End of the procedure for transferring rights and obligations under emissions permits?
The Sejm has passed an amendment to the Environmental Protection Law eliminating the administrative procedure for transferring permits. When it comes into force, the acquirer of an installation will automatically assume the rights and obligations under the permits for the installation.
At a recent session, the Sejm, the lower house of Poland’s Parliament, adopted the Act of 10 June 2014 Amending the Environmental Protection Law and Certain Other Acts. The act was then forwarded to the Senate for its consideration. The main purpose of the amendment is to implement into Polish law the provisions of the Industrial Emissions Directive (2010/75/EU) and to modify significantly the liability rules for contamination of the earth’s surface. Beyond that, one of the major changes is modification of the rules for passage to the acquirer of an installation of rights and obligations pursuant to environmental permits for the installation.
Under Polish law, permits governing the operation of an installation and its impact on the environment are administrative decisions. Administrative decisions are a manifestation of the authoritative action of public administrative bodies, and therefore neither the buyer nor the seller can freely decide on their fate, e.g. in a contract for sale of an enterprise or assets making up an industrial installation. This means that if the regulations do not provide for passage of the rights and obligations under the permits to the acquirer of the installation, the acquirer will have to obtain the permits anew.
But this is not a desirable solution. As a rule, the buyer of an industrial plant or other installation intends to continue the operations conducted by the predecessor, and thus the mere fact that ownership of the installation has passed to a different entity has no impact on its operations. Consequently, there is no real point to carrying out the lengthy and complicated procedure of obtaining a new permit.
This inconvenience inclined lawmakers to introduce solutions enabling the transfer of permits to another holder. Under Art. 190(1) of the Environmental Protection law, a person interested in acquiring title to an entire installation may file an application for transfer of the rights and obligations under permits concerning the installation. This provision applies to emissions permits, i.e. integrated permits, permits for release of gases and particles into the air, permits for release of wastewater into the water or soil, and permits for production of waste.
If a transaction consists of acquisition of assets making up an installation, the closing should be preceded by carrying out the procedure for transfer of the rights and obligations under the environmental permits to the future owner. Transfer of the rights and obligations under the permits occurs through an administrative decision which exerts legal effect only when the buyer obtains title to the installation or designated portion of the installation. Therefore, notwithstanding the name, a decision transferring the permits does not deprive the current holder of the rights arising under the permits. The effect of transfer is suspended and occurs only upon passage of title to the installation. By using this construction, the current law seeks to avoid the negative consequences which the seller would be exposed to from failure to hold permits during the period between issuance of the decision transferring the permit and the transfer of title to the installation. Consequently, during the period between issuance of the transfer decision and actual transfer of title to the enterprise to the acquirer, the current owner may continue to operate the installation.
A decision on transfer of rights and obligations under permits for installations expires one year after issuance if the applicant has not yet gained legal title to the installation or designated portion of the installation.
The procedure for transfer of the rights and obligations under permits should be completed prior to finalization of the transaction, in the sense of passage of legal title to the installation to the buyer. Under Art. 193(1)(2) of the Environmental Protection Law, a permit lapses if the holder ceases to be the operator of the installation for purposes of the act, unless the rights and obligations under the permit have been transferred under the procedure described above. This effect arises upon occurrence of the circumstances causing lapse of the permit, although the authority competent to issue the permit will also confirm this in a separate decision.
The new amendment represents another step toward simplification of transactional formalities. Under Environmental Protection Law Art. 189(1), as amended, an entity which becomes the operator of an installation or designated portion of an installation will assume the rights and obligations under the permits for the installation or portion of the installation. The amendment also requires such person to apply promptly to amend the permit to reflect the change in operator.
The change as adopted by the Sejm involves the automatic passage (by operation of law) of the rights and obligations under the permits to the entity which becomes the operator of the installation or designated portion of the installation. As a consequence, the regulations governing the procedure for transfer of emissions permits under the Environmental Protection Law are to be repealed, because it will no longer be necessary to conduct that procedure.
We wrote about these changes earlier, taking a critical view of the proposed construction. Although the amendment as adopted differs from the version we commented on before, not all of the doubts were removed.
The change adopted by the Sejm is generally favourable for parties to transactions, particularly when the transaction is conducted quickly. The need to conduct the complete permit transfer procedure before finalising the transaction means a delay of several weeks or even several months. The closing cannot occur until the transfer decisions are obtained.
It may be pointed out, however, that the new legal solution represents a revolutionary change in the construction of administrative law. Decisions by public administrative bodies are authoritative in nature, unilaterally determining the rights and obligations of a specific entity. The possibility of changing the entity which is the subject of the obligations specified in the decision without any involvement by the administrative body deprives the administration of control over the performance of the obligations under the permits. If the operator does not comply with the obligation to apply for a change in the name of the operator in the permit (filing such an application is not a condition for the effective passage of the rights and obligations under the permits), the administrative authorities will not know who at the given time is the operator of the installation and the holder of the permit, and thus who bears the obligations under the permit.
Another difficulty which may be anticipated would be in a situation where another entity has become the operator of a designated portion of an installation. Then it would not be possible to determine the fate of the permit. The issue would arise in that situation of “splitting” of the permit between two entities, i.e. passage of a “portion” of the permit to the acquirer of a portion of the installation. These doubts cannot be eliminated in the wording of the amendment, but may be left to the case law to resolve.
In all other situations, the new regulations will make it much easier to conduct transactions involving such facilities. In the case of a corporate merger, as now, the rights and obligations under emissions permits will pass by operation of law to the newly formed company or acquirer. If the transaction involves acquisition of specific assets, after entry into force of the amendment it will no longer be necessary to conduct the procedure for transfer of rights and obligations under environmental permits. The acquirer of the assets will assume the permits automatically if the transaction involves an installation or designated portion of an installation.
Dominik Wałkowski, Mergers & Acquisitions and Environmental Law practices, Wardyński & Partners
See also Dominik Wałkowski, “Legal and Environmental Due Diligence,” in Environmental Law in M&A and Real Estate Transactions, edited by Dominik Wałkowski & Izabela Zielińska-Barłożek (Lexis-Nexis, Warsaw 2014), pp. 372 and following (in Polish).