CHARLESTON, W.Va. -- Government officials will likely be able to ensure that Freedom Industries continues to fund cleanup efforts along the Elk River, but now that the company has filed for bankruptcy, it may be more difficult for them to levy any fines or punishment against the company, a bankruptcy expert said Sunday.
A bankruptcy filing puts a temporary hold, or stay, on all claims for a company to pay its debts.
But there is an exception in bankruptcy code so that government agencies can exercise "police powers," which would likely include environmental cleanup.
"The automatic stay does not stop agencies such as the EPA from enforcing cleanup orders," said Bob Simons, a prominent bankruptcy lawyer with the Pittsburgh firm Reed Smith. "Police powers to protect the health and safety of the public are not stayed by the bankruptcy."
But those police powers would likely not apply to any punishment that the agencies might levy.
"If there were a pecuniary claim, like a fine, arguably the fine is like a debt," Simons, who stressed he was not familiar with Freedom's specific filing, said. "That fine may be treated in the bankruptcy case as any other debt would be."
Shortly after Freedom filed for bankruptcy on Friday, state and federal environmental agencies released statements saying they expected the company to continue its environmental cleanup along the Elk River, where the company's spill of a coal-processing chemical left hundreds of thousands of West Virginia without usable water for days.
"Freedom Industries continues to perform cleanup activities at its tank facility and has indicated that the company intends to continue the cleanup, despite having filed for Chapter 11 bankruptcy," the federal Environmental Protection Agency wrote on Saturday. "If circumstances change, EPA will work with West Virginia officials on the most appropriate path forward."
On Friday evening, a spokesman for the state Department of Environmental Protection released a statement in all capital letters that said, "A company's bankruptcy status does not absolve it of its environmental remediation obligations."
Half an hour later, DEP Secretary Randy Huffman elaborated.
"At this point, Freedom has committed to continuing its cleanup effort. Any contingency to that would consist of a plan developed by many parties including the DEP," Huffman wrote. "While details have not yet been fully developed regarding how to fund the remediation in such a scenario, the remediation efforts will still continue as long as necessary."
Shortly after Freedom filed for bankruptcy on Friday, the company also filed what's called a "debtor-in-possession," or DIP, agreement, which would allow it to secure an emergency loan to continue functioning.
In the DIP agreement, Freedom specifies three "permitted liens," which will likely get first priority when Freedom begins to pay back its creditors.
First in line is a lien filed by PPG Industries, a large Pittsburgh-based corporation with facilities in 38 countries.
Among other things, PPG supplies industrial coatings and sealants for planes and cars and makes paints and stains. The company sold a plant in West Virginia's Northern Panhandle in 2012.
"PPG is aware of the news related to Freedom Industries and will evaluate whether there is any affect on our business," Mark Silvey, a PPG spokesman, wrote in an email Sunday. Neither the DIP agreement nor Silvey specified the size of the lien.
Next in line is the IRS, with two liens on Freedom's property filed in 2010, totaling about $2.4 million. A third, much smaller, lien filed by the IRS in 2009 is not listed on the DIP agreement.
After the "permitted liens," the next creditor in line is almost always the DIP lender, Simons said. Simons said that the DIP lender is given priority because they put money in when the company was most at risk.
"The reality is they need to have money to operate," he said.