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Brief Counsel

Passing the parcel: the RMA and insolvency practitioners

12 October 2011

​Resource consents and environmental risks can affect the value of an insolvent company's assets, and can give rise to civil or criminal liability.

This Brief Counsel examines:

  • when resource consents require transfer to a new owner, and 

  • potential liabilities that insolvency practitioners may face.

Types of consents

Five types of consent are available under the Resource Management Act 1991 (RMA):

  • land use consents, allowing land to be used for a specified activity
  • subdivision consents, allowing land to be subdivided into parts
  • coastal permits, allowing holders to undertake activities in the coastal marine area
  • water permits, allowing holders to take, use, dam or divert water, and
  • discharge permits, allowing holders to discharge a contaminant to land, water or air.

Business operations often rely on more than one resource consent.  For example, a business may hold a land use consent for its factory, a consent to take river water for cooling, a consent to discharge that water back into the river after use in the factory, and a coastal permit for a discharge of treated wastewater to sea.   

Do any resource consents need to be transferred?

The ongoing viability of a business can depend on whether all necessary consents are correctly identified and transferred through a transaction.  Understanding whether the relevant resource consents can be transferred, and conveying that information to a purchaser, can affect the value of an asset. 

Unless expressly stated otherwise, land use consents “run with the land” and do not need to be transferred to the property’s new owner or occupier.  The only exceptions to this rule are land use consents granted for activities occurring on river beds or lake beds. 

Subdivision consents also run with the land.  In practice, consents granted for subdivisions that have already been completed are unlikely to create problems for insolvency practitioners.  However, some conditions of subdivision consents may require compliance on an ongoing basis, which could affect the value of a property.     

The three types of consents described as “permits” (coastal permits, water permits, and discharge permits) do not run with the land, and require formal transfer.  The transfer is usually effected by giving written notice to the consent authority that granted the permit.  However, some transfers need to be formally approved by the relevant authority.

Complications can arise when transferring consents where:

  • consents are held in multiple names
  • a consent is held by an entity other than the land owner (particularly if that party is not the party in receivership or liquidation, etc.), or
  • a land holding has been subdivided into a number of lots (i.e. where the consent’s obligations and benefits are shared). 

Difficulties may also arise where a consent holder seeks to transfer the consent “in part” or to another site.  In all cases, it is advisable to check the terms of the consent and associated RMA provisions. 

If a consent is no longer needed or wanted, it may be surrendered in part or in whole.  Acceptance of the surrender is at the discretion of the consent authority, so may not be allowed in some circumstances.  If it is allowed, it will not absolve responsibility for prior breaches.  Also, a person could still be required to complete certain works to give effect to the consent prior to its surrender (for example, landscaping to mitigate visual effects of earthworks activities, the payment of financial contributions, etc).

Potential liability for insolvency practitioners

Insolvency practitioners should also be prepared to address the consequences of acts or omissions carried out by an entity before it goes into receivership, liquidation or administration.  Failure to comply with a consent condition may constitute an ongoing offence under the RMA – in which case, the receivers and liquidators could be liable for the breach where they trade a company’s business, if the company is still operating in non-compliance. 

The RMA carries both civil and criminal penalties.

Breaches that occurred prior to the entity going into receivership or liquidation etc. can, of course, also lead to liability on the part of the company.

Conclusion

Environmental and resource management matters are sometimes overlooked in asset sales, but should be considered as they can have significant implications for the transaction itself and for the value of the asset being transferred. 

As a general rule, most resource consents can be readily transferred to new parties without significant formality.  However, failure or inability to transfer all necessary consents could impact on the value of a sale.

Insolvency practitioners should also be aware of the potential for criminal and civil liability, particularly where ongoing consent breaches and damage to neighbouring properties may occur.

Questions to ask 

  • Do you have control of all resource consents required by the business?
  • Is there any ongoing breach?
  • Can the resource consents be transferred?
  • Should any resource consent be surrendered?
     

 For further information, please contact the lawyers featured.

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