As detailed in previous BD&P articles and updates, the litigation surrounding the insolvency of Redwater Energy Corporation (Redwater) has had profound ripples throughout the Western Canadian energy industry. The saga is now set to continue at the highest court in the country, with the Supreme Court of Canada having granted leave to appeal the case on November 9, 2017 on an expedited basis. While obtaining a final definitive ruling in the matter is desirable, in the meantime industry participants are left with the continuing uncertainties. The case will be heard in early 2018, but a decision is not expected for some time following the conclusion of the appeal.

The case involved Redwater, a junior oil and gas company, being pushed into insolvency proceedings by its primary secured creditor, Alberta Treasury Branches. The receiver/trustee, Grant Thornton Limited, in its mandate to realize on the estate, engaged potential purchasers on producing assets while "disclaiming" certain uneconomic assets. The Alberta Energy Regulator (AER) opposed these disclaimers and moved to enforce the requirements under the Alberta regulatory system. The primary concern of the AER was that if insolvent entities could disclaim any responsibility to reclaim oil and gas wells and facilities, then ultimately these liabilities would be paid by the Orphan Well Association, a non-profit entity funded partially by the energy industry-at-large and the Albertan taxpayers.

At the initial court ruling and on appeal, the case turned on the legal conflicts between the federally-administered insolvency administrative system and the provincially-administered energy regulatory framework. Ultimately, due to the legal doctrine of paramountcy, both levels of court determined that to the extent of the conflict in these laws, the federal laws must prevail. As such, the current law in Alberta is that receivers and trustees may indeed disclaim responsibility for the reclamation of unsalable wells and facilities. By disclaiming the assets, the receiver and trustee is asserting that such assets do not form part of the estate under the insolvency professional's care and control. The assets remain in the name of the defunct party, which is in most cases a shell entity without any remaining employees or agents.

With trickle-down effects for insolvency practitioners and other Western Canadian provinces watching anxiously for the impact on their own liability management regimes, the case will be one to watch. The AER has also hinted that legal amendments will be forthcoming to better address the current law, pending the result of this appeal. We will continue to update on the latest as the case progresses.

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