Contemplating Chapter 11 as a “Fresh Start”? Consider Recent Developments in Environmental Claims Liability

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When a company saddled with potential environmental liabilities seeks bankruptcy protection, the goals of Chapter 11—giving the reorganized debtor a “fresh start” and fairly treating similarly situated creditors—can conflict with the goals of environmental laws, such as ensuring that the “polluter pays.” Courts have long struggled to reconcile this tension. Recent bankruptcy cases from the Southern District of New York, including last year’s decision in In re Mark IV Industries, and the more recent bench decisions In re Lyondell Chemical Co. and In re Chemtura Corp., evidence this ongoing balancing act.

While the Mark IV decision suggests a trend toward favoring environmental considerations by making environmental claims harder to discharge in bankruptcy, the Lyondell and Chemtura decisions appear to cut the other way, disallowing contingent environmental contribution claims. The key considerations raised by these decisions are critical in evaluating Chapter 11 alternatives.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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