Since Nortel Networks Corporation, and a number of related
companies (together, "Nortel"), initially filed under the
Companies' Creditors Arrangement Act (CCAA) over two years ago,
the Ontario Ministry of the Environment (the "MOE") has
sought to hold Nortel responsible for environmental contamination
remaining on properties it once owned. Specifically, the MOE has
issued a remediation and prepared several other draft remediation
orders (together, the "MOE Orders"). Nortel estimated
that completing the work required by the orders would cost
approximately eighteen million dollars. Nortel has long maintained
that such environmental clean up orders should not be prioritized
ahead of obligations set out in their CCAA plan of arrangement.
Today, the Ontario Superior Court of Justice released its reasons
in a number of motions relating to these environmental matters,
brought together before Justice Morawetz.
Nortel sought a number of declarations and orders, as
authorization and direction that it cease performing any
remediation at or in relation to the sites named in the MOE Orders
a declaration that any claims in relation to remediation
requirements by the MOE or any other person against Nortel or their
current or former directors or officers in relation to the Sites be
subject to resolution and determination in accordance with the
terms of the Amended and Restated Claims Procedure Order and the
Claims Resolution Order already authorized by the Court;
an order repudiating or disclaiming any contractual obligations
to carry out remediation requirements on the sites;
an order declaring that the relief sought by the MOE Orders is
financial and monetary in nature and that the MOE Orders are stayed
by the general stay of proceedings already ordered by the Court at
the time of the CCAA filing;
a declaration that related proceedings before the Environmental
Review Tribunal in relation to the MOE Orders be stayed; and
advice and direction with respect to certain contaminated lands
still owned by Nortel.
The Court's decision turned heavily on whether the
obligations set out by the MOE Orders and under the Environmental
Protection Act can be characterized as financial obligations or as
performance or regulatory obligations. Nortel noted that the CCAA
already provides for the preferred treatment of certain
environmental liabilities. It argued that in light of this, the MOE
Orders constitute an effort to use measures outside the CCAA to
privilege the MOE's financial claims, which are more properly
dealt with exclusively within the CCAA framework. For its part, the
MOE argued that the CCAA provisions dealing with environmental
liabilities only address claims where the MOE is acting as a
creditor and do not address environmental liabilities generally.
Further, it argued, the obligations set out in the MOE Orders are
performance obligations which are not impacted by the CCAA
proceedings and that allowing Nortel to evade these
responsibilities amounts to an unfair shifting of expense from
Nortel's creditors, who chose to do business with the company,
to the taxpayers of Ontario.
The Court notes that it is "necessary to emphasize:
insolvency statues such as the CCAA and the BIA do not mesh very
well with environmental legislation. The environmental legislation
and its regulatory framework functions more effectively when
insolvency is not present." However, the Court determined that
it must find in favour of Nortel, concluding that the realities of
insolvency mean the MOE Orders can amount to nothing but an attempt
to enforce a financial obligation:
"There is no going forward business. Nortel is in a
position where it has no real option but to pay money to comply
with any environmental issue. In my view, if the MOE moves from
draft orders to issued orders, the result is clear. The MOE would
be, in reality, enforcing a payment obligation, which step is
prohibited by the Stay."
Recognizing the challenges this conclusion leaves in dealing
with the realities of environmental remediation costs, the Court
notes that the CCAA does make some provisions for recognizing
claims for clean-up costs of property still owned by a debtor
company. In this case, however, Nortel had sold its interest in
most of the properties subject to the MOE Orders prior to filing
under the CCAA. Alternatively, the Court suggests that the MOE
could file a claim as an unsecured creditor.
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guide to the subject matter. Specialist advice should be sought
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