business during the bankruptcy, that entity is required to abide by state law.

10 Munce s Superior Petroleum Products v. New Hampshire Department of Environmental Services (490 B.R. 5) Munce s failed to comply with an earlier order compelling it to take particular actions to bring its bulk storage facilities into compliance with New Hampshire environmental laws. Munce s filed for Chapter 11 bankruptcy while the contempt case was pending. State Court ordered close tanks or pay $1,000/day. Over $380,000 in contempt fines were levied against the company. Although the underlying violations happened pre-petition, the compliance orders were issues post-petition. The Department of Environmental Services filed a motion to have the fines classified as administrative priority claims, so that claims could be paid in full ahead of other general creditors.

11 Munce s Superior Petroleum Products v. New Hampshire Department of Environmental Services Issue: can a post-petition contempt fine assessed by state court against a debtor be entitled to administrative expense priority? YES! Numerous case law makes clear that fines for post-petition noncompliance of state laws can be granted administrative expense priority. These claims can be treated as actual and necessary to the cost of the estate, regardless of whether they are beneficial to the estate.

12 ASSET SALES 11 U.S.C. 363 (b) The trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate...

13 SALES FREE AND CLEAR OF INTERESTS AND CLAIMS 363(f) permits a property to be sold free and clear of an interest in a property. It has generally been held that the bankruptcy court may authorize a sale free of liens, and that the liens would attach to the proceeds of the sale. Selling property free and clear of interests makes the property more desirable to buyers, and creates a pool of money to apply towards claims.

14 HOW DO ASSET SALES APPLY TO CONTAMINATED PROPERTIES? Many courts have held that past environmental remediation costs do not follows assets that have been sold free and clear. These costs instead remain with the debtor, and attach to the proceeds of the sale. A purchaser buying contaminated property must be prepared to perform all necessary environmental obligations (e.g. renewal of permits, compliance with regulations) that come with the property. Duty to remediate runs with the land.

15 CARVE OUT Nothing in this Order or the Plan discharges, releases, precludes, or enjoins: (i) any environmental liability to any governmental unit that is not a Claim as defined in 11 U.S.C. 101(5); (ii) any environmental Claim of any governmental unit arising on or after the Effective Date; (iii) any environmental liability to any governmental unit on the part of any entity as the owner or operator of property after the Effective Date; or (iv) any liability to the State of New Hampshire on the part of any entity other than the Debtor or Reorganized Debtor.

16 GRANITE STATE PLASMA CUTTING What happens to goop left behind after 363 sale? Sale order and carve out. Trustee sold land, machinery and equipment. Equipment resold, lubricants, coolants, and wastes from it and other debtor operations left behind. Subsequent purchaser of land stuck?

17 ABANDONMENT 11 U.S.C. 554 (a) After notice and hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.

18 WHAT DOES THAT MEAN? An exception to the abandonment power prevents abandonment of property that would violate laws designed to protect the public s health and safety.

19 Midlantic National Bank v. New Jersey Department of Environmental Protection (474 U.S. 494) The debtor owned and operated two waste oil processing facilities. The NJDEP issued an administrative order requiring the debtor to clean the site. The estimated cost of disposing of the waste rendered the property a net burden to the estate. The Chapter 7 trustee notified the creditors and court of his intention to abandon the burdensome property as it had inconsequential value to the estate. The state of New York and the NJDEP objected to the abandonment, contending that it would threaten the public s health and safety.

20 Midlantic National Bank v. New Jersey Department of Environmental Protection Issue: can a trustee abandon a toxic waste site in violation of state laws designed to protect the public s health and safety? NO! Congress did not intend for the abandonment power to abrogate certain state and local laws. Neither the Court nor Congress intended to grant a bankruptcy trustee the right to abandon property in contravention of laws designed to protect public health and safety.

21 Collins & Aikman Owned a auto parts manufacturing facility in Farmington with decades of legacy soil and groundwater contamination in two sites. C&A filed Chapter 11 in Detroit. Reorganization as a going concern was impossible. Liquidating plan. Plan proposed to abandon the now closed facilities after selling everything of value. State objected on basis of Midlantic test as applied in 6 th Circuit precedents. Debtor and state agreed to abandon the facility and a substantial amount of cash to a trust. Superfund.

22 For More Information Contact: Peter C. Roth NH Department of Justice