Feature Article: Carbon Projects and ACCUs - What Insolvency Practitioners, Lenders and Borrowers Need to Know
09/04/2026
Contributors:
- Matt Egerton-Warburton, Partner, Mills Oakley
- Kirsten Farmer RITF, Partner, Mills Oakley
A practical guide for Australian banking and insolvency practitioners in relation to new contractual and statutory arrangements, encumbrances and assets arising from carbon projects, ACCUs and the CFI Act.
Table of Contents
1 The Australian Carbon Market
In 2011, the Australian Government, through the Clean Energy Regulator (CER), established a market to reward landholders and agribusiness for positive carbon stewardship by providing Australian Carbon Credit Units (ACCUs) to landholders and businesses’ who emit less carbon or sequester carbon within a registered carbon project.
These ACCUs are used as “inset” credits (to offset a farm or agribusiness’ emissions) or sold as “offset” credits to governments and third parties (to offset their emissions) as Australia pushes towards Net Zero by 2050.
ACCUs are currently being purchased in large quantities by large carbon emitters who surrender them to reduce their carbon footprint to meet their mandatory Safeguard Mechanism obligations.
The number of carbon projects has rapidly increased and are an increasingly important feature of the Australian agribusiness landscape.
The legal instruments, obligations and rights created by these projects are novel, complicated and developing.
This article is an introduction to the contractual and statutory arrangements, encumbrances and assets created and outlines the material issues pertinent to lenders, borrowers and insolvency practitioners.
This article is commentary only, not legal or tax advice.
2 The Legal Architecture of Carbon Projects
2.1 The Project Proponent: Who is on the Hook?
When landholders and carbon service providers decide to commence a carbon project they need to nominate a “Project Proponent” - the entity legally responsible to the CER for the project’s lifetime obligations.
The Project Proponent can be any entity, but it is normally the landholder, a related entity, or the third-party carbon service provider.
The Project Proponent:
- is legally responsible to the CER for meeting all obligations under the Carbon Credits (Carbon Farming Initiative) Act 2011 (Cth) (CFI Act) for the life of the project, including reporting, auditing, and maintaining carbon stores;
- may be subject to “relinquishment notices” (a requirement to return ACCUs), civil or criminal penalties or carbon maintenance obligations that attach to the land if a project fails;
- must hold the "legal right" to conduct the project - if they are not the landholder they need to have a contractual relationship with the landholder to be able to conduct the project activities on the land (a contract, lease, licence, etc);
- must pass the CER’s “fit and proper person” (FPP) assessment, which evaluates character and capacity to comply with the scheme;
- submits offset reports and receives ACCUs from the CER into their Australian National Registry of Emissions Units (ANREU) account at the CER’s Unit and Certificate Registry (ANREU Registry) - the ANREU Registry is the single authoritative record of legal ownership; and
- may have contractual obligations to the Commonwealth to sell a portion of their ACCUs to the Commonwealth for an agreed price (a Carbon Abatement Contract).
2.2 Carbon Project Agreements
If the Project Proponent is a landholder or a related landholder entity - they typically enter into a carbon project agreement with a third-party carbon service provider in which they agree to pay the service provider either in cash or ACCUs for providing services including project planning, carbon measuring, carbon reporting and project compliance services.
If the Project Proponent is the carbon service provider - they typically enter into a carbon service agreement with the landholder to ensure access to project land and have the landholder provide certain services. ACCUs created are then typically split between the parties with the Project Proponent transferring a percentage of ACCUs placed in their account into a separate landholder account.
Carbon Project Agreements are typically long, complicated documents which can be surprisingly preferential to carbon service providers (who typically draft the documents). The terms of these agreements directly affect land value, collateral availability and insolvency outcomes.
2.3 ACCUs: A Unique Asset Class
ACCUs are tradeable, government-issued certificates, created under the CFI Act representing one tonne of carbon dioxide equivalent (tCO2-e) of emissions stored or avoided by a carbon project.
