Legal Terminology for Disposal
The general legal definition of "disposal" within the context of secondary materials is the action of discarding or emplacing the secondary material. In many cases, disposal is implied where the secondary material is discarded in any manner other than recycling, reuse, or reclamation. As such, in the context of EPA’s hazardous substance programs, disposal implicates the term "waste."
Disposal has the following definition in several different legal systems:
United States (RCRA) "Disposal" includes, but is not limited to burning or incineration, landfilling, placing on the land, including but not limited to underground injection or land application, recycling, treatment prior to recycling, and treatment prior to or in lieu of disposal. 40 C.F.R. §261.2; 55 Fed.Reg. 22640, 22655 (June 3 , 1990).
Malaysia (Customs) "Disposal" means to send out of, deliver out of, or to personally deal with any good by way of exercise of the right of ownership or part with possession or intercession thereof outside Malaysia. Act 25/1988: Customs Act 1976, Art. 2.
New Zealand (Hazardous Substances & New Organisms) Disposal means … (a) to deposit anything into or onto land or water; or (b) to allow anything to remain in or on land or waters; or (c) to discharge anything to air; and to dispose of has a corresponding meaning. Hazardous Substances & New Organisms Act 1996 §2.
Korea (Solvent Management Act) "Disposal" means a transfer to a site or furnace for incineration, landfill, recycling, or any other act of discarding or emplacing the waste into the environment or otherwise making it unusable. Law No. 7118 (1995), Article 2, item 9.
Meaning of Disposal under Property Law
The term "disposal" is generally understood to refer to the action of throwing or giving away items or wastes which have outlived their use. However, in the context of property law, "disposal" has a very specific meaning and can cover a number of different actions, including technically defined physical actions such as selling, letting, assigning, granting, relinquishing or surrendering an interest in property (whether freehold, leasehold or by way of licence).
In property law, the broad meaning of disposal is narrowed and "disposal" is used to encompass the more narrow sense of the voluntary act of parting with property, including transferring ownership or taking some other definitive action that removes all rights of the disposing party.
In the context of retail property leasing, a "disposal" can arise on one of two occasions, either:
1. Upon a sublease or assignment.
2. Upon the grant or surrender of a new tenancy.
In the case of a standard commercial property lease, disposals are strictly controlled, and a landlord will usually require the tenant to obtain the landlord’s prior consent. The landlord is entitled to impose conditions on its consent, requiring the tenant to comply with certain provisions or process prior to the assignment.
There are several scenarios in which the word "disposal" is commonly used in property law, such as:
1. Disposals are commonly referenced in the context of property law and the associated tax implications such as:
a. The disposal or grant of a lease being treated as a disposal for capital gains tax purposes;
b. The disposal of property used in a business (including trading stock, depreciable property and land);
c. The disposal of a service station, with the disposal being restricted until certain conditions are complied with, namely that the disposal must only be made to a company controlled by the vendor and within 5 years of the commencement of the sublease.
- Depending on the type of property in question, the same word can also be used to describe a licensed commercial lease in the name of an operator, which is held and/or registered in the name of a third party nominee. The use of a nominee (or nominee companies) for tenants for large supermarket operators is commonplace. There is often a requirement to disclose to the landlord the occurrence of a "disposal". Here "disposal" refers to the act of entering into a new lease in the name of the operator in preference to the nominee.
- In the context of local government, councils are not permitted to give away or dispose of council land without following the prescribed procedures outlined in the Local Government Act 1989, and the Land Disposal Policy. Land under the policy must be for sale to the highest bidder, and proceeds must be used to acquire land for parks, sports grounds, community facilities or town planning purposes. In addition, the Local Government Act defines disposals as "any disposition, permanent change, whenever made, in the ownership of land (including land under water) or in the use or function of land, where the change or function is permanent, or to such an extent as to be permanent."
- In relation to certain financial products, the Australian regulatory scheme prescribes certain conditions which when satisfied give rise to a disposal in these products, as distinct from the exercise of a right. The distinction is important as the taxation consequences are assessed according to the circumstances.
Disposal Strategies in Corporate Transactions
Disposals often involve transfers of a business, including a share sale or purchase by one corporate entity from another, or the sale of assets from a target to a third party. We refer to such disposals as "corporate disposals".
Whether undertaken by way of a share sale or asset sale, disposals may have wide-ranging effects on corporations, from rights to compensation to obligations to report the disposal to competition regulators. It is therefore important for corporations to understand the immediate and long-term effects of disposals, including what is required to comply with applicable laws to give effect to any intended structural plans or business strategies.
