Pick and Choose: Federal insolvency law takes precedence over Provincial legislative scheme governing the Alberta Energy Regulator

Sean CollinsWalker W. MacLeodKimberly HowardCraig SpurnMark Keohane

On May 18, 2016, the Court of Queen’s Bench of Alberta released its much anticipated decision in Re Redwater Energy Corporation, 2016 ABQB 278, which addressed the Oil and Gas Conservation Act (OGCA), the Pipeline Act and the Bankruptcy and Insolvency Act (BIA).  The long running conflict involving the Alberta Energy Regulator (AER), receivers and trustees in bankruptcy,[1] including the settlement agreement reached in National Bank of Canada v. Spyglass Resources Corp., was previously discussed here.

The decision in Redwater by the Court resolves the conflict, for the time being, by indicating that:

  • a trustee is entitled to disclaim the debtor’s interest in a portion of the debtor’s AER licensed properties, including licensed properties and facilities that have negative value due to the fact of abandonment and reclamation obligations;
  • a trustee is entitled to assume possession or control over a portion of a debtor’s AER licensed properties and facilities, including the fact that a trustee does not have to assume possession and control over AER licensed properties and facilities with the associated abandonment and reclamation obligations;
  • a trustee is entitled, as a consequence of the foregoing, to sell a portion of a debtor’s AER licensed properties and facilities and the AER cannot refuse to transfer licenses to the purchaser in such circumstance only by virtue of the fact that the estate of the debtor will be left with AER licensed properties and facilities that will be disclaimed and not abandoned or reclaimed by the trustee; and
  • abandonment orders issued by the AER are “claims” within the meaning of federal insolvency law and subject to compromise therein.

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Federal Government Introduces Bail-In Legislation: Bill C-15

Ana BadourDaniel BénayLaure FouinMason GordonHeather L. MeredithCandace PalloneBarry J. Ryan

On April 20, 2016, the Canadian federal government introduced Bill C-15, which is legislation that provides for, among other things, a bank recapitalization or “bail-in” regime for domestic systemically important banks (“D-SIBs”).

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Are Equity Claims Always Subordinated to Non-Equity Claims in CCAA Proceedings?

Theodore Stathakos

The treatment of shareholder and other equity-related claims in the context of insolvency and reorganization proceedings in Canada was initially judge-determined and the case law generally accepted the premise that shareholders were not entitled to share in the assets of an insolvent corporation until after all the ordinary creditors have been paid in full.  In 2009 further clarity was brought to the issue by introduction of the “equity claim” to the Companies’ Creditors Arrangement Act, RSC 1985, c C-36 (“CCAA”).  An equity claim is defined to include (but is not limited to) claims for dividend payments, return of capital, retraction obligations, losses resulting from the ownership, purchase or sale of securities and claims for contribution and indemnity in respect of claims of this nature.  Section 6(8) of the CCAA stipulates that a compromise or arrangement cannot be sanctioned unless all non-equity claims are to be paid in full before the payment of any equity claims.  This codifies the common law rule that creditors’ claims rank ahead of shareholders’ claims and the expansive nature of the definition has been recognized in the leading appellate level authority on the issue.

The British Columbia Supreme Court decision in Re Bul River Mineral Corporation (“Bul River”) demonstrates that the “paid in full” requirement under section 6(8) of the CCAA can be subject to a flexible interpretation.  In that decision, the Court sanctioned a plan of arrangement that involved the issuance of shares in a restructured company to creditors with both equity and  non-equity claims; the creditors holding non-equity claims were deemed by the court to be paid in full even though these claims were not paid in cash. Continue Reading

Spyglass agreement presents consensual solution to LMR challenges

Sean CollinsWalker W. MacLeod

The Liability Management Rating (LMR) program administered by the Alberta Energy Regulator (AER) has created challenges for companies seeking to dispose of oil and gas assets and has resulted in litigation in a recent receivership matter (Alberta Treasury Branches v. Redwater Energy Corp., a summary of which is available here).  More recently, in National Bank of Canada v. Spyglass Resources Corp., the AER entered into an agreement with Spyglass’ court-appointed receiver and manager to deal with issues that were anticipated to be encountered in the marketing and sale of Spyglass’ assets.  The agreement and court approval will allow for dispositions of Spyglass’ assets to be completed even if Spyglass’ pro forma LMR falls below 1.0 as a result of the transaction (and provided there is no other material non-compliance of AER regulations by Spyglass). Continue Reading

Hot Off the Press – Defending Class Actions in Canada: A Guide for Defendants

Defending_Class_Action_Book_2016In the newly published fourth edition of Defending Class Actions in Canada: A Guide for Defendants, McCarthy Tétrault litigators offer valuable insights for business leaders and professionals exposed to class actions as well as their counsel.

This easy-to-read book outlines the procedural machinery of Canadian class actions and the law that governs them, provides strategic analysis on managing the risks they entail, and explains the most important recent developments and trends on a national and international scale.

Edited by Jill Yates and written by Alexandra Cocks, Sarah Corman, Jessica Dorsey, Christopher Hubbard, Miranda Lam, Jean-Francois Lehoux, Elder C. Marques, Kelli McAllister, Michael J.P. O’Brien, Julie Parla, Renee Reichelt, Michael Rosenberg, and Bryan West, the fourth edition of Defending Class Actions in Canada can be purchased here.

This article was original posted on the Canadian Class Actions blog on February 17, 2016.

CCAA Debtor in Possession Financing without “Adequate Protection”

Walker W. MacLeod

There are a number of similarities between restructuring legislation in Canada and the United States.  Each of Canada and the United States have adopted a form of the UNCITRAL Model Law Cross-Border Insolvency in order to facilitate cooperation and efficient administration of cases with an international component.  In Canada this has occurred through implementation of both Part XIII of the Bankruptcy and Insolvency Act (Canada) and Part IV of the Companies’ Creditors Arrangement Act (Canada) while in the United States Chapter 15 of the Bankruptcy Code (United States) is used in cases involving foreign recognition. The CCAA and Chapter 11 of the Code  both offer certain advantages for debtors undergoing complex reorganization proceedings with multiple stakeholder groups in that each permits the debtor to remain in possession of its assets, affords the debtor a stay of proceedings, segregates affected creditors into classes and provides for the compromise and extinguishment of claims as part of the implementation of a restructuring plan.  Continue Reading

Ending Too-Big-To-Fail –TLAC and the Canadian Bail-in Regime

Ana BadourEmma Sarkisyan

Following the financial crisis, a number of reforms have been proposed, both in Canada and internationally, aimed at limiting the risk of future taxpayer funded bail-outs for the largest financial institutions (so-called “too-big-to-fail” institutions), including proposals that will result in the imposition of new capital standards for such institutions. Continue Reading

Fiduciary Duties of Directors and Officers in the “vicinity of insolvency”

Walker W. MacLeod

Individuals who serve as directors or offices of public companies in Canada face an increasing amount of shareholder litigation and a complex web of legal and regulatory provisions that must be  managed, navigated and adhered to.  The challenge to directors only increases when the company is insolvent, on the eve of insolvency or otherwise in some form of financial distress.  If the insolvency is driven by a liquidity crisis the company may be hard-pressed to maintain day-to-day operations and preserve going concern value for stakeholder groups.  Alternatively, if the problem is caused by a heavily leveraged balance sheet the company is at risk of breaching debt covenants, facing resulting creditor enforcement activity and the potential loss of control of the company’s assets.  In either instance it is particularly important for directors to operate with a heightened awareness of their fiduciary and other duties and knowledge that personal exposure may result from ill-informed decisions that harm the interests of third-parties. Continue Reading