An ACCU only legally exists once it is placed in an ANREU account. The person or entity named in the ANREU Registry is the legal owner and holds "title" to the units.
ACCUs are recognized as:
- “personal property” under the CFI Act - they can be owned, sold, or passed on via a will, separate from the land on which the carbon project is located;
- "investment instruments” under reg 1.10 of the Personal Property Securities Regulations 2010 (Cth); and
- “financial products” under s764A(1)(ka) of the Corporations Act 2001 and the Australian Securities and Investments Commission Act 2001 (you may need an AFSL licence to deal in, or provide financial advice in relation to, ACCUs although in most cases the safe dealing exemption will apply for parties buying or selling ACCUs on their own behalf).
If an ACCU is used as collateral for a debt, a lender can register their security interest under the collateral class “investment instrument” on the Personal Property Securities Register (PPSR).
For accounting purposes, ACCUs sit outside IFRS 9 (financial assets) and may be classified as inventory (IAS 2), intangible assets (IAS 38) or government grant-related assets (IAS 20) depending on the holder’s circumstances.
Income from the sale of ACCUs can lead to concessional tax treatment for ATO purposes as “primary production income” if the person claiming such relief is an eligible primary producer (as opposed to a non-farming third party professional project proponent) – but this is a complex area of tax law requiring expert advice.
2.4 Permanence Obligations and Carbon Maintenance Orders
When the CER issues ACCUs for a project, a “permanence obligation” attaches to the Project Proponent for a “permanence period” — typically 25 or 100 years from first issuance. The Project Proponent must maintain the carbon stored in the land for that entire period.
The permanence obligation is not, of itself, a registrable interest on land title and does not “run with the land” (although there may be arguments that a subsequent purchaser of land who has actual or constructive notice of a permanence obligation may be bound by it in equity as a restrictive covenant or as an equitable interest arising from the regulatory regime).
The CER publishes permanence data (including permanence period start dates) on the CER Project Register which enables the public to see all carbon projects in Australia.
State land titles offices (such as NSW Land Registry Services) presently do not show the permanence obligation on title or register a permanence obligation as a standard "legal interest" or encumbrance on title. This gap is a material risk for lenders and practitioners who rely solely on title searches.
If there is a significant carbon loss event or other negligent or bad behaviour (i.e., the provision of false or misleading information), a relinquishment notice may be issued by the CER. If this notice is not complied with, the CER may seek pecuniary penalties or issue a formal Carbon Maintenance Obligation (CMO) in relation to the project. CMOs are rare and are characterised as a compliance measure of last resort.
A CMO is a statutory encumbrance (s92(4) of the CFI Act) that runs with the land, binding successors in title and occupiers, which obliges the owner or occupier of the land (who may not be the Project Proponent) to ensure carbon stores do not fall below the benchmark sequestration level.
At present, the CER provides a copy of the CMO to the relevant state land titles office, but these offices do not consistently show the CMO on title (as state Torrens registries only record statutory encumbrances where state legislation recognises the class of encumbrance). This is not a great state of affairs.
There are particular rights for registered proprietors, lessees, or other land interest‑holders to register carbon rights on title in Western Australia.
Best practice for persons interested in lending to rural landholders would be to review both the state land titles register and the federal CER project register to discover whether there is a carbon project over land.
When seeking to sell land or utilise the land for credit or valuation purposes landholders and borrowers will need to disclose the arrangements that give rise to a permanence obligation and the existence of a CMO (if any) to buyers or lenders.
Landholders who fail to disclose a permanence obligation or CMO to a buyer or lender face liability under property, contract, banking and misrepresentation laws.
2.5 Summary of Legal Obligations
The three key parties in a carbon project each carry distinct responsibilities.
The Project Proponent has legal obligations to the Commonwealth as both the Project Proponent and the selling party in a Carbon Abatement Contract.
