As the country's attention to environmental issues has become increasingly high, various regions have increased their supervision of chemical enterprises, and have introduced stricter environmental policies. In recent years, due to a series of reasons such as the continuous rise in the price of chemical raw materials and the overlapping epidemic, many chemical enterprises have faced difficulties in operating and went bankrupt. Some chemical enterprises have caused environmental pollution and damage to social and public interests during their operations, and have not been treated or repaired. After entering the bankruptcy and liquidation process, it is unclear whether the company has become insolvent and continues to undertake the repair obligations for environmental pollution control, what nature of the repair costs for environmental pollution control are in the bankruptcy process, and to what extent the administrator has performed his duties in dealing with environmental pollution issues of the bankrupt and liquidated enterprises compared to relevant laws and regulations such as the Enterprise Bankruptcy Law. Therefore, based on our lawyers' experience in handling bankruptcy and liquidation cases, this article elaborates on our understanding of the above issues related to managing environmental pollution from bankruptcy and liquidation enterprises during bankruptcy and liquidation. This view only represents the view of Gao Peng's author.

During the operation period of a domestic chemical enterprise, it occurred to dump sewage to treat heavy metal sludge containing toxic substances through seepage pits and other ways to evade supervision. Due to serious environmental pollution, his behavior was identified as constituting an environmental pollution crime by a "Criminal Ruling" issued by the local court. Due to poor management, the chemical enterprise was insolvent and unable to repay its debts as they fell due, meeting the conditions for bankruptcy. Therefore, the majority shareholder of the chemical enterprise, as its largest creditor, applied to the local court for bankruptcy liquidation. After review, the court ruled to accept the bankruptcy liquidation application of the chemical enterprise, and appointed a case manager.

After the chemical enterprise entered the bankruptcy liquidation process, the local government found that the enterprise had not yet taken preventive measures against the environmental pollution caused by it. Therefore, the local government sent a letter to the bankruptcy acceptance court and the bankruptcy administrator requesting that the chemical enterprise must comply with Article 41 of the Law on the Prevention and Treatment of Environmental Pollution by Solid Wastes, effectively bear the responsibility for environmental pollution control, and first treat the environmental pollution caused by it, After the completion of governance, the chemical enterprise will be declared bankrupt and the enterprise will be cancelled.

As the manager of the chemical enterprise is concerned about whether it is necessary to comply with the notice of the local government to continue to implement the relevant provisions of the Solid Waste Pollution Prevention and Control Law? Who is the main body of environmental pollution control? Can the environmental protection department declare claims to the manager after controlling pollution? If a bankrupt and liquidated enterprise conducts environmental pollution control, where will the funds for environmental pollution control come from? If there is no or insufficient funds for environmental pollution control, to what extent can environmental pollution control be considered as the completion of the manager's performance of duties? As issues such as priority, bankruptcy costs, or public debt have not been clarified, the bankruptcy liquidation process in this case is temporarily suspended.

The problems encountered by the bankruptcy administrator of the above-mentioned chemical enterprise during the process of handling the case have triggered the thinking and discussion of the author's bankruptcy team.

1、 In the bankruptcy liquidation process, the bankruptcy liquidation enterprise that implements environmental pollution is still the main obligation to control pollution, and the administrator should continue to implement the relevant provisions of the Law on the Prevention and Control of Environmental Pollution by Solid Waste

According to the first paragraph of Article 41 of the Law on the Prevention and Control of Environmental Pollution by Solid Wastes, "If a unit that produces industrial solid waste terminates, it shall, prior to termination, take pollution prevention and control measures for the storage and disposal facilities and sites of industrial solid waste, and properly dispose of untreated industrial solid waste to prevent environmental pollution." In other words, in accordance with the principle of "whoever pollutes, whoever damages, shall govern.", "If an enterprise causes environmental pollution and damages public interests, it shall actively take preventive and control measures to control the environmental pollution caused by it before termination. If the enterprise fails to take pollution prevention and control measures, it cannot be cancelled.".

