I want to acquire distressed assets, but the property is heavily contaminated – how do I price environmental risk and structure the transaction to avoid acquiring unidentified liabilities?

Client

Private equity fund specialising in distressed asset investments

The situation

The acquisition of distressed assets is an investment where environmental risk is often underestimated or not identified at all at the due diligence stage. A private equity fund specialising in distressed asset investments was planning to acquire a property that housed crude oil refinery. The facility was heavily contaminated – the operational history of the installation spanned decades, and the scope and nature of the contamination were not fully identified. The key questions were: what is the legal liability for contamination upon acquisition? How do you structure the transaction to avoid taking on remediation obligations that may exceed the value of the assets?

Our role

We assessed the legal situation of the property from the perspective of contaminated land regulations – identifying the scope of the potential buyer’s liability and the mechanisms for limiting it. We developed a scenario for entering the investment with an incompletely identified environmental burden – so that the risk was manageable and quantifiable. We prepared a legal transaction structure protecting the buyer from assuming unlimited remediation liability, and a plan for long-term management of site contamination, including potential liabilities extending beyond the property boundary.

The result

The case demonstrates that environmental advisory in transactions involving contaminated assets is a specialism requiring simultaneous understanding of law, finance and the technical realities of remediation.

Are you planning to acquire property or assets with potential environmental liabilities? We will assess the risk and help structure a safe transaction.