The landholder has legal obligations to:
- the Commonwealth to ensure carbon stores do not fall below a set "benchmark level" if a CMO is place;
- the carbon service provider under a carbon project agreement:
- for access, maintenance and related matters;
- to potentially transfer a percentage of ACCUs to the carbon service provider (if that is the commercial arrangement); and
- to novate the carbon project agreement to new buyers of land; and
- any potential lender or purchaser of their land, to notify them of the existence of the carbon project and the Project Proponent’s interest in the land.
The carbon service provider under a carbon project has legal obligations to the landholder to conduct carbon measurement, project compliance and other services and to potentially transfer either an income stream form the sale of ACCUs or a percentage of ACCUs to the landholder (if that is the commercial arrangement).
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3 Insolvency Issues
When parties involved in carbon projects are placed into receivership, administration or liquidation (Insolvency Proceedings), receivers, administrators and liquidators (Insolvency Practitioners) need to be aware of specific issues under the CFI Act, accessing title to ACCUs and how these appointments affect various contractual relationships.
3.1 Appointment
Nothing in the CFI Act or CER’s FPP guidance indicates that the appointment of an Insolvency Practitioner suspends the project, invalidates the proponent status or triggers any requirement to pause administration.
A newly appointed Insolvency Practitioner must notify the CER of their appointment because the CER requires notification of any changes to the project or project participants. Notification is required for changes relevant to the FPP status, changes in the legal right to run the project or changes to project participant details.
There is no requirement for an Insolvency Practitioner to obtain CER approval before appointment.
3.2 Appointment and FPP Status Risk
Project Proponents and the legal owners of ANREU accounts need to maintain their FPP status to maintain their rights.
At present the CER does not require Insolvency Practitioners to seek FPP status since they do not become the Project Proponent or the holder of the ANREU account upon appointment.
When an Insolvency Practitioner steps into management and control of an ANREU account, there is no change in the legal owner of the account. Ownership of the ANREU account does not vest in the Insolvency Practitioners, nor is there any statutory mechanism by which such vesting occurs.
If the Insolvency Practitioner wants to become an “authorised representative” on the borrower’s ANREU account, they will need to apply for and obtain FPP status.
The appointment and notification process needs to be managed carefully as the appointment of an Insolvency Practitioner is expressly recognised by the CER as a factor relevant to FPP status and the CER may reconsider the proponent’s FPP standing as a result of such an event.
The risks of adverse compliance consequences increases if the appointment of an Insolvency Practitioner precipitated from poor governance, a failure to meet carbon project obligations or a failure to maintain systems and processes to ensure compliance.
The consequences of FPP revocation are severe. If the FPP status is revoked as a result of event surrounding the appointment of the Insolvency Practitioner, the project is then removed from the ACCU scheme and the CER may require the Project Proponent to return the same number of ACCUs issued over the life of the project.
Due to the need to carefully manage these sensitive issues, an Insolvency Practitioner should consider appointing legal counsel to manage this process with the CER.
3.3 Who Owns the ACCUs?
ACCUs are personal property issued into a Project Proponent’s ANREU account. They may be subject to:
- contractual obligations (under carbon project agreements or carbon abatement contracts);
- security interests under the under the Personal Property Securities Act 2009 (PPSA); or
- trust arrangements with landholders or service providers.
An Insolvency Practitioner will need to determine whether any ACCUs are encumbered, whether any contractual delivery obligations exist and whether dealings with ACCUs are lawful given outstanding reporting or audit obligations.
If a conflict arises between the CER’s statutory right to require the surrender (return) of ACCUs (a relinquishment notice) and a secured creditor’s interest, practitioners will need to seek legal advice to provide guidance. There are arguments that since a statutory compliance obligation is not a debt claim, this will override a secured creditor’s interests, but this is unlikely to be considered settled law.
In relation to the issue of future ACCUs, if the Project Proponent is an individual who is “insolvent under administration” the CER will not issue ACCUs to that person as they no longer meet the FPP test.
3.4 Project Proponent Obligations
Insolvency Practitioners do not automatically become the Project Proponent and do not inherit statutory obligations under the CFI Act. The statutory obligations remain with the Project Proponent unless a formal "variation of the project proponent" is approved by the CER.