According to Article 44 of the "Regulations on the Administration of Company Registration", "Upon cancellation of registration by the company registration authority, the company terminates.". According to Article 121 of the "Enterprise Bankruptcy Law", "The administrator shall, within ten days from the date of the termination of the bankruptcy proceedings, handle the cancellation of registration with the original registration authority of the bankrupt based on the ruling of the people's court to terminate the bankruptcy proceedings." Therefore, after the termination of the bankruptcy proceedings, the administrator can handle the cancellation of registration of the enterprise based on the ruling of the court to terminate the bankruptcy liquidation enterprise.

In this case, although a chemical enterprise has entered bankruptcy liquidation procedures, it has not yet been declared bankrupt, has not undergone bankruptcy property distribution, and has not completed relevant tax and industrial and commercial cancellation procedures. Therefore, the chemical enterprise has not yet been terminated. Moreover, the local government has officially notified the bankruptcy acceptance court and the administrator of the chemical enterprise to first govern and then go bankrupt. Although the local government only notifies it by way of notification, the administrator, as the receiver of the bankrupt and liquidated enterprise, cannot ignore the notification from the local government. On the one hand, since the "Law on the Prevention and Control of Environmental Pollution by Solid Waste" and the "Enterprise Bankruptcy Law" are both laws enacted by the Standing Committee of the National People's Congress and belong to laws with the same level of effectiveness, the provisions of the two do not conflict and should be applied simultaneously. On the other hand, due to environmental protection involving public interests, even if the chemical enterprise has entered bankruptcy liquidation procedures, it is still the legal obligor for pollution prevention and control, and should still comply with the relevant provisions of the Law on the Prevention and Control of Environmental Pollution by Solid Waste. The environmental pollution caused by it should be treated before the termination of the enterprise. Therefore, in this case, in addition to continuing to promote the bankruptcy process in accordance with the Enterprise Bankruptcy Law, the administrator should also implement the Law on the Prevention and Control of Environmental Pollution by Solid Waste, and implement governance and remediation of environmental pollution caused by bankrupt and liquidated enterprises. In principle, the administrator cannot handle the cancellation procedures for bankrupt and liquidated enterprises without conducting environmental pollution governance and remediation.

2、 Sources of funds for bankruptcy liquidation, corporate governance, and environmental pollution remediation

The chemical enterprise in this case dumped sewage to treat heavy metal sludge containing toxic substances through seepage pits and other ways of evading supervision, which damaged the local ecological environment and resource protection, harmed social and public interests, and was subject to administrative and criminal sanctions, constituting a crime of environmental pollution. The local government requires that the chemical enterprise must implement the legal obligation of pollution prevention and control before termination, which conforms to the principle of "whoever pollutes, whoever damages, whoever governs". However, controlling and repairing environmental pollution requires a significant investment. The chemical enterprise has entered the stage of bankruptcy and liquidation, and it is already obviously lacking in solvency, insolvent, and has insufficient assets to pay off all its debts. Investing in environmental pollution control and repair funds becomes even more "inadequate and overstretched.". In the face of such practical problems, managers need to fully consider the sources of funds for controlling and repairing environmental pollution, and implement the issue of pollution control and repairing funds, in order to bear the responsibility of improving the ecological environment and maintaining social and public interests as much as possible.