Disposal of all or part of a company’s businesses in a single transaction may be treated as a "major transaction" under the Corporations Act. Each state and territory also has its own legislative framework for the disposal of businesses.
In the context of an asset disposal, authorities such as the Australian Taxation Office, the Australian Competition and Consumer Commission, and the Foreign Investment Review Board, may require parties to obtain relevant approvals or licenses in connection with the disposal. Corporate disposals are usually subject to:
Notably, these requirements apply regardless of whether the acquisition results in common ownership of the assets or target.
While the Acquisitions Regulation extends the exemptions to the prohibition on the acquisition of shares, it does not apply to the acquisition of assets. Accordingly, a transfer of assets may still be prohibited by competition law, even where a similar transaction involving the acquisition of shares in the same business by the same parties would be exempted.
Bankruptcy Law and Disposal of Assets
The "disposal" of assets in a bankruptcy context usually describes the process through which assets are tagged for recovery, valued and disposed of by the trustee. In the bankruptcy context, an asset may be tagged for recovery if it is the product of the fraud or misconduct of the debtor (whether actual, constructive or presumptive). The trustee may also tag assets for recovery where the debtor has made a transfer or payments that were not "for value", i.e., payments of loans that were fictitious or made indirectly for the benefit of a third party, including family members. The trustee is also entitled to tag as property of the estate any pre-bankruptcy transactions that violate the relevant laws, including preference and fraudulent transfer laws. Thus, the trustee may assert claims for the recovery of certain asset "disposals", namely, transactions where the debtor has made a transfer that he should not have made, has received less than "reasonably equivalent value" (or perhaps no value at all) in exchange and the debtor was "insolvent" at the time of such transfer. These and other transactions may be disposed of through negotiation with the creditors or litigation, generally in the bankruptcy court. Once tagged for recovery, the trustee will be expected to marshal and dispose of the tagged assets. The chapter 7 trustee will be expected to sell those assets and distribute the proceeds to creditors. The chapter 11 debtor-in-possession has the same duties, but is expected to heal the wounds of the company; to rehabilitate to be, instead of liquidated, the "going concern" it was before the black clouds of insolvency loomed overhead. In fulfilling these duties, the chapter 11 "debtor-in-possession" operates under the oversight of the bankruptcy court. In doing so, the debtor-in-possession must fulfil, among others, that its directors and officers adhere to high standards of accountability as they act "in the best interest of the creditors" and all other stakeholders. Along the way, the debtor-in-possession also has a duty to the creditors that no asset is removed or disposed of outside the ordinary course of business.
Waste Disposal under Environmental Law
The phrase "waste management" refers to the collection, transport, treatment, and disposal of waste material. "Waste disposal," on the other hand, is a legal phrase that refers to the regulated disposal of solid and hazardous waste. The distinction between common parlance and legal use can be important. For example, municipalities are trying to determine whether whole tires stored in tire dumps qualify as "disposal" rather than just storage, and therefore whether there is a legal basis for cleaning up such sites under applicable state laws.
"Disposal" is defined in various environmental statutes and regulations, usually with broad implications. Under the Resource Conservation and Recovery Act ("RCRA"), "disposal" includes "discharge" into a land unit or to an environmental medium such as air or water body. Hazardous Substances have similar definitions under CERCLA. These terms are important because the courts have held that disposal can be an "operation" within the definition of "facility" under RCRA and CERCLA. These laws govern a range of waste disposal activities, including in some states "open dumping."
It can be a criminal offense to dispose of hazardous waste on a site that has not been licensed or permitted, or to fail to properly treat, store or dispose of hazardous waste. The PCB laws also regulate "disposal" of PCBs, including those in oil at electrical utility sites . State laws often parallel these federal statutes, and are sometimes stricter. For example, improper disposal of explosives – a focus of this law firm’s practice – can include burning, detonating, open burning, and open detonation of explosives. However, not all disposal of explosives attracts criminal liability under the explosives laws, even though explosives may also be subject to particular state laws regulating their disposal, similar to hazardous waste.
The Commonwealth of Massachusetts, for example, has now banned open burning of fireworks and friendly firework displays. A life sentence is possible for environmental homicide under Massachusetts law if any waste material that, once disposed, is placed in a manner than may harm or is likely to harm an actual or classified environmental component. Public health and environmental agencies are joining forces at the Federal level as well in proposing new regulations for geologic sequestration, management of CO2 waste streams. Before these new regulations take effect, it will be important to determine how geologic sequestration fits into the existing definition of "disposal."
