In the Wake of Redwater: Environmental Claims in the Context of Canadian Bankruptcy and Insolvency Law

by Cindy Kim, winner of the 2021 NEERLS Law Student Essay Contest - Gowling WLG - David Estrin Prize.

I. INTRODUCTION

This article reviews the untidy intersection between environmental claims and insolvency proceedings. It will then review the impact of Orphan Well Association v Grant Thornton Ltd on the insolvency regime in Canada.¹ In particular, this article looks at how courts decide whether regulatory orders are treated as provable claims in the context of the Companies’ Creditors Arrangement Act (CCAA).² The majority of the Supreme Court of Canada (SCC) in Redwater held that the obligation to reclaim abandoned oil wells were not claims provable in bankruptcy but were duties owed to the public that had to be fulfilled by the debtor’s estate prior to making any distribution to creditors.³

Part II will provide the relevant background, setting the context for environmental liabilities in insolvency proceedings. In order to determine to what extent environmental liabilities are considered to be a provable claim or public duty, Part III will review caselaw in this area, with a specific focus on the SCC decision of Abitibi.⁴ The subsequent application of Abitibi will be discussed using two cases, Nortel and Northstar, to compare and contrast. Then this section will provide an overview of the SCC decision of Redwater and how it altered the insolvency landscape. This part will then speculate on how courts would determine whether the orders in Nortel and Northstar were provable claims in bankruptcy or not.

II. BACKGROUND

In order to fully understand the analysis, this Part describes the statutory landscape concerning bankruptcy and environmental laws in Canada.

1. Overview of Canadian Insolvency Regime

Corporate bankruptcy and insolvency in Canada are governed primarily through federal statutes via the Bankruptcy and Insolvency Act⁵ (BIA) and the CCAA. Although the primary purpose of bankruptcy law remains a matter of scholarly debate, the general purposes include: to maximize value for creditors,⁶ to fairly distribute losses,⁷ to provide a fresh start, and to investigate the causes of insolvency or bankruptcy. Two defining features of bankruptcy and insolvency regimes are (1) the stay of proceedings against individual creditor enforcement actions and (2) the requirement that all claims must be brought to a single forum.

The BIA is a comprehensive scheme and consists of detailed provisions and rules, providing a more rigid framework for bankruptcy. In contrast, the CCAA can be more broadly interpreted and is still being developed by jurisprudence.⁸ In that way, the CCAA enables the debtor to carry on business and “where possible, avoid the social and economic costs of liquidating its assets”.⁹  “[T]he architecture of the CCAA leaves the case-specific assessment and balancing of these remedial objectives to the supervising judge” meaning that the CCAA allows for judicial discretion.¹⁰ The CCAA allows for increased flexibility compared to the BIA.

The general goals of the CCAA, although not defined in an express purpose clause, are to (1) maximise returns to creditors, (2) protect wider stakeholder interests, and (3) rehabilitate the debtor company where possible.¹¹ The CCAA provides a process for a financially troubled corporation to restructure outstanding debts using a formal plan of arrangement.¹² The BIA also contains a provision permitting insolvent persons and corporations to attempt to make a compromise with creditors to reorganize their affairs through consumer and commercial proposals. ¹³ The CCAA requires the appointment of a monitor, to inform the court of the debtor’s business and financial affairs.¹⁴ Once a company files for CCAA proceedings, the court generally issues an initial order that provides protective relief including a stay of proceedings that may be extended by further court orders.¹⁵ CCAA operates under the shadow of the BIA because if the plan of arrangement is not approved by the court or creditors, the stay is lifted, and the bankruptcy process in accordance with the BIA will apply:

Because the CCAA is silent about what happens if reorganization fails, the BIA scheme of liquidation and distribution necessarily supplies the backdrop for what will happen if a CCAA reorganization is ultimately unsuccessful…¹⁶

It is worth noting, however, section 18.6(1) of the CCAA¹⁷ and section 4.2(1) of the BIA¹⁸ require that any “interested person” in insolvency proceedings must “act in good faith”. However, because these amendments are recent, it is unclear what constitutes good faith, and this remains a potential area of uncertainty.

