Corporate Environmental Responsibility in Bankruptcy: Between Legal Obligations and Avoidance Opportunities

Corporate environmental responsibility (CER) is an essential pillar of modern business, requiring the internalization of external costs and commitment to sustainable operations. However, complexity arises when corporations with substantial environmental liabilities face bankruptcy, creating tensions between financial rehabilitation and environmental protection. Normatively, the polluter pays principle (PPP) requires the perpetrator of damage to bear the costs of remediation. In bankruptcy practice in Indonesia, mechanisms such as liability-free asset sales, the “phoenix company” phenomenon, and limitations on successor liability can provide loopholes for liability avoidance. This study analyzes the priority of environmental liabilities in the bankruptcy claim hierarchy, identifies liability avoidance mechanisms, and examines the role of bankruptcy courts and environmental regulators in balancing financial interests and environmental protection. Using normative legal research methods with data were collected through literature review and analyzed qualitatively-normatively. The results of the study show that the position of environmental liabilities in the bankruptcy claim hierarchy in Indonesia is still very weak, often trapped as concurrent claims. This condition erodes the PPP principle and has the potential to create moral hazard. Existing legal mechanisms and practices facilitate the avoidance of liability through the sale of “net of liability” assets, the practice of “phoenix companies”, and the limitations of the concept of successor liability and accurate assessment of environmental liabilities. In addition, there is an inherent tension between the bankruptcy institution and the environmental regulator, exacerbated by the weakness of the MoEF’s claim position and limited resources. It is recommended that the Government and the DPR immediately revise the Bankruptcy Law to give high priority to environmental claims and close the loopholes for avoidance of liability. It is also important to improve coordination between the Commercial Court and environmental regulators, as well as strengthen the MoEF’s capacity in identifying, collecting environmental claims.