On December 7, 2012, the Supreme Court of Canada issued its ruling in Newfoundland and Labrador v. AbitibiBowater Inc., 2012 SCC 67 and in so doing, closed an important chapter in the successful cross-border restructuring of AbitibiBowater Inc. - now Resolute Forest Products - under the Companies' Creditors Arrangement Act (the "CCAA") and Chapter 11 of the U.S. Bankruptcy Code.
Facts of the Case
Abitibi, one of North America's largest integrated players in the forest products industry, operated sites in the Province of Newfoundland and Labrador, where Abitibi and its predecessors had carried on industrial activities since 1905. In late 2008, in apparent retaliation for Abitibi's commercial decision to close a timber mill in Newfoundland, the province adopted a law which had the effect of confiscating, with immediate effect and no compensation, substantially all of the assets, property and undertakings of Abitibi in the province, including Abitibi's interests in valuable hydroelectric assets. This law also cancelled all pending legal proceedings instituted by Abitibi against the province and denied Abitibi access to the province's judicial system to annul the law or to seek compensation.
In April 2009, in the midst of staggering financial difficulties, Abitibi filed for creditor protection under the CCAA and Chapter 11. As is customary in CCAA proceedings, a claims process for the orderly disposition of all claims against Abitibi was implemented. As part of this process, any person holding a "Claim" (defined in a broad sense) had to deliver a proof of claim with the court-appointed monitor prior to an established claims bar date, failing which such claim would be forever extinguished.
The province subsequently issued five injunctive orders against Abitibi under its environmental legislation. These orders required Abitibi to complete remediation actions in respect of several sites, none of which were under Abitibi's control and most of which had been expropriated by the province. The province also brought a motion for a declaration that the CCAA claims process did not bar the province from enforcing the orders. The province argued, among other things, that the injunctive orders were simply regulatory orders and not "claims" under the CCAA and therefore could not be stayed or subject to compromise in the CCAA restructuring process.
Abitibi contested the province's position and argued that a CCAA court has jurisdiction to subject "claims" to the claims bar process and to determine who the debtor's creditors might be. It also argued that, in that process, a CCAA court should seek to uncover the true nature of the orders. In that regard, it was submitted that the orders, despite being framed as injunctions, were financial or monetary in nature. As a result, any contingent liabilities or claims arising out of orders could be valued and compromised in the CCAA proceedings and were therefore within the reach of the ordinary jurisdiction regularly exercised by courts under the CCAA.
Supreme Court Ruling
In a 7-2 ruling, the majority of the Supreme Court, in reasons delivered by Madam Justice Deschamps, upheld Justice Gascon's first instance judgment which had found that the environmental orders were "claims" that could be affected under a CCAA plan of arrangement, and dismissed the province's attempt to obtain a declaration to the contrary effect. The Quebec Court of Appeal had refused to allow the province's motion for leave to appeal and as such, had therefore issued no ruling on the merits of this case.
The Supreme Court confirmed that a non-monetary order issued by a regulatory body against an insolvent debtor could (i) be considered "provable claims" in insolvency proceedings, provided there were sufficient facts indicating the existence of an environmental duty that would ripen into a financial liability owed to the regulatory body, and (ii) thus be affected under a CCAA plan of arrangement. This could take place even though the costs of complying with the orders were not quantified at the outset of the proceedings.
The Supreme Court ruling in Newfoundland and Labrador v. AbitibiBowater Inc. sets three requirements that must be met for an order to be considered a "claim" that can be subject to the insolvency process:
- There must be a debt, a liability or an obligation owed to a creditor;
- The debt, liability or obligation must be incurred as of a specific time;
- It must be possible to attach a monetary value to the debt, liability or obligation.
With respect to the third requirement, the Supreme Court affirmed the principle that contingent claims may properly be affected in insolvency proceedings provided that they are not too remote or speculative. In the context of environmental orders, this means that there must be "sufficient indications" that the body that triggered the enforcement mechanism will ultimately perform remediation work and assert a monetary claim.
The Supreme Court also recognized that environmental claims are already given specific, and limited, priority under the CCAA. To exempt environmental orders from CCAA claims processes would be inconsistent with insolvency legislation in addition to running against its very objectives, which include promoting fairness between creditors and finality in the insolvency proceedings for the debtor. In a corporate proposal or reorganization, "finality" involves allowing the debtor to make "as fresh a start as possible" after a proposal or arrangement is approved.
The interpretation of the CCAA and the objectives of insolvency legislation set forth in Newfoundland and Labrador v. AbitibiBowater Inc. is in line with that found in other recent Supreme Court precedents in CCAA matters, in particular Century Services Inc. v. Canada (Attorney General),  3 SCR 379. The impact of this case on insolvency matters is therefore expected to reach out beyond issues of environmental orders, to the determination of provable claims more generally. Abitibi was represented in the course of its restructuring under the CCAA by Stikeman Elliott LLP. Below are links to two articles that discuss the treatment of environmental claims in insolvency proceedings in relation to this particular case:
- MARTEL, Guy P., and REYNAUD, Joseph, "'Where you See an Order I See a Claim' - The Compromise of Historical Environmental Liabilities and the AbitibiBowater Restructuring", Commercial Insolvency Reporter, October 2010, Vol. 23, No. 1.
- DUNPHY, Sean F., MARTEL, Guy P. and REYNAUD, Joseph, "Unstoppable Force Meets Immovable Object: The Supposed Clash Between Environmental Law and Insolvency Law after AbitibiBowater", Journal of Insolvency in Canada, 2012 J.I.I.C., 35.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.