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Managing Environmental Risks Amid Bankruptcy


There are four common disposition strategies and three principal risk management tools that can help limit financial uncertainties.

The quantification, disposition, and management of legacy [environmental] risks represent some of the greatest challenges in a bankruptcy, particularly after taking into consideration the direct cost of cleanup and indirect costs such as third-party claims and legal defense costs.

Bankruptcy creates significant uncertainty and financial risk for companies and business partners, particularly when there are environmental obligations. A thorough analysis of risk and thoughtful use of environmental risk management vehicles can help reduce the financial burdens from environmental pollution events and minimize risk to third parties.

“Managing Environmental Risk Amid Bankruptcy,” covers the two primary types of risk involved in bankruptcy, operational compliance and regulatory risks, and outlines solutions for reining in the risk.

For bankruptcies in which a company has environmental liabilities, there are four common disposition strategies:

  • Discharge of environmental claims.
  • Bankruptcy Code Section 363 asset sales.
  • Environmental trusts.
  • Rejection of indemnity obligations.

The report details the advantages and disadvantages of each disposition strategy as well as opportunities and risks.

The report also covers environmental risk management solutions, including:

  • Pollution legal liability policies.
  • Remediation cost caps.
  • Environmental liability buyouts.

Though managing environmental liabilities in bankruptcies can be challenging, the right risk mitigation strategies can help control the exposure and protect the interests of owners, buyers, and sellers.