As the subject of legal obligations to control and repair environmental pollution, the property of the chemical enterprise should be the primary source of funds for environmental pollution control and repair. First, the administrator should verify whether the shareholders' contributions to the bankrupt and liquidated enterprise are in place. According to Paragraph 2 of Article 3 of the Company Law, "The shareholders of a limited liability company shall be liable to the company to the extent of their subscribed capital contributions; the shareholders of a joint stock limited company shall be liable to the company to the extent of their subscribed shares." Article 35 of the Enterprise Bankruptcy Law stipulates: "After the people's court has accepted the bankruptcy application, if the debtor's contributor has not fully fulfilled its capital contribution obligations, the administrator should require the contributor to pay the subscribed capital contribution, regardless of the limitation of the capital contribution deadline." Therefore, if there is a situation where the shareholder's capital contribution is not in place or the registered capital is withdrawn, the administrator should initiate procedures to urge and pursue the responsibility of the shareholder's capital contribution is not in place or the registered capital is withdrawn. ". Secondly, the administrator disposes of all assets of the bankrupt liquidation enterprise in accordance with the principle of maximizing the value of property. For example, auction and sell tangible and intangible assets and securities such as real estate, land, vehicles, machinery and equipment, inventory, patents, trademarks, equity investments, stocks, bonds, etc. of enterprises to raise funds as much as possible. Thirdly, managers should strive to recover external claims of enterprises. After taking over the bankrupt and liquidated enterprise, the administrator should actively carry out the audit work of the bankrupt and liquidated enterprise, check and confirm the external creditor's rights receivable of the enterprise, strive to master relevant evidence, promptly carry out the recovery work of external creditor's rights, and initiate legal proceedings to recover if necessary. Fourth, managers can initiate a accountability mechanism to investigate the civil liability of directors, supervisors, senior managers, and other personnel directly responsible for causing environmental pollution. According to Article 149 of the Company Law, "If a director, supervisor, or senior manager violates laws, administrative regulations, or the company's articles of association when performing their duties, and causes losses to the company, they shall be liable for compensation." The civil liability for damages borne by the above-mentioned directors, supervisors, senior managers, and relevant responsible persons can also be used as one of the sources of funds for financing enterprises to control and repair environmental pollution.

In addition to using the assets and properties of the bankrupt and liquidated enterprise as a source of funds for environmental pollution control and repair, the administrator can also raise funds for pollution control and repair through the following methods: First, the administrator actively communicates and consults with the superior units, shareholders, and stakeholders of the bankrupt and liquidated enterprise. It is not excluded that in some cases, the aforementioned entities are willing to assist the administrator and advance the pollution control and repair funds. Secondly, if a bankrupt and liquidated enterprise has ever taken out environmental pollution liability insurance, the administrator can file a claim with the insurance company for environmental pollution accidents that have occurred to the enterprise. In 2013, the Ministry of Environmental Protection and the China Insurance Regulatory Commission jointly issued the Guiding Opinions on Carrying out the Pilot Work of Compulsory Liability Insurance for Environmental Pollution (HF [2013] No. 10), requiring heavy metal enterprises to apply for compulsory liability insurance for environmental pollution, and encouraging petrochemical, hazardous chemical production and operation, hazardous waste treatment and disposal, and other high-risk enterprises to apply for insurance. The insurance coverage generally includes personal injury, death, or property damage suffered by a third party due to pollution damage, the necessary and reasonable rescue expenses incurred by the insured enterprise in order to save the lives of the third party, avoid, or reduce property damage to the third party, and the necessary and reasonable cleaning expenses incurred by the insured enterprise in accordance with environmental laws and regulations to control the diffusion of pollutants or clean up pollutants, And other compensation liabilities agreed upon by the insurance company and the insurance company. Third, some local ecological and environmental protection departments have collected environmental risk deposits when enterprises conduct project construction. Generally, such environmental risk deposits can be applied for refund by enterprises after the project acceptance is qualified. If there are circumstances where environmental risk deposits can be refunded, the manager should submit application materials for refund of the deposits in accordance with the requirements of the ecological and environmental protection department. Fourth, in order to provide financial support for emergency response to environmental emergencies, environmental damage repair, and social relief, some localities have begun to pilot special funds for environmental damage compensation. Managers can communicate with local ecological and environmental protection departments and government departments to apply for pollution remediation funds in accordance with local regulations.

In short, in addition to maximizing the recovery and realization of the assets of bankrupt and liquidated enterprises, managers can also raise funds through various channels to meet the needs of controlling and repairing environmental pollution as much as possible.

3、 The nature of the costs and claims involved in the environmental pollution treatment and remediation actions of bankrupt and liquidated enterprises

Chemical enterprises' behavior of polluting the environment constitutes a crime of environmental pollution, which leads to a series of serious consequences. Its behavior not only causes damage to the ecological environment, seriously endangers social and public interests, but also may cause personal and property damage to others. At the same time, it will also be subject to administrative penalties and criminal sanctions. Therefore, polluting enterprises need to pay "multiple amounts of money" for the same ecological and environmental damage behavior, such as fines for administrative law enforcement, fines after being sentenced to environmental pollution crimes, liability for damage compensation for environmental damage behavior, and repair costs for controlling and repairing environmental pollution. After a polluting enterprise enters the bankruptcy liquidation process, the nature of the "multiple amounts of money" it needs to pay for environmental pollution and the order of liquidation in the bankruptcy process are related to the interests of all creditors as well as the social and public interests.

