On November 25, 2009, the Administrative Office of the U.S. Courts reported bankruptcy cases filed in federal courts for fiscal year 2009 totaled 1,402,816, up 34.5 percent over the 1,042,993 filings reported for the 12-month period ending September 30, 2008.

For the 12-month period ending March 31, 2010, 1,531,997 bankruptcies were filed; 61,148 of those were business filings – a 27.4 percent increase in the number of filings!

Needless to say, with the growing number of bankruptcies the likelihood of a company or individual simply “walking away” from an unwanted property increases significantly. Sometimes abandoning not only the physical assets and land, but also abandoning a wealth of potential environmental contamination, problems and/or waste. A prime example of the likelihood of these occurrences is the highly publicized Chapter 11 Bankruptcy of General Motors Co. (GM) in June 2009.

Although numerous other manufacturers have faced a similar demise, the GM case proves noteworthy due to its considerable size.  A quote from the New York Times in June 2009 states, “Shortly after filing for Chapter 11 in Federal Bankruptcy Court in Manhattan, G.M. said it would close 14 more American factories — including seven in Michigan — and cut up to 21,000 more jobs.”

GM will be leaving 200 former properties behind to the tune of an estimated $530 million in environmental liabilities. This Chapter 11 filing affected GMs responsibility for costs associated with the cleanup of automotive Brownfields slated for redevelopment. Reportedly, GM or Motor Liquidation Co. (which was created as a separate, largely government-owned entity in order to sell off GMs valued assets) has $1.2 billion to “wind-down” operations. Attorney fees, pending claims and administrative fees are likely to consume a large portion of these “wind-down” dollars, likely leaving little for environmental cleanups.

Officials fear potential purchasers of these GM remnants will be scared away from buying and redeveloping these large sites because of their history and potential for contamination, thus stifling redevelopment of these abandoned sites. Although much of the responsibility will now likely shift to state cleanup programs for these properties, it is highly unlikely funds are available at the State level for investigation and remediation activities.
The U.S. Environmental Protection Agency (EPA) estimates cleanup costs at one GM location in Massena, NY to be approximately $60 million.

For more information on this case, check out http://www.motorsliquidationdocket.com/. How does bankruptcy affect environmental liability and cleanups? Check out Part Two in next month’s issue.