Challenging the decisions of liquidators - Re Baglan Operations Ltd

This article looks at the Court's decision in Re Baglan Operations Ltd and considers the implications for insolvency practitioners when dealing with potential environmental liabilities

04 May 2022

Summary

On 21 March 2022, the High Court in Counsel General for Wales and others v Allen and others [2022] EWHC 647 (Ch) (Re Baglan Operations Ltd) modified the decision of the Official Receiver to allow the insolvent Baglan Operations Limited (in liquidation) (the 'Company') to continue trading for a period of time to prevent environmental harm to the locality.

The case concerned a 525 MW gas turbine plant operated by the Company near Port Talbot in South Wales (the 'Plant'). On their appointment as liquidator, the Official Receiver took advice as to the scope of their legal powers, following which they considered that they had no discretion in continuing to trade the Company and supply electricity from the Plant where this was not necessary to safely oversee the wind-down and closure of the Plant, notwithstanding that that closure might have (potentially material) adverse consequences for the local environment. The Company’s customers were notified accordingly.

Certain of the Company’s customers (Welsh Water, Neath Port Talbot Council and Sofidel UK Limited (being, the 'Applicants')) sought to challenge this decision under section 168(5) of the Insolvency Act 1986 (which permits challenges to acts or decisions of a liquidator by any person 'aggrieved by' that act or decision). And whilst we will not set out all the intricacies of the Applicants’ arguments in this note, their ultimate focus was their belief that the Official Receiver had wrongly concluded that they had no power in these circumstances to continue to operate the Plant in order to supply electricity to the Applicants.

The Court ultimately agreed with them. Referring specifically to paragraph 5 of Schedule 4 of the Insolvency Act 1986, which confers on the liquidator the 'power to carry on the business of the company so far as may be necessary for its beneficial winding up' (emphasis added), the Court considered that, whilst a typical liquidation focuses on the realisation of value for creditors, in this instance the Official Receiver was appointed 'so that health and safety and environmental concerns relating to [the Plant] could be addressed' and so the safe resolution of those 'health and safety and environmental concerns' was part of the 'beneficial winding up' of the Company (and therefore within the Official Receiver’s powers). Significantly though, the Court found that this line of reasoning extended beyond the immediate hazardous materials and equipment at the Plant (being matters for which the Company itself 'might be held criminally or civilly liable') to additional environmental matters 'for which the Company could not be held liable' ('serious flooding or the absence of street lighting caused by disabling important infrastructure' were given as examples in this case, both of which had been flagged to the Official Receiver by the Applicants prior to issuing the applications).

Accordingly, the Court modified the Official Receiver’s decision and allowed a continued supply of electricity to Welsh Water and Neath Port Talbot Council for a short period of time to allow for alternative solutions to be put in place. However, the Court held that the supply to Sofidel UK Limited was not to be continued as it was simply a commercial customer of the Company and the additional environmental concerns described above did not apply to it (the Court having also dismissed certain Human Rights arguments which Sofidel advanced).

Conclusion

As well as providing an important analysis of the scope of potential challenges to actions or decisions of liquidators under section 168(5) Insolvency Act 1986, this is one of the few reported decisions which address the frequently challenging issues presented to insolvency practitioners when appointed over companies with significant environmental risks and liabilities attached to them. And whilst the scale and profile of the Plant (and, in particular, its deep ties to (and the size of its potential impact on) the local environment) make the facts of this case quite unusual, the Court’s exploration of the powers of liquidators when considering environmental issues is very welcome.

This article was written by Nick Middleton and Will Penfold.

Key contact

Andrew Eaton

Andrew Eaton Partner

  • Corporate Restructuring and Insolvency
  • Private Equity
  • Banking and Finance

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