Bankruptcy and Environmental Cleanup

Here is a very interesting business regulation issue. Should bankrupt companies still be held accountable for environmental cleanup?

The American Smelting & Refining Co. (Asarco) has been the subject of contention ever since 1899, when it was established to consolidate William Rockefeller's U.S. mining interests. In 1901, Meyer Guggenheim wrested control of the company from Rockefeller, merged Asarco with his established operations, and built one of America's greatest industrial fortunes, mining silver, lead, diamonds, and especially copper in the United States, Latin America, and Africa.

A century later, amid steadily falling copper prices and a $54 million net loss for the six months ended June 30, 1999, Asarco was sold for $817 million to Grupo Mexico S.A. de C.V. The Mexico City-based company announced that to help pay down the acquisition debt, it would begin to divest Asarco of assets. The most valuable, a mining operation in Peru, would be sold to another Grupo Mexico subsidiary, American Mining Corp.

The sale was blocked, however, by the U.S. Department of Justice, which claimed the deal was a fraudulent transfer of lucrative assets at below-market prices. The DoJ's main concern was that Asarco — stripped of its most productive revenue-generating assets — would be unable to fund the cleanup of at least 27 polluted mining sites in 13 states. According to recent estimates, that tab will run between $500 million and $1 billion.

I tend to agree with Peter Drucker, who said something to the effect that companies are responsible for the consequences of their decisions, whether those consequences were intended or not. But it gets difficult when consequences have multiple causation factors, or negative consequences are a result of a lack of knowledge by society as a whole, not just the guilty business. In general, bankruptcy is supposed to free you from expensive obligations, but depending on the nature and level of the pollution, and the cost of the cleanup, this could develop into a very thorny problem.

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