Insolvency practitioners may need to apply for a variation if the proponent entity has ceased to trade or cannot meet obligations.
In the administrator’s or liquidator’s role of managing the company’s affairs they must assist the company to continue to undertake its reporting, auditing and maintenance obligations.
3.5 Vesting and Competing Rights
The CFI Act is silent on what occurs to ACCUs when an Insolvency Practitioner is appointed. As a result, the appointment of an Insolvency Practitioner to a Project Proponent raises complex questions about how ACCUs and carbon project rights “vest” under Australia’s insolvency legislation. Vesting specifics and thresholds will differ depending on whether the Insolvency Practitioner is an administrator, receiver or liquidator.
ACCUs are statutory personal property recorded only in the ANREU Registry. The CFI Act does not automatically transfer or vest legal ownership of these units to an external controller upon the commencement of administration or liquidation. ACCUs remain the legal property of the ANREU account holder during Insolvency Proceedings and do not vest in these parties unless a specific application is made to the CER. Upon appointment, Insolvency Practitioners receive various powers to deal with ACCUs, for the benefit of creditors and subject to the statutory regime, but legal title remains with the ANREU account holder.
This is similar to other statutory or licensed assets such as water entitlements, gaming licences or telecommunications spectrum licences.
As vesting is not absolute, practitioners need to be review how their actions affect competing rights including PPSA‑perfected security interests, ACCU‑splitting arrangements, statutory surrender obligations and contractual rights of carbon service providers.
Insolvency practitioners will also need to identify whether ACCUs are unencumbered property of the company, subject to a secured creditor’s registered interest or held beneficially for another party under a carbon project agreement.
3.6 Contract Termination Upon Insolvency
The appointment of an Insolvency Practitioner may trigger termination of contracts rights.
If the Project Proponent has a carbon abatement contract with the Commonwealth, the CER has conditional rights to terminate the contract upon the Project Proponent becoming insolvent or upon the appointment of an Insolvency Practitioner. This right to terminate is conditional upon cure periods and can be potentially voided by novation of the CAC to another party. Practitioners should also review whether the ipso facto regime may act to stay termination rights.
If the entity in administration is not the landholder, their rights to conduct project activities on the project land may be at risk if insolvency triggers termination of the carbon project agreement.
3.7 Selling Land with a Permanence Obligation or CMO
When selling land subject to a permanence obligation or CMO, Insolvency Practitioners will need to inform new buyers of the existence of the obligation or the statutory encumbrance. This may affect land value and saleability.
If the original landholder was the Project Proponent, the role of Project Proponent needs to be resolved. It can be formally transferred to the new owner via a variation with the CER. If not transferred, the new owner runs the risk the CER will place a CMO over the land.
3.8 Sale Complications Caused By Carbon Project Agreements
A carbon project agreement between a landholder and a carbon service provides will typically contain a clause barring any future transfer of an interest in the Project Land until the carbon project agreement has been novated to the new purchaser of the land. This requirement can complicate a quick and efficient sale of land, especially if the proposed buyer of land does not want to accept the novation of the agreement.
In this scenario the Insolvency Practitioner (as seller) has a number of sub-optimal options.
The seller could seek to cancel the carbon project with the CER – in which case the seller will need to go through a formal cancellation process with the CER which may result in the CER requiring the return of all ACCUs issued in relation to the carbon project. If the landholder has already sold or transferred ACCUs to third parties, the seller will need to buy ACCUs in the public markets which may be prohibitively expensive.
The seller could also seek to cancel their carbon project with the carbon service provider – but this will likely involve heavy exit fees or limited termination rights.
Another option would be to seek to renegotiate the carbon project with the carbon service provider (but the sale parties have minimal leverage with the carbon service provider in these negotiations).
Finally, if the seller has been unable to cancel or amend the terms of a sub-optimal carbon project, the seller may have to reduce the sale price to compensate the buyer for taking on these sub-optimal long term commercial arrangements.
