Northstar: Settled. And yet, not settled

In my last blog I focused on the Northstar Case which was to go to the Environmental Review Tribunal in October. This is the first time the Ministry had gone after directors of a publicly traded company personally after the bankruptcy of the Company, and, in this case, for contamination that occurred before those directors were on the board. The case was settled last week.

Northstar had contaminated lands around it in Cambridge and then gone bankrupt. The Ministry of the Environment’s claim against the assets in the bankruptcy proceeding was treated as an unsecured claim, leaving the personal funds of the officers and directors as the only source of funds to pay for the remediation other than the taxpayer. The MOE issued an order compelling the officers and directors to pay and sought $15 Million. Though they appealed the order, they were still required to pay out approximately $800,000 between the issuance of the order and the hearing.

The case was settled last week for a payment reported at $4.75 Million. From a legal point of view, this is unfortunate. In my last blog, I made the point that the case created the opportunity to tie director and officer liability to some sort of objective standard. That is, if you set aside sufficient funds for a remediation based on a credible and peer reviewed remediation plan, you should not be personally on the hook if the plan misses. Since there is no decision, the opportunity to clarify this – and balance the risk between corporate leadership and the public – will have to wait for the next group of unfortunate directors and officers.

In the end, the decision may be a bit of a boon for the environmental insurance industry. That is not a pejorative comment – If the case compels directors to buy insurance to protect their personal assets, then there may be an opportunity to lower the cost of that insurance simply because the risk to the insurer is spread over more corporate directors.

In any event, if you are a director or officer of a corporation that owns contaminated land, or is engaged in potentially contaminating activities, this is definitely worth calling us about.