Prospective purchasers of ongoing manufacturing/industrial businesses may want to consider including a robust environmental regulatory compliance audit in their standard due diligence efforts, based upon a new policy initiative put forth by the U.S. EPA recently.
EPA's original April 11, 2000 policy on "Incentives for Self-Policing: Discovery, Disclosure, Correction and Prevention of Violations," commonly referred to as the "Audit Policy (PDF)" (65 FR 19618), offers reduced penalties to companies that:
(a) self-police environmental compliance at their facilities
(b) promptly disclose and correct any violations discovered, and
(c) take steps to prevent future violations.
On August 1, 2008, EPA published in the Federal Register its "Interim Approach to Applying the Audit Policy to New Owners ("Interim Approach"). The Interim Approach states that the Agency intends to tailor Audit Policy incentives for new owners that want to make a "clean start" at their recently acquired facilities by addressing environmental noncompliance that began prior to acquisition. It is designed to motivate new owners to audit newly acquired facilities and to encourage self-disclosures of violations that will, once corrected, yield significant pollutant reductions and benefits to the environment.
The incentives tailored for new owners include clearly defined penalty mitigation beyond what is offered by the Audit Policy, as well as the modification of certain Audit Policy conditions that will allow more violations to be eligible for the Policy. Of course, responsibility (between the buyer and seller) for payment of even reduced penalties (or accounting for that future possible payment by the Buyer in terms of purchase price adjustment) likely will be yet another topic of discussion in the transaction negotiations.
A link to the Interim Approach follows: http://edocket.access.gpo.gov/2008/pdf/E8-17715.pdf. EPA took public comment on the new policy approach through October 30th, although the policy was immediately effective upon issuance in August.
Please contact attorney David Van Slyke at dvanslyke@preti.com with questions on this topic, or other environmental matters affecting your business.