3.9 Foreign Parties
Practitioners will also need specific advice when a Project Proponent, carbon service provider or lender is a foreign entity or where the financing arrangements involve cross-border elements.
Issues arise when a foreign entity seeks to hold an ANREU account, whether the parties need to recognise foreign insolvency proceedings and the governing law of ACCU transactions and carbon project agreements.
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4 Lender Issues
Carbon projects create both complications and opportunities for lenders. Opportunities include new collateral that can be secured to improve lender certainty and recovery rights. This new collateral includes land-based carbon rights, ACCUs (personal property), and contractual carbon rights.
4.1 Land
Unlike ordinary rural land, land under a carbon project carries distinct, registrable rights, long‑term obligations, and non‑land personal property (ACCUs). When seeking to enforce debts, rural land with a carbon project provides additional collateral over and above land without a project and additional sale complications.
When valuing land and agribusiness operations for use as collateral, Lenders need to be aware that land and agribusiness operations subject to a carbon project are valued differently to unburdened land and operations due to the land use restrictions required by carbon projects and obligations placed on landholders and agribusiness operations to maintain carbon projects. Consideration also needs to be given to the financial and environmental benefits flowing from carbon projects. Valuation requires knowledge of both the legal restrictions and the environmental and economic benefits contained within carbon project agreements and arrangements.
In relation to land-based carbon rights, lenders in Western Australia (WA) can seek specific mortgages or charges over registered carbon rights or carbon covenants primarily because the Carbon Rights Act 2003 (WA) uniquely validates these rights as a new, distinct statutory property interest that can be registered directly on WA land titles. There are less developed statutory registration regimes in NSW, SA, Queensland and Victoria.
4.2 ACCUs
In relation to utilising ACCUs as collateral, lenders can seek registration of their security over ACCUs as personal property on the PPSR while also seeing administrative and contractual rights related to the borrower’s ANREU account.
Whilst ANREU accounts will not display security interests over ACCUs, control perfection rights are available to the lender if they become an “authorised representative” on the borrower’s ANREU account. This status allows lenders to view details of the registry account, initiate ACCU transfers and approve transactions. To become an authorised representative a lender must apply for and obtain FPP status.
A lender holding a perfected PPSA security interest does not have an automatic right to instruct the CER to transfer ACCUs upon default. The lender will need to enforce through the ordinary process – an appointment of a receiver, an exercise of the power of sale and a transfer through the ANREU Registry either as authorised representative or through a court order.
4.3 Contractual Rights
Lenders to landholder borrowers need to ensure rights in carbon project arrangements can be assigned to them in receivership and that carbon service providers consent to their interest.
Carbon project agreements should be reviewed by lenders as part of their due diligence to potentially consider lender friendly amendments and to understand whether enforcement activities trigger any adverse contractual outcomes that lower the economic value of the carbon project and land.
Contractual carbon rights contained in the carbon project agreement and the Carbon Abatement Contracts can be secured by registering a general security agreement or deed with the PPSR.
4.4 Farm Debt Mediation
When enforcing debts related to carbon projects, it is unlikely, though not impossible, that carbon project rights and issues will form part of the mandatory mediation processes affecting farm debts in Australia (via the state-based farm debt mediation acts or FDMAs).
Whether a carbon project is deemed part of a "farming operation" (a primary production business) will depend on the fact situation and each applicable state law. If a carbon project is intertwined with a farm’s primary production, it may become part of the mediation, whereas a pure carbon project or a project with a third-party service provider as Project Proponent would be highly unlikely to attract any mandatory mediation rights under a FDMA.
A lender providing finance to a pure carbon project is unlikely to be required to attend a mediation under a FDMA - even less so if lending to a project proponent who is not a farmer.
Practitioners should seek advice in this scenario because a lender’s failure to comply with FDMA requirements in certain states renders enforcement action void.
5 Borrower Issues
Landholding and agribusiness borrowers, who plan to be Project Proponents, can establish a separate corporate entity as the Project Proponent to access any tax, liability or family succession advantages or protections that may be available.