2. Environmental Liabilities and Insolvency

Environmental legislation in Canada is governed by both provincial and federal statutes. Although Canada has a federal environmental regulatory authority, provincial legislation governs the majority of enforcement orders.¹⁹ Each province in Canada has enacted environmental protection laws and have an environmental regulator that can order the assessment and clean-up of contaminated land.²⁰ Most environmental statutes such as the Canadian Environmental Protection Act, provide for a broad range of remedies for enforcement purposes including declaratory orders, interlocutory orders and administrative penalties.²¹

Section 14.06(7) of the BIA states that environmental claims for remedying any environmental condition or environmental damage affecting real property have super-priority status and are secured against the property and any contiguous real property related to the activity that caused the damage.²² The cost of remediation that is in excess of the value of the property ranks as an unsecured claim.²³ Regardless of when the environmental damage occurred, the claim is considered provable in bankruptcy.²⁴

Sections 11.8(8) and (9) of the CCAA also provide guidance for environmental claims:
(8) Any claim by Her Majesty in right of Canada or a province against a debtor company in respect of which proceedings have been commenced under this Act for costs of remedying any environmental condition or environmental damage affecting real property of the company is secured by a charge on the real property and on any other real property of the company that is contiguous thereto and that is related to the activity that caused the environmental condition or environmental damage, and the charge

1. is enforceable in accordance with the law of the jurisdiction in which the real property is located, in the same way as a mortgage, hypothec or other security on real property; and
2. ranks above any other claim, right or charge against the property, notwithstanding any other provision of this Act or anything in any other federal or provincial law.

(9) A claim against a debtor company for costs of remedying any environmental condition or environmental damage affecting real property of the company shall be a claim under this Act, whether the condition arose or the damage occurred before or after the date on which proceedings under this Act were commenced.²⁵

Section 11.8(8)(b) of the CCAA is analogous to section 14.06(7) of the BIA providing that environmental claims have a super-priority and are secured against the property. It is also important to note that the CCAA is informed by the BIA, therefore the caselaw and analysis for the BIA is also applicable to the CCAA.²⁶

3. Constitutional Conflict

Bankruptcy and insolvency law are primarily governed through federal legislation, whereas environmental law consists of statutes and regulations from both federal and provincial governments. As Dickson CJ wrote, “[t]he history of Canadian constitutional law has been to allow for a fair amount of interplay and indeed overlap between federal and provincial powers.”²⁷ Section 91(21) of the Constitution Act grants the Parliament of Canada exclusive jurisdiction over “Bankruptcy and Insolvency”.²⁸ Unfortunately, at the time of Confederation, the Constitution Act did not assign the “Environment” to either the federal Parliament or the provincial legislatures in section 91 or 92, respectively.²⁹ Therefore, because the jurisdiction of the “Environment” is shared between the provincial and federal government, environmental matters have an added layer of complexity and are a source of contention.³⁰

A conflict seemingly arises when a bankrupt or insolvent company is ordered through a provincial authority to clean up contaminated land. The bankruptcy and insolvency regime has strict rules in the BIA regarding the priority of creditors. Requiring a debtor to comply with a remediation order from a provincial regulator will result in fewer assets available to other creditors.

This issue was discussed in Redwater, where the majority of the SCC overturned the lower courts decisions and found that the “Regulator’s use of its statutory powers does not create a conflict with the BIA so as to trigger the doctrine of federal paramountcy”.³¹  Côté J provided a detailed dissent, stating that allowing a provincial regulator to disregard federal bankruptcy laws is “effectively displacing the “polluter pays” principle enacted by Parliament in favour of a “lender-pays regime.”³²

III. Insolvency Landscape Altered by Redwater

To understand the extent that Redwater altered the landscape on environmental claims in insolvency law, the case law history must be explained. This Part will provide an understanding of how environmental claims were treated in the bankruptcy and insolvency context in Canada, preceding Redwater. Specifically, this Part will