One of the most vexing commercial insolvency issues is the
competition between creditors with security on environmentally
troubled property and environmental authorities looking for deep
pockets to fix the environmental problems. From a
creditor's point of view, a recent Alberta decision is a
potential respite from environmental obligations being imposed on
creditors of the owners of environmentally troubled
Most countries have environmental protection legislation which
follows a predictable pattern of seeking to place the costs of
dealing with environmental problems on the property owner or
creditors who have some involvement such as possession or direct
management of the property. In some cases, the creditors may
have no knowledge that anything was wrong with the property but
regulators may be looking for deep pockets. The issue is
whether the creditors of the owner of an environmentally impacted
property are, or should be, responsible for cleaning up
environmental problems created or left by someone else.
A recent Alberta case (Re Redwater Energy Corporation,
2016 ABQB 278 (Chief Justice Wittmann)) reached a more
commercially reasonable outcome for creditors. The borrower
was a public company with interests in a number of oil and gas
properties. It fell into financial difficulties and was unable
to repay its indebtedness to its lender. The lender applied to
the Court for the appointment of a receiver and, subsequently, the
borrower was placed in bankruptcy. The environmental
authorities issued orders directed at the receiver to comply with
environmental legislation requiring the reclamation and remediation
of environmentally troubled property. With no value in the oil
and gas leases on the properties in question, the trustee proceeded
to disclaim (reject) its leases of the troubled
properties. The environmental authorities then sought an order
compelling the trustee to remediate the environmentally troubled
In an extensive opinion, the Chief Justice of the Alberta of
Queen's Bench Court denied the relief sought by the
regulators. The Court concluded that the remediation and
reclamation sought by the Provincial regulators conflicted with the
provisions of the Federal Bankruptcy and Insolvency
Act. The Court ruled that in view of the Federal
pre-eminence in bankruptcy jurisdiction, where the Provincial
legislation was in conflict with the Federal bankruptcy
legislation, the Provincial legislation was not
enforceable. It was important to the Court's conclusion
that the trustee had not taken possession of the environmentally
troubled property and the result might have been different if it
The decision is a welcome analysis in a complicated area where
decisions have often gone against creditors. It seems that
careful planning by the trustee led to a result that was favourable
to the creditors of the borrower. In view of the importance of
the Court's decision, we have probably not heard the last of
this case. We will keep readers posted on any important subsequent
developments in the case. Copies of the decision are available
from any member of our Restructuring and Insolvency Group.
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.
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The Canadian bankruptcy regime was designed with two key purposes in mind – provide options to ‘honest but unfortunate' debtors struggling with an unmanageable financial load and create an orderly means for creditors to recover amounts owed them.
The Court of Queen's Bench of Alberta authorized a disposition of a debtor's assets by a receiver immediately upon appointment and without being forced to conduct a marketing process within the receivership proceedings.
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