When structuring for succession, farming families can establish a new corporate entity to act as Project Proponent and hold ACCUs. They can then either transfer shares in this entity or the underlying ACCUs during a succession. This strategy creates liquid, off‑farm assets that can be distributed between heirs – see https://www.millsoakley.com.au/insights/carbon-farming-and-succession-how-a-properly-structured-carbon-project-can-assist-with-farm-succession/
When seeking new lines of credit that only utilise ACCUs as collateral, a borrower can establish a new corporate entity to conduct the carbon project and receive the ACCUs. They could then utilise this entity or these assets as collateral separate from the farming operation’s other assets which may already be utilised as collateral.
Landholders or agribusinesses who are both borrowers and carbon project participants need to understand the land use restrictions, ACCU-splitting obligations and novation requirements that come with a carbon project and the need to manage these issues when they seek to refinance, sell their land or restructure their affairs.
6 Valuation Issues
Valuing land with a carbon project is difficult and requires an examination of the underlying commercial and legal arrangements between the landholder and the carbon service provider. These arrangements are documented in lengthy and complicated carbon project agreements that non-lawyers often struggle to comprehend. Conducting this review is essential as the outcomes from these arrangements can have a substantial effect on the value of the underlying land and related farming operations.
When establishing a carbon project, a landholder must agree a land or vegetation management plan, which outlines how they plan to manage their land to create and preserve carbon credits. This may prevent a grazier from commencing cropping or a no-till cropper from resorting to traditional tillage methods. Furthermore, parts of a property may need to be managed in a specific manner for the life of the project and the landholder may be required to expend resources on fence lines, fire breaks, pest control, etc when they would prefer to expend these resources elsewhere.
Under a carbon project, benefits of carbon projects can be distributed early or be unfairly apportioned. Carbon project arrangements can involve forward sale arrangements, expensive land and maintenance obligations, complicated service fees and unfair ACCU splitting arrangements that may direct a substantial portion of future benefits to third parties. A potential new purchaser of land may baulk at inheriting contractual obligations under which they inherit all the burdens but none of the benefits of a carbon project.
Basically, some carbon project will be land value positive while others will be land value negative – depending on the terms of the agreement.
Sub-optimal carbon project agreements will lower property value by requiring the landholder to commit future resources to produce ACCUs for a third party at little or minimal benefit to themselves. They can also force a farmer to manage land in a less profitable manner.
Landholder friendly carbon project agreements will raise property value by providing long-term income streams for a prudent landholder while providing significant co-benefits to a related primary production business. Increased soil carbon provides ACCUs and also leads to greater paddock carrying capacity while carbon friendly vegetation management creates ACCUs while also improving soil performance in adjacent land.
7 Takeaways
Here are our key takeaways:
- Carbon projects and ACCUs represent a new legal landscape for insolvency practitioners, lenders, borrowers and valuers.
- The legal instruments created by carbon projects – ACCUs, permanence obligations, CMOs, CACs and complex multi-party carbon project agreements – create security, contractual, valuation and insolvency complications.
- Practitioners need to understand and amend their documents and processes to accommodate these new laws, obligations, assets and encumbrances so they can operate within the law, secure their rights and fulfil their duties to their clients, creditors and shareholders.
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This article is commentary only, not legal or tax advice.
Matt Egerton‑Warburton is a Partner specialising in carbon projects and related legal issues. He advises farming entities, agribusinesses, carbon service providers and other private and public clients.
Kirsten Farmer is a Partner specialising in restructure and insolvency and dispute resolution. Kirsten is a Committee Member of the NSW/ACT Division of the Australian Restructuring Insolvency and Turnaround Association and a member of the Insolvency and Reconstruction Law Committee of the Law Council of Australia.
Mills Oakley offers a full range of legal services to borrowers, lenders, valuers and insolvency practitioners in the carbon market.
Matt has published previously on “Carbon Project Agreements – Landholder Risks and Recommendations” and “Carbon farming and succession – How a properly structured carbon project can assist with farm succession”