Environmental Roulette in Insolvency: How Disclaimer/Abandonment Externalises Cleanup Costs in England and the US

This blog post examines the arguments developed in ‘Environmental Roulette: Insolvency, Asset Disclaimer, and the Externalisation of Cleanup Costs in England and the USA,’ published in the Journal of Business Law, Issue 2 (2026), pp. 144–175. The article explores how two longstanding insolvency mechanisms (disclaimer under English law and abandonment under US bankruptcy law) enable insolvency practitioners to remove environmentally burdened assets from the insolvent estate, thereby externalising remediation costs and undermining climate‑related policy objectives. 

We situate our analysis against a backdrop of expanding climate governance frameworks, from the UNFCCC and Paris Agreement to soft‑law initiatives such as the UN Global Compact and IFRS sustainability standards. Despite these developments, insolvency regimes remain largely anchored in a private, creditor‑centric model that does not reliably internalise environmental costs. We draw a conceptual distinction that becomes central to our argument: ‘environmental liabilities’ (such as fines or damages) do not necessarily advance climate mitigation, whereas ‘cleanup or remediation costs,’ when ring‑fenced, directly support mitigation by ensuring that funds are actually used for environmental repair. 

The English law section shows how broad statutory powers under the Insolvency Act 1986 allow corporate liquidators to disclaim ‘onerous property,’ including polluted land or waste management licences (ss. 178-182). Case law, however, is fragmented and inconsistent. In Environment Agency v Stout (Re Mineral Resources), Neuberger J held that environmental protection could take precedence over insolvency objectives, refusing to allow the disclaimer of a waste management licence in light of overriding public‑interest considerations. Yet only a year later, the Court of Appeal in Re Celtic Extraction adopted the opposite view, holding that waste licences may be disclaimed and concluding that the polluter pays principle does not apply where the polluter simply cannot pay. This judgment re‑centres value maximisation and weakens statutory environmental protections. Meanwhile, Re Rhondda Waste Disposal suggests that creditor interests do not outweigh public policy where environmental protection—particularly via criminal enforcement—is concerned. The tension between Celtic and Rhondda produces a doctrinal landscape that is both conceptually untidy and unpredictable for practitioners. The more protective Scottish approach, developed in Scottish Coal and Doonin, emphasises that cleanup obligations can be treated as liquidation expenses, thus preventing polluters from shifting costs to society; but this is not currently replicated in England. Even the more recent Re Baglan Operations does not amount to a systemic recalibration, though it illustrates that courts may, on specific facts, treat environmental harm avoidance as a legitimate factor constraining insolvency practitioners. Overall, the English approach leaves substantial room for the externalisation of cleanup costs unless and until Parliament intervenes. 

The US jurisprudence likewise reveals deep structural tensions. Under 11 U.S.C. § 554, trustees may abandon burdensome assets, but the Supreme Court’s decision in Midlantic v New Jersey DEP holds that abandonment cannot contravene state laws designed to protect against ‘imminent and identifiable’ health and safety hazards. In practice, the absence of a clear test has yielded divergent lower‑court doctrines. Some courts, such as in Guterl Special Steel and Oklahoma Refining, interpret Midlantic narrowly and permit abandonment where threats are not immediate or where strict compliance would thwart the orderly administration of the estate. Others, such as in Microfab, take a stricter view requiring full compliance with state environmental laws unless doing so is impossible or futile. Uncertainty is further compounded by the risk that trustees might be exposed to personal liability under CERCLA, leading some courts to accept trustee resignations or even to dismiss bankruptcy cases altogether when environmental obligations cannot be reconciled with estate resources. 

Where the US system provides a stronger counterweight than England is in its use of state‑law superlien regimes and the possibility of granting cleanup expenditures administrative priority. States such as New Jersey and Massachusetts can impose first‑priority liens for cleanup costs, even outranking prior mortgages, as illustrated in Kessler v Tarrats and 229 Main Street. In bankruptcy, these superliens may be perfected despite the automatic stay where state law creates a pre‑petition ‘interest in property.’ Although not uniform, these mechanisms offer a more meaningful route to ensuring that cleanup costs are either borne by the polluter or priced into lending ex ante. 

We conclude that both English and US regimes fall short of providing a coherent framework capable of integrating environmental protection and climate mitigation into insolvency practice. In England, the status quo privileges creditor returns to such an extent that disclaimer becomes a systemic tool for shifting cleanup costs to the public. In the US, Midlantic provides only a partial (‘messy,’ as one of the authors described in a separate piece) shield, and its inconsistent application means that environmental protection depends heavily on judicial discretion and state legislative interventions such as superliens. We argue that what both systems need is precise statutory guidance: clear definitions of imminent harm, explicit rules on how cleanup obligations should be prioritised, and mechanisms to ensure that cleanup funds are ring‑fenced against redistribution. Without such reforms, insolvency law will continue to undermine climate mitigation efforts by allowing polluters to shed their most damaging assets at the moment their responsibility becomes most acute.

The authors' article can be found here. 

Eugenio Vaccari is an Associate Professor at Royal Holloway, University of London.

Laura N. Coordes is a Professor of Law at Sandra Day O'Connor College of Law at Arizona State University.