IN BRIEF - MINING SECTOR INVESTORS AND FINANCIERS SHOULD REVIEW
THEIR EXISTING AGREEMENTS IN LIGHT OF AMENDMENTS
The Queensland Government's amendments to the Environmental Protection Act 1994 (Qld) mean that
"related persons" of a mining company which cannot meet
its environmental obligations can be held accountable. Those who
fall under the "related persons" test should consider the
risks and impact of these changes.
QUEENSLAND NICKEL FAILURE IMPETUS FOR NEW CHAIN OF
The Queensland Government is currently faced with the challenge
of meeting Queensland Nickel's rehabilitation costs, whilst
dealing with a budget deficit. The failed mining venture has left a
gaping hole in North Queensland's economy. To address this, the
Palaszczuk Government introduced new laws last year that
significantly modify the obligations of major stakeholders in the
mining industry as their focus now shifts to keeping public
reserves away from poorly managed mining companies. The amendments
to the Environmental Protection Act establish a "chain of
responsibility" between companies that operate mining sites
and their "related persons". If a mining company cannot
meet its environmental obligations, its related persons can be held
accountable in their place.
RELATED PERSONS CAN BE ISSUED WITH AN ENVIRONMENTAL PROTECTION
A related person of a company can be a holding company, a land
owner or other entity that either receives financial benefits from
the company or is in a position to influence the company's
compliance with environmental laws.
These related persons can now be issued with an Environmental
Protection Order (EPO) by the Environmental Protection Agency. The
EPO would require them to:
provide financial assurance by setting aside money as security
for their environmental obligations
ensure compliance, and
personally make good environmental obligations
A breach of the EPO gives rise to an offence, which carries a
large financial penalty of just over $7,500,000 or five years'
imprisonment. Disposing of shares in a mining company will not
necessarily end a related person's responsibilities and they
may still be required to provide financial assurance.
DRAFT GUIDELINES SHOW RELATED PERSON TEST IS BROAD, INCLUDES
SUBSIDIARIES, PARENT COMPANIES, RELATED PARTIES, INSTITUTIONAL
INVESTORS AND FINANCIERS
The recently released draft guidelines clarify how the
Government hopes to enforce these new changes, revealing that
whilst the test is deliberately broad to capture various corporate
structures, it is unlikely to apply to arms-length transactions for
fair-market value. Nonetheless, an entity who fails to undertake
reasonable steps, yet derives significant financial benefits
relative to the company's activities or rehabilitation costs
and officially or unofficially influences that company, remains
vulnerable to an expensive environmental clean-up bill.
The guideline effectively allows the Government to pursue the
related person with the deepest pockets, culpable at the time of
the environmental harm. Consequently, entities most at risk of
falling within the "related person" category are
subsidiaries, parent companies, related parties, institutional
investors and financiers.
This creates obvious risks to investors and financiers who may
be inadequately protected by existing agreements which do not
contemplate the amendments to the Environmental Protection
Act. These stakeholders may find themselves unwittingly
STAKEHOLDERS SHOULD REVIEW CAPITAL, RISK, RIGHTS, COMPLIANCE
OBLIGATIONS AND DUE DILIGENCE CONSIDERATIONS
These new laws are likely to alter key considerations of many
participants in the resource sector who must now reconsider and
evaluate their existing legal relations and documentation. Related
persons will need to ensure that:
they have sufficient capital to meet financial assurance
their company's organisational structure reflects their
they understand their compliance obligations
they are conducting additional and consistent due diligence to
ensure that the mining company is actually complying with its
environmental obligations, and
they have rights to monitor and enforce the mining
company's compliance with the new legislation
Queensland is the only state or territory to introduce such
laws. Investors and financiers and others who fall within the
related person test should be aware of the amendments to the Act
and seek legal advice to help them navigate these potentially
costly developments in the mining sector.
That is so even in the case of a financier that enforces a security agreed to by the company as part of the arm's-length terms of a financing arrangement.
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