Due diligence and outsourcing of waste management | In Principle

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Due diligence and outsourcing of waste management

During due diligence, it should be determined whether a producer of waste has released itself from proper management of the waste by outsourcing management of the waste to third parties.

The legal regulation of waste management is now very extensive and imposes a number of obligations on businesses, such as the duty imposed on a waste producer to manage the waste properly.

A waste producer is defined as anyone whose operations or existence causes the creation of waste, as well as anyone who conducts pre-processing, mixing or other operations resulting in a change in the nature or composition of waste. Proper waste management often requires the waste to be turned over to other persons—recipients responsible for collection, transport and processing of waste.

In Poland, under the Waste Act of 12 December 2012, a waste processer may generally outsource the performance of waste management only to persons who meet specific requirements, e.g. persons who hold a permit for collection or processing of waste. Only then—as a rule—does the responsibility for management of the waste pass from the waste producer to the entity hired to manage the waste. Consequently, turning over waste to an unauthorised person does not relieve the producer of the risk of liability for improper management of the waste. Thus if an unauthorised recipient leaves the waste in an impermissible location, the person who provided the waste to the recipient will be legally responsible.

It is permissible to turn waste over to other persons only in the case of specific types of wastes as indicated in the Waste Act. A holder of waste may also turn over certain types of waste to an individual or organisational unit which is not a business entity to use for its own needs with the help of permissible waste recovery methods.

When conducting due diligence, therefore, the method of waste management employed by the entity being examined should be analysed in order to verify whether responsibility for the waste passed to the third party when the waste was turned over to the third party for management.

Improper management of waste may generate numerous risks for waste producers, depending on the specific circumstances, particularly if the waste is turned over to unauthorised persons. In that situation, the producer of the waste may become liable for the activity of third parties. Assessing these risks and reflecting them in the transaction documents is therefore extremely important, for example for an acquirer of shares in a company which is a waste producer. If such irregularities are discovered only after the transaction, the value of the company could be reduced.

If a waste producer violates provisions of a permit concerning waste management methods (often including an obligation to turn the waste over to proper recipients), there is a risk of administrative fines or increased fees, with no upper limit fixed in advance. There is also a risk of halting the operations of the waste producer, particularly if it outsources performance of waste management obligations to unlicensed entities.

Additionally, in the case of storage of waste at locations not intended for this purpose, an allowance should be made for the costs of removal and proper management of the waste. If improper waste management results in environmental harm within the meaning of the Act on Prevention and Remediation of Harm to the Environment of 13 April 2007, there is a risk that it may be necessary to conduct remedial measures and incur the related costs. In certain cases, there may also be a risk of criminal liability of persons performing managerial functions in entities violating the Waste Act.

Bartosz Kuraś, Mergers & Acquisitions and Environmental Law practices, Wardyński & Partners

See also B. Kuraś & I. Zielińska-Barłożek, “Waste Management,” in P. Ciećwierz & I. Zielińska-Barłożek (ed.), Legal Risks in M&A Transactions, Warsaw 2013, pp. 386 and following (in Polish).