18 April, 2016
Key points
- The Queensland government has responded to increasing public focus on the risk to the State of insolvent companies failing to meet environmental compliance obligations by the rapid introduction of proposed changes to the State's environmental laws.
- Under the proposed changes, the Department of Environment and Heritage Protection (EHP) would be given the power to issue an environmental protection order (EPO) to related persons of companies carrying out environmentally relevant activities (e.g. under an environmental authority (EA)) in certain circumstances – something that is not possible under the current legislation.
- Determining if an entity may fall within the category of 'related persons' to a particular company will depend heavily on the circumstances of the parties' commercial and legal relationship – see below for details.
- If passed, the amendments are intended to apply from 15 March 2016.
The Environmental Protection (Chain of Responsibility) Amendment Bill 2016
The Environmental Protection (Chain of Responsibility) Amendment Bill 2016 (Bill) was introduced on 15 March 2016 by the Minister for Environment and Heritage Protection and Minister for National Parks and the Great Barrier Reef, Hon Dr Steven Miles.
EHP currently has the power to issue an EPO for a range of reasons, including for a failure to comply with conditions of an EA. It is an offence to fail to comply with an EPO, with penalties that are some of the highest able to be imposed for environmental offences in Queensland. The recipient of an EPO may be ordered to, e.g. stop all (or some) activities indefinitely, modify its operations, rehabilitate land or take particular actions.
The Bill proposes that an EPO would also be able to be issued to a 'related person' of a company. The EPO may impose any requirement on the related person that is or could be imposed on the company, as if the related person were the company.
Further, an EPO issued to the related person of a high risk company may require the related person to provide a bank guarantee or other security for the related person’s compliance with the EPO. A high risk company is a company that is an externally-administered body corporate or a company that is an associated entity of such a company. An EPO may be issued to the related person of a high risk company even where the high risk company has not received an EPO.
Who are 'related persons'?
Under the amendments, a person will be a related person of an EPO recipient or high risk company (first company) if:
- the person is a holding company of the first company;
- the person is the owner of the land on which the first company carries out or has carried out an activity under an EA or an activity that has caused environmental harm or;
- EHP decides that the person has a 'relevant connection' to the first company.
EHP would be required to take the following matters into account when deciding whether a person has a relevant connection with the first company:
- the extent of the person's control of the first company;
- whether the person is an executive officer of the first company or of a holding company with a financial interest in the first company;
- the extent to which they are in a position to financially benefit from the first company's activities due to a particular corporate structure or arrangement;
- the extent to which dealings between the person and the company are at arm's length, are on an independent, commercial footing, are for the purpose of providing professional advice, or are for the purpose of providing finance, including the taking of a security; or
- the extent of the person's compliance with EHP's requests for information when making a decision to issue an EPO.
Accordingly, anyone in this broad category of 'related persons' may be issued with an EPO, and held accountable for costs involved in complying with it, or be at risk of being convicted of an offence for non-compliance. The fact that a person has received an EPO may also be taken into account by EHP when that person seeks to obtain a new or amended EA elsewhere in the State.
EHP would appear to have a considerable degree of discretion in applying the test as to whether a person is a related person of an EA holder company, which may result in significant uncertainty for companies trying to determine whether they may be considered to be a related person of an EA holder company. The Minister did state in Parliament that the changes are not intended to capture genuine arm's-length investors, or contractors or employees of the EA holder company, but this is not particularly clear from the text of the Bill.
Significantly, the Bill does not automatically exclude from the concept of “related persons” third parties who might receive a financial benefit such as lenders, leaving open the possibility that such parties could potentially be related persons for the purposes of the Bill.
Other changes
The Bill includes a range of related changes, including provisions regulating entry to land by a related person seeking to comply with an EPO on land it does not own.
The amendments would make clear that EHP may impose a new financial assurance / environmental bond obligation on an EA holder at the time the EA is transferred to a new entity, as well as upon the amendment or withdrawal of an EPO.
The Bill also includes new related provisions owers in relation to EHP's investigative powers, and limits the ability to obtain stays of certain decisions regarding financial assurance unless conditions are met regarding the sufficiency of existing assurance.
Why has the Bill been introduced?
The main policy objectives of the Bill are to amend the Environmental Protection Act 1994 (EP Act) to:
- facilitate enhanced environmental protection for sites operated by companies in financial difficulties; and
- avoid the State bearing costs for managing and rehabilitating sites in financial difficulty.
Mining and industrial companies will usually have detailed site management and rehabilitation obligations under their EAs and the broader environmental legislation applicable to their sites. The State may require the provision of financial assurance to protect against the State "picking up the bill" when an EA holder does not comply with its environmental obligations; however, some high-risk sites either were not required to provide financial assurance, or the assurance provided has later been found to be inadequate.
The State government appears to consider that the amendments are required as an urgent priority, based on the speed with which the Bill was prepared and introduced. It has been very clear regarding the impetus for the changes, including express statements in the Explanatory Notes and media comments regarding the "increasing difficulties" in ensuring sites operated by companies in financial distress continue to comply with their environmental obligations, with specific references to relevant industrial and mining sites around the State, including the Yabulu Nickel Refinery, Texas Silver Mine, Collingwood Tin Mine and Mount Chalmers Gold Mine. The Minister has stated that EHP is increasingly confronted with issues in ensuring the costs of upholding environmental obligations owed by companies, operating on such sites, are not passed on to the State.
We note that, despite the above justifications, the Bill does not limit EHP's power to give an EPO to a related person to situations where the EA holder company is in financial distress (as described above).
When is the Bill likely to come into effect?
If the Bill is passed, the amendments are intended to take effect from 15 March 2016.
The Bill states that the power to issue an EPO to a related person includes the power to issue an order to a person who was not, after the date the amendments come into force, a related person of the company, but who was, between 15 March 2016 and the date the amendments come into force, a related person of the company.
It also makes clear that the EHP may consider acts, omissions and circumstances occurring before the date the amendments come into force when considering whether a person is a related person of a company.
The Bill went before the Agriculture and Environment Committee on 16 March 2016, one day after it was introduced to the Legislative Assembly. Submissions to the Committee close on 31 March 2016, and the Committee is to report on the Bill on 15 April 2016. The Assembly will sit next on 19-21 April 2016.
Implications for holders of EAs and 'related persons'
Companies and persons who may fall within in this broad category of 'related persons', due to the nature of their relationship with an EA holder company, may be issued with an EPO related to the EA holder company's activities. Those entities may be then held accountable for costs involved in complying with the EPO requirements, or risk of being convicted of an offence for non-compliance with the EPO – a serious offence under the EP Act. This risk is heightened where the EA holder company is in financial distress to the extent that EHP is concerned it will not be able to comply with its environmental obligations.
For further information, please contact:
Martijn Wilder AM, Partner, Baker & McKenzie
martijn.wilder@bakermckenzie.com