In whatever form it takes, disposal activities are subject to regulatory oversight on the federal and state level. Failure to comply can result in costly penalties, including those arising from long-term review of disposal site closure and post-closure care and maintenance, prevention and amelioration of future releases of contaminants and ground water protection.
Disposal in Tax Law
The disposal of an asset from one entity to another may trigger tax consequences. Tax issues can become exponentially complicated in the context of a corporate acquisition and special rules apply. The challenge is identifying the correct treatment of particular assets and tax positions in the context of the overall transaction.
In general, a disposition occurs when there is a transfer of property, although the nature of the transfer will determine whether a corporate disposition is a disposition for tax purposes. The test for such transactions is whether any gain or loss has occurred because of the transaction. When an asset is disposed of, it will generally be either disposed of at fair market value or at an arm’s length price. Property may be transferred between corporations and their shareholders at fair market value using a rollover mechanism. In general, however, arms’ lengths transactions will almost always occur at fair market value. The usual tax implications of a disposition is that a taxpayer is required to report the disposition of capital property for tax purposes in their income tax return for the year in which it occurs. The capital property regime for taxation purposes appears in the Income Tax Act (Canada) RSC 1952, c 148. Capital property can be depreciable property, a capital asset, an inventory item, a Canadian resource property, a foreign resource property, eligible capital property, timber resource property, or general property. Further, for the purpose of taxation, capital property is property that is not eligible capital property and does not relate to the business of selling goods or services. Depreciation is usually recovered through Capital Cost Allowance (CCA). When a corporation disposes of its capital property, the tax consequence is calculated by finding the difference between the capital outlay to acquire the asset and the amount the corporation receives upon disposition. If the result of that equation is a positive number, it is the amount the corporation is taxed on the disposition. When calculating the value of a capital asset for disposition purposes, there is a net capital loss, which will typically arise when the capital outlay is greater than the proceeds of the disposition. Where the corporation has a net capital loss, the loss can only be applied to reduce net gains in the current taxation year, or to obtain a refund of taxes paid on past gains. A capital loss cannot be used against income received in the ordinary course of business, nor can it be applied to a future gain occurring when a capital asset is disposed off. The disposal of inventory or equipment is generally included in the computation of remuneration. If an asset is disposed of for a gain where the gain does not qualify as part of the capital property regime and is therefore not taxable, then the gain from the disposition would fall into the income category as business income. However, when a corporation disposes of inventory or equipment for less than its book value, the corporation may benefit from a tax deduction with respect to the loss incurred from the disposition.
Recent Jurisprudence on Disposal
Court decisions concerning disposal remain relatively rare in the United Kingdom. However, there have been recently several decisions that have considered disposal of property as a result of the interplay of local planning and environmental regulations. One example is the long running case of Borough of Poole v Pye (2004) from the Court of Appeal, where the owner of illegally disposed of material was unsuccessfully sued under s205 of the Law of Property Act 1925 after sale of the property by the mortgagee of the owner to the council.
In the decision of Lennox Estates Ltd v 1st Advantage Mortgages Ltd (2012), the court considered the conflict between local planning law and the ability of the property owner to recover possession following a charge over the same property which was created after the disposal took place. In this case the 1st Defendant had acquired the property prior to a successful planning application being submitted to demolish and rebuild a Café and construct five apartments. 1st Advantage Mortgages Ltd was the mortgagee of the property and as a result of a default , it purchased the property at a power of sale. 1st Advantage then sought possession as it was then in possession of the property after its disposal resulting from the exercise of its powers of sale. The court held that the disposal of the property under s35 TCPA 1990 was not a breach of the condition of the legal mortgage and thus a defence could not be made on the grounds of an inability to exercise the power of sale.
In the case of Banfield v London Borough of Waltham Forest Judgment (2011), the Court considered the gap between local planning law and criminal offences under the Environmental Protection Act 1990. The defendant had moved the waste water pipes of a house he was renting to dispose of waste water onto a neighbouring property. However, the defendant was not in control of the adjoining property and was therefore not liable in nuisance.
This case demonstrates the interaction of criminal and local planning legislation and how these can be conflicting. The District Judge held that, under the provisions of the relevant statute, the adjoining property owner was not his landlord nor did they have any rights in respect of the adjoining land. As a result, a defence to the claim under the statutory nuisance was made as to the exercise of his rights by the defendants.