Provinces as Creditors for Remediation Costs07-Dec-12
By Sean Parker
Today the Supreme Court of Canada (“SCC”) released a decision finding that the Province of Newfoundland and Labrador is not exempt from claims proceedings under the Companies’ Creditors Arrangement Act (“CCAA”) relating to unfulfilled remediation obligations of an insolvent company. Due to general financial stress, AbitibiBowater Inc. ended industrial operations in the Province and filed for insolvency protection. Subsequently, the Province’s environmental regulator issued five orders requiring the company to submit and complete remediation action plans for five industrial sites it had occupied, three of which had been expropriated by the Province. The Province brought a motion for a declaration that a claims procedure under the CCAA in relation to the company’s proposed reorganization did not bar the Province from enforcing the remediation orders. The Province argued that orders issued by the regulator under provincial environmental legislation did not qualify as “claims” under the CCAA and were therefore not subject to insolvency or bankruptcy proceedings under that regime.
By a margin of 7:2, the SCC upheld the appellate court’s finding that the orders to remediate the subject sites would “ripen into a financial liability owed to the regulatory body that issued the order”, and therefore did qualify as a “claim” under the CCAA. The majority of the SCC found that “it is sufficiently certain that the regulatory body will perform the remediation work and be in a position to assert a monetary claim” for the work completed. The SCC therefore held that the remediation orders are monetary in nature, and the Province could participate in CCAA proceedings as a creditor of the insolvent company and claim the remediation costs incurred as a debt that must be accounted for in the restructuring process.
It is noteworthy that the SCC found it to be “sufficiently certain” that the remediation work would ultimately be performed by the Province. The importance of this finding was highlighted in the two dissenting decisions, which found that the Province has a number of options for dealing with the remediation required in the orders. It will be interesting to see how this decision will be interpreted and applied in relation to the responsibilities assumed by Provinces when issuing environmental protection orders, and the environmental obligations faced by companies involved in CCAA proceedings.
This decision is relevant to companies facing insolvency that also have outstanding remediation obligations because it suggests that governments might be on the hook for remediation costs and then treated as ordinary creditors, rather than enjoying a higher priority standing, as is the case for other government debts such as unpaid taxes.
SCC decisions create binding precedent for all courts across Canada, however each case is decided with regard to the specific facts and circumstances of the matter.