Category: Bankruptcy and Insolvency Page 3 of 6

By: Jassmine Girgis

PDF Version: BIA Preference Payments: Evidence Rebutting the Presumption must be Objectively Reasonable

Case Commented On: Gustafson (Re), 2018 ABQB 77 (CanLII)

Introduction

Legislation that governs fraudulent preferences applies if a debtor elects to pay only one or a few of his creditors and not the others, with the consequence of preferring certain creditors. These transfers are improper if they are made on the eve of the debtor’s bankruptcy. Preferences are governed provincially, by the Fraudulent Preferences Act, RSA 2000, c F-24, and federally, under the Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA). This case deals with the preference provisions in the BIA.

The False Security of Commingled Trust Accounts

By Nigel Bankes

On December 8, 2017

In Bankruptcy and Insolvency, Oil & Gas

By: Nigel Bankes

PDF Version: The False Security of Commingled Trust Accounts

Case Commented On: Alberta Treasury Branches v Exall Energy Corporation, 2017 ABQB 602 (CanLII)

Working interest owners in the western sedimentary basin have long sought to have the best of both worlds: the convenience of allowing an operator to commingle joint account monies from multiple properties in a single general account, while offering (through the provisions of the Canadian Association of Petroleum Landmen (CAPL) operating procedures) the contractual assurance to non-operators that their funds were impressed with a trust while in that commingled account. The weakness of such an assurance is that its underlying premise is that the operator will always have a balance in that commingled general account equal to or greater than the amounts represented by the “monies of the joint operator”, whether those monies are monies contributed by a joint operator to fund joint operations or whether they represent monies received by the operator on account of the sale of a joint operator’s share of production. If that premise turns out not to be the case then a joint operator’s proprietary claim evaporates. The premise of course is most likely to be false when the operator is in financial difficulty – the precise point in time when a joint operator would like to have access to a proprietary remedy.

Orphan Well Association v Grant Thornton Limited: What’s at Stake in Redwater

By Fenner Stewart

On November 15, 2017

In Bankruptcy and Insolvency, Oil & Gas

By: Fenner L. Stewart

PDF Version: Orphan Well Association v Grant Thornton Limited: What’s at Stake in Redwater

Case Commented On: Orphan Well Association v Grant Thornton Limited, 2017 ABCA 124 (CanLII) (leave granted)

I. Introduction

This week, the Supreme Court of Canada (SCC) granted leave to the Alberta Energy Regulator (AER) to hear its appeal of Orphan Well Association v Grant Thornton Limited (Redwater) (for more on the Redwater decision, see Nigel Bankes’ post). The Court of Appeal’s decision in Redwater has punched a hole in the AER’s program for ensuring that licencees of oil and gas wells have the capital necessary to satisfy their reclamation and abandonment obligations. The ruling effectively allows trustees in bankruptcy to disclaim worthless assets (e.g., non-producing wells where the abandonment process is not yet complete), while selling valuable assets (e.g., producing wells). Redwater grants secured creditors the best chance possible to be compensated from the bankrupt’s assets, while guaranteeing that Alberta’s oil and gas industry (and potentially taxpayers) pay the cost for the bankrupt’s reclamation and abandonment obligations. As things stand today, if Redwater is not reversed, even more wells will be orphaned, adding to the already alarming number on the books of the Orphan Well Association (OWA).

Green Regs and Ham: Some Thoughts on Contaminated Sites, the Redwater Decision and the Principle of Intergenerational Equity

By Nigel Bankes

On October 5, 2017

In Bankruptcy and Insolvency, Environmental, Oil & Gas

By: Nigel Bankes

PDF Version: Green Regs and Ham: Some Thoughts on Contaminated Sites, the Redwater Decision and the Principle of Intergenerational Equity

Note: This post is a revised version of remarks presented at the Fifth Green Regs and Ham Breakfast convened by the Environmental Law Centre, Edmonton on October 3, 2017. The session was entitled “Municipal Environmental Jurisdiction: Contaminated sites and hockey fights” but my remarks principally addressed liability for abandonment and reclamation of oil and gas wells and facilities.

