Q&A | Environmental responsibility and transfer of assets / shares

Environmental responsibility and transfer of assets / shares

1. Under what circumstances can a buyer inherit pre-acquisition environmental liability when selling assets / selling a business (sale of shares)?

Sale of assets

A buyer inherits environmental responsibility prior to acquisition when selling a company’s assets under the following two circumstances:

  • Transfer of obsolete technologies, equipment and products. No entity or individual may produce, sell, transfer or use technologies, equipment and products likely to cause major environmental pollution (Environmental Protection Act). If a buyer purchases such technology, equipment or products, the buyer will assume the environmental responsibility caused by the purchase.
  • Transfer of contaminated land. Under the Ten Ground Regulations (see Question 14, Legislation and regulator), the entity or natural person who inherits the credits and debts bears the corresponding responsibility. When transferring the right to use the land, the assignee or person responsible agreed between the parties assumes responsibility for it. Thus, if the Law for the Prevention and Control of Soil Pollution is promulgated in 2017 and provides for the Ten Regulations on soils, the purchaser will inherit the pre-acquisition environmental responsibility.

Sale of shares

If a buyer buys 100% of the shares of a company, he or she bears the same environmental responsibility as in the case of an asset sale.

2. Under what circumstances can a seller retain environmental responsibility after a sale of assets / a sale of shares?

Sale of assets

See Question 1.

Sale of shares

See Question 1.

3. Does a seller have to disclose environmental information to the buyer when selling assets / shares?

Sale of assets

There is no legal obligation for a seller to expressly disclose environmental matters in a sale of assets. If the seller is an entity releasing pollutants under enhanced surveillance, it must disclose environmental issues (Environmental Protection Act), in a manner accessible through the public archives. If the seller is not an entity releasing pollutants under enhanced surveillance, the buyer can only obtain information voluntarily provided by the seller.

Sale of shares

It is the same as in an asset sale (see above, Sale of assets).

4. Is environmental due diligence common in a sale of assets / sale of shares?

Scope

The environmental investigation and assessment includes a review of the following:

  • Environmental management systems, management organization and responsible persons.
  • Air pollution.
  • Water pollution.
  • Land pollution.
  • Solid waste (including hazardous waste).
  • Noise and other pollution such as radioactivity.
  • Environmental impact assessment and acceptance of environmental protection of the construction project.
  • Clean production and energy saving.
  • Management of hazardous chemicals.
  • Complaint report, administrative sanction and environmental litigation.

Types of assessment

Investigations are primarily related to legal compliance investigations regarding the compliance of the company’s environmental management with environmental laws and regulations. They generally do not involve surveys of environmental technologies.

Environmental Consultants

Businesses get legal advice regarding new circumstances and questions regarding environmental laws. In addition, companies hire lawyers to investigate and assess the environmental legal risk of a target company or a proposed investment project. In addition, companies hire lawyers as agents or consultants when the company is subject to environmental administrative sanctions and environmental disputes.

In the engagement letter, the parties generally agree on the scope of legal services, legal service fees, business terms, anti-corruption terms, terms regarding gifts and entertainment, conflicts of interest, confidentiality, limitation of liability, etc.

5. Are environmental guarantees and indemnities generally given and what issues do they typically cover in an asset sale / share sale?

Sale of assets

If the assets are pollution prevention facilities, land use rights can lead to environmental liabilities. In the purchase contract, the seller and the buyer usually include special clauses regarding the allocation of potential environmental responsibilities, in addition to due diligence and soil contamination testing. The seller usually provides representations and guarantees, such as:

  • Obtaining a pollution discharge permit.
  • Paid pollutant discharge fees.
  • Obtaining environmental impact assessment for construction, reconstruction and extension projects, and acceptance of environmental protection.
  • Had full release control ratings for major water and air pollutants, and no excessive emissions in the past two years.
  • Over the past two years, we have ensured that the disposal of hazardous waste was in accordance with the law.
  • Have not had any environmental complaints or reports in the past two years.

Sale of shares

See above, Sale of assets.

6. Are there generally limits to environmental guarantees and indemnities?

There are no specific regulations on the limits of environmental guarantees and indemnities. The parties can negotiate the scope and limits of environmental guarantees and indemnities on a case-by-case basis, depending on the specific circumstances of their transactions.


Source link

Leave a Reply

Your email address will not be published. Required fields are marked *