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April ABI Journal Article Examines Erosion of Dischargeability of Environmental Obligations

Alexandria, Va. — Recent developments in case law are increasing the need to find ways to estimate and provide for environmental liabilities that can survive bankruptcy, according to an article in the April ABI Journal. “Bankruptcy cases with significant environmental components present major challenges: Debtors must be able to convince regulators and other stakeholders of the adequacy of proposed environmental settlements promptly and effectively,” write George G. Hansen of The Claro Group LLC (Houston), David C. McMurty of D. McMurty & Associates LLC (Benicia, Calif.) and James Redwine (Baton Rouge, La.), the former vice president of Environmental at Motors Liquidation Co., in their article “The Erosion of Dischargeability of Environmental Obligations.” Properties with environmental contamination can take years to investigate, design, permit and implement remediation, according to the authors. “This presents a challenge, since bankruptcy law and practice do not allow time for a complete site characterization and determination of remediation outcomes and liabilities,” the authors write. Further, recent court decisions have increased post-bankruptcy environmental responsibility for contaminated sites and increased the emphasis on identification and valuation of environmental obligations. New techniques of decision analysis have evolved through recent cases to address these issues, according to the article. The authors point to the processes used in the GM bankruptcy in 2009 to provide a potentially helpful example for debtors and potential objectors to efficiently value and settle significant environmental issues. “To address the perspectives of various constituencies in the GM case, the debtor met with each interested constituency to discuss the remedial status and likely future remedial actions and funding at each site,” Hansen, McMurty and Redwine write. “In record time, the debtor worked to resolve questions raised by state and federal regulators, reaching a consensus on the baseline estimates and potential uncertainties.” This approach ran counter to many previous cases, where environmental liabilities had been hotly contested and resulted in litigious, court-overseen valuation hearings. “Bankruptcy professionals can increasingly anticipate having to value uncertain environmental liabilities as case law tilts in favor of their survival through bankruptcy proceedings,” the authors write. To obtain a copy of “The Erosion of Dischargeability of Environmental Obligations” published in the April edition of the ABI Journal, please contact John Hartgen at 703-894-5935 or via email at jhartgen@abiworld.org. ### ABI is the largest multi-disciplinary, nonpartisan organization dedicated to research and education on matters related to insolvency. ABI was founded in 1982 to provide Congress and the public with unbiased analysis of bankruptcy issues. The ABI membership includes more than 13,000 attorneys, accountants, bankers, judges, professors, lenders, turnaround specialists and other bankruptcy professionals, providing a forum for the exchange of ideas and information. For additional information on ABI, visit www.abiworld.org. For additional conference information, visit http://www.abiworld.org/conferences.html.