Good morning. I acknowledge that we meet on the traditional territory of Treaty 7 First Nations, the Blackfoot, Tsuu T’ina, and Stoney First Nations. It is particularly important to acknowledge that connection given that we are talking today about our stewardship and custodial responsibilities for the land (and perhaps more specifically our failings).

There are three parts to the presentation: first, I will offer some remarks on the Court of Appeal’s decision in Redwater; second, some comments on a recent paper from the CD Howe Institute dealing with oil wells (see, Benjamin Dachis, Blake Shaffer and Vincent Thivierge, “All’s Well that Ends Well: Addressing End-of-Life Liabilities for Oil and Gas Wells”) and third, I will conclude with some more philosophical observations on the importance of the principle of intergenerational equity.

Majority of the Court of Appeal Confirms Chief Justice Wittmann’s Redwater Decision

By Nigel Bankes

On May 3, 2017

In Bankruptcy and Insolvency, Constitutional, Environmental, Oil & Gas

By: Nigel Bankes

PDF Version: Majority of the Court of Appeal Confirms Chief Justice Wittmann’s Redwater Decision

Case Commented On: Orphan Well Association v Grant Thornton Limited, 2017 ABCA 124 (CanLII)

The background to this case is discussed in my post on Chief Justice Wittmann’s decision here. That post summarized that decision and its effect as follows:

Chief Justice Neil Wittmann has concluded that there is an operational conflict between the abandonment and reclamation provisions of the province’s Oil and Gas Conservation Act, RSA 2000, c O-6 (OGCA) and Pipeline Act, RSA 2000, c P-15 and the federal Bankruptcy and Insolvency Act, RSC 1985, c B-3 (BIA). Thus, a trustee in bankruptcy is free to pick and choose from amongst the assets in the estate of the bankrupt by disclaiming unproductive oil and gas assets even where (and especially so) those assets are subject to abandonment orders from Alberta’s oil and gas energy regulator, the Alberta Energy Regulator (AER). As a result, the value of the bankrupt’s productive assets is preserved for the benefit of secured creditors. AER abandonment orders do not bind a trustee with respect to the disclaimed properties and do not constitute costs of administration of the bankrupt’s estate. Since the trustee has no responsibility for disclaimed assets, the trustee should be in a position to transfer non-disclaimed producing assets to a third party purchaser without objection from the AER on the basis of any deterioration in the liability rating associated with the unsold non-producing assets. If either the AER or the Orphan Well Association (OWA) carries out the abandonment of the disclaimed assets such costs may constitute a provable claim in bankruptcy but, as a general creditor, the AER/OWA would likely only recover cents on the dollar.

The practical effect of this decision is that the AER’s authority to enforce abandonment orders at the cost of the licensee is unenforceable at precisely the time when the AER most needs to be able to exercise that power i.e. when the licensee is insolvent. Furthermore, one of the AER’s principal mechanisms to ensure that a licensee has assets on hand to cover its liabilities (its authority to withhold consent to the transfer of assets which result in the deterioration of a licensee’s ability to discharge its obligations) is no longer available. Thus, the entire provincial scheme for protecting Albertans from the abandonment costs in relation to non-productive wells is seriously compromised, and, as a result, in the case of a bankrupt licensee the costs of abandonment will necessarily be assumed by the Orphan Well Fund or the province. If the costs are assumed by the Fund this means that the industry as a whole bears the burden; if the costs are assumed by the province (perhaps by a cash infusion into the Fund) this means that all Alberta taxpayers bear the burden of discharging these abandonment and reclamation obligations. While this result flies in the face of any conception of the polluter pays principle it is, according to Chief Justice Wittmann, the necessary result of the interpretation of the relevant statutes and the application of the constitutional doctrine of paramountcy.

Two appeals were launched, one by the OWA and one by the AER. Four intervenors lined up in support of the appellants: Alberta, Saskatchewan, British Columbia, and the Canadian Association of Petroleum Producers (CAPP). Supporting the respondents was the Canadian Association of Insolvency and Restructuring Professionals. In reserved reasons the majority (per Justice Slatter with Justice Schutz concurring) dismissed the appeals. Justice Sheilah Martin dissented.