SCOTTISH COAL COMPANY LIMITED

Summary of the decision in the petition of the Directors of the Scottish Coal Company.

The Scottish Coal Company is in liquidation.  The company previously owned and operated various open cast mines at various locations in Scotland. These operations were and are the subject of licences issued by the Scottish Environmental Protection Agency designed, amongst other things, to minimise the risk of water pollution. The ongoing costs of complying with these licences are considerable and the costs of any works likely to be required to be carried out by SEPA if Scottish Coal was to surrender the licences upon the cessation of the mining operations would be equally substantial.  The costs are at such a level that it is thought that the lands on which the mining has been carried, or at least some of them, carry a significant negative value.  If Scottish Coal is required to comply with the terms of the licences, it is contended by the liquidators that there is unlikely to be any money available to pay to the creditors of Scottish Coal upon the dissolution of the company. 

In these circumstances, the liquidators sought a direction from the Court that they were entitled to “abandon” some of the land and to “abandon (otherwise disclaim”) the licences; thus taking the negative value of the land out of consideration and enabling the liquidators to realise the other assets of the company and to distribute the funds thus ingathered to the creditors. They contended that a liquidator could abandon land and could disclaim licences. They founded upon a particular provision in insolvency legislation which applies only to liquidations in England and Wales allowing a liquidator to “disclaim” onerous property. 

The judge at first instance held that liquidators could abandon land and disclaim the licences.  In doing so, he decided that a person could “abandon” his own land thus rendering it ownerless.  A liquidator could decline to “take up” land with a negative value, thus leaving it outside the assets available for distribution to creditors.  Whether he could “disclaim” the licences, however, depended upon their terms.  If their terms did not allow “disclaimer”, that would mean that the legislation governing the grant and surrender of licenses, which was enacted by the Scottish Parliament, had changed the law of insolvency, which was a reserved matter under the constitutional settlement in the Scotland Act.  He therefore held that, in order to avoid declaring the legislation unlawful, it had to be interpreted as allowing the disclaimer of licences by companies in liquidation.

This decision was appealed by SEPA, the Lord Advocate (for the Scottish Ministers), and East Ayrshire and South Lanarkshire Councils. The appeal was resisted by Scottish Coal and the Advocate General (for the United Kingdom Government). 

The Second (appellate) Division of the Court of Session has reversed the decision and held that a person cannot “abandon” land, in such a way as to render it ownerless, and thus avoid any obligations (such as those under statutory licences) which run with the land. A liquidator may elect not to realise an asset with a negative value, and thus leave it in the ownership of the company, which would in due course be dissolved. He cannot, however, disclaim liabilities (statutory or otherwise) which run with that land, should the creditor seek to recover the debt in the liquidation process.  The only way in which the statutory licenses could be “disclaimed” was by following the procedures laid down in the regulations.  A liquidator was a ”responsible person” in terms of the regulations and therefore bound to comply with the licence requirements until the licence was surrendered or the company dissolved and the liquidator ceased office. The legislation passed by the Scottish Parliament was concerned with environmental matters and had been passed in order to implement European Union Directives.  It did not change the law of insolvency and was therefore within the devolved competence of the Parliament.  In these circumstances, there was no need to read the regulations as permitting disclaimer of a licence by a liquidator.

The court therefore directed that the liquidators do not have the power to “abandon" (otherwise disclaim) the land or the licences.  

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