We can require financial assurance as a condition of:
- a permission
- a site management order
- an environmental action notice
- an environmentally hazardous substance order.
We can make a claim on a financial assurance if:
- you've failed to meet your obligation to clean up or remediate a site
- we’ve cleaned up for you.
Subsection 220(2) of the Environment Protection Act 2017(opens in a new window) sets out that a financial assurance can be in the form of:
- a bank guarantee
- bonds
- any other form of security that we consider appropriate
- a combination of the above.
We determine what the most appropriate form of financial assurance is for each individual case. We do this by applying risk assessment criteria.
Contact our team to discuss your financial assurance options at financial.assurance@epa.vic.gov.au.
Bank guarantee
A bank guarantee is provided by your bank. Your bank promises to pay us a certain amount of your money if we need it.
A bank guarantee:
- sets a maximum dollar amount to be paid
- does not have conditions – whatever the circumstances, the bank must pay
- has no time limit
- is easy to administer.
This is our preferred form of financial assurance. If you want to use another form of financial assurance, you must explain:
- why it is better
- how you will mitigate the risk to us.
How it works
You enter into a contract with your bank. You provide cash and assets as security and pay regular premiums to the bank.
The bank gives us the bank guarantee.
We accept bank guarantees from banks that:
- are regulated by the Australian Prudential Regulation Authority (APRA)
- are in a country that APRA says has comparable prudential regulation to Australia
- have a credit rating at or above a long-term rating of A- (S&P Global Ratings) or A3 (Moody’s).
We have agreed a bank guarantee template with several of the major banks. This template is held on file by several of the major banks.
Mutual fund
A mutual fund provides cover to pay us if a specific and named event happens unexpectedly.
This is suitable when there are multiple parties who are providing similar financial assurances to us. For example, a mutual fund may be appropriate for an industry association.
Mutual funds:
- are established by agreement between multiple parties
- allow the costs of addressing risk to be shared
- are invested and grow in value, which means more money is available for clean-up compared to a single financial assurance from an individual.
How it works
The combined money in the fund is invested by a professional fund manager. Individual members claim from the fund.
We approve the fund manager and the amount of the fund.
The mutual fund arrangements are established by these documents:
- fund deed that says how the fund is managed and how contributions and claims are made
- investment agreement that says how the money is invested
- shareholders' agreement that documents the legal governance structure of the trust
- contract of insurance to protect the fund from large, unexpected claims.
To establish a mutual fund, you must:
- pay the establishment and maintenance costs
- meet your legal responsibilities under state and Commonwealth legislation.
Accumulating third-party trust fund
A trust is a legal structure where one or more people or companies – the trustee – manages property, income or assets for somebody else’s benefit.
In an accumulating third-party trust fund, a third-party trustee holds cash and assets on your behalf.
We approve the third party who will be the trustee. An example of a suitable third party is an industry association or representative body. A solicitor acting on your behalf is not suitable.
The funds in an accumulating trust fund can be invested to grow the fund.
How it works
A trust agreement sets out the trustee's powers and your rights.
We:
- are a contingent beneficiary of the trust
- register a security interest in the fund under the Personal Property Securities Act 2009 (Cth).
The trustee regularly reports the balance of the fund to us.
To establish a third-party trust fund, you must:
- pay the establishment and maintenance costs
- comply with your legal responsibilities under state and Commonwealth legislation.
Letter of credit
A letter of credit is issued by a bank. It means money is paid to us when agreed conditions or terms are met. It's similar to a bank guarantee.
A letter of credit:
- sets a maximum dollar amount to be paid
- says when we can claim the money – for example, if you abandon a site that has to be cleaned up.
It's suitable:
- when we know what the costs of clean-up or rehabilitation are
- for assurance against default on another type of financial assurance, such as an accumulating trust fund
- if the risk of you abandoning your site is very low.
How it works
You establish the letter of credit with the bank.
We claim against the letter of credit if we need to use the money to clean up pollution or restore land.
Security over land (certificate of title)
We secure an interest in a property that you or an associated party own. We use your property to pay for clean-up or remediation of land you have polluted, if you do not clean it up yourself.
The property can be any property you own that is not contaminated land. For example, you cannot use a landfill as security.
The property must be worth more than the amount of financial assurance you need.
This type of financial assurance is suitable if you're asset rich but cash poor.
How it works
You get an estimate of the value of your land. The value of your business at the property is not included in the estimate. You pay the cost of the valuation.
Usually, the value of the land is estimated by the Valuer-General Victoria. You can use another valuer. However, if we're not satisfied with the valuation, we get the land valued by the Valuer-General Victoria.
If the value of your land is more than $750,000, we get a second estimate.
We enter into a legal agreement with you. The agreement:
- creates an equitable charge on the land
- requires a mortgage over the title in a form prepared by us
- appoints our Chief Executive Officer – or another delegate we choose – as the attorney who claims our interest in your land if needed.
There are costs involved. You pay all fees, charges, valuation and legal costs.
Contract performance bond
Contract performance bonds are also known as surety bonds, insurance bonds or unconditional undertakings.
A contract performance bond:
- is given by a contract bond provider
- has no attached conditions
- cannot be cancelled or stopped.
It's worded and used in a similar way to a bank guarantee.
How it works
We accept a contract performance bond from a provider who:
- is regulated by APRA
- is in a country that APRA says has comparable prudential regulation to Australia
- has a credit rating at or above a long-term rating of A- (S&P Global Ratings) or A3 (Moody’s).
If you want to use a bond as a financial assurance, contact our financial assurance team at financial.assurance@epa.vic.gov.au.
Insurance as an alternative form of financial assurance
A wide range of events and situations can be covered by insurance – for example, third-party damages. The risks associated with the events covered by your insurance are transferred to your insurer.
Your insurance must cover all possible situations that financial assurance has to cover – for example:
- you abandoning waste or a site due to insolvency
- environmental harm from fire
- market failure that affects multiple operations simultaneously, resulting in environmental harm.
We do not generally consider insurance as an acceptable form of financial assurance. This is because it's unlikely for an insurance policy to provide coverage of all situations that financial assurance is required for.
How it works
An insurance contract is agreed between the parties. The agreement sets out:
- the sum of money
- conditions for payment.
If the insurer agrees to cover you, they give you a certificate of currency.
We can be named in the contract as a party with an insurable interest. This allows us to recover clean-up costs directly from the insurer.
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