1. Penalties for environmental pollution by enterprises, whether they are fines for administrative enforcement or fines imposed after being convicted of environmental pollution crimes, are of a punitive nature and are claims of inferiority

According to Item (1) of Paragraph 1 of Article 61 of the "Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Enterprise Bankruptcy Cases", "Article 61 The following claims shall not be classified as bankruptcy claims: (1) Fines, fines, and other related expenses imposed by administrative and judicial authorities on bankrupt and liquidated enterprises;..." Therefore, fines and fines shall not be classified as bankruptcy claims in bankruptcy and liquidation proceedings, but as inferior claims.

2. Regarding compensation for damages caused by environmental pollution, it is necessary to distinguish the nature of the damage based on whether it occurred before or after bankruptcy acceptance, and whether it caused personal or property damage

First, According to Article 28 of the Minutes of the National Bankruptcy Trial Meeting of Courts "The order of repayment principles for bankruptcy claims. For claims for which the law does not specify the order of repayment, the people's court may reasonably determine the order of repayment based on the principles of prior personal injury compensation claims having priority over property claims, private law claims having priority over public law claims, and compensatory claims having priority over punitive claims. For personal injury compensation caused by the debtor's infringement, reference may be made to Article 113, paragraph 1, subparagraph 1 of the Enterprise Bankruptcy Law." "Liquidation shall be carried out in the prescribed order, except for the punitive damages involved therein." Therefore, the personal injury compensation generated before the bankruptcy acceptance can be settled by referring to the ranking of employee claims.

Secondly, according to Article 55, Paragraph 1 (1) of the "Provisions of the Supreme People's Court on Several Issues Concerning the Trial of Enterprise Bankruptcy Cases", "The following claims belong to bankruptcy claims: (11) The debtor's liability for compensation resulting from property losses caused to others due to infringement or breach of contract prior to the bankruptcy declaration;..." Therefore, the compensation for property damage generated before the bankruptcy acceptance is an ordinary bankruptcy claim.

Third, according to Article 42, Paragraph 1 (6) of the Enterprise Bankruptcy Law, "The following debts incurred after the people's court accepts the bankruptcy application are public welfare debts:... (6) debts arising from personal damage caused by the debtor's property." Therefore, compensation for personal and property damage caused by environmental pollution caused by the bankrupt liquidation enterprise after the bankruptcy acceptance shall be classified as public welfare debts.

3. The determination of the nature of the funds for treating and repairing environmental pollution caused by bankrupt and liquidated enterprises may be a key issue for the administrator and creditors in this case

According to the principle of "whoever pollutes, whoever damages, whoever governs", the chemical enterprise is the legal entity responsible for pollution control and remediation, and should actively assume the obligations of pollution control and remediation. After the manager takes over the chemical enterprise, it is one of the duties that the manager should perform to control and repair the environmental pollution caused by the chemical enterprise. According to Item (3) of Paragraph 1 of Article 41 of the Enterprise Bankruptcy Law, "The following expenses incurred after the people's court accepts the bankruptcy application are bankruptcy expenses:... (3) The expenses for the administrator to perform his duties, remuneration, and expenses for employing staff." Therefore, the administrator employs an environmental protection professional institution to issue an environmental damage assessment report, provide a pollution control and repair plan The funds invested in taking governance measures and repairing the environment are expenses incurred by the administrator in performing his duties, and should be included in the bankruptcy expenses.

4、 How managers perform their duties to implement environmental pollution control and the degree of performance

After taking over the bankrupt and liquidated enterprise, the administrator shall implement the pollution control and repair work that has not been carried out by the bankrupt and liquidated enterprise. If the property of the bankrupt and liquidated enterprise and the funds raised by the administrator through various channels are sufficient to cover the costs of controlling and repairing its environmental pollution, the administrator can communicate with the local government and environmental protection departments, select a recognized professional institution to issue an ecological and environmental damage assessment report, and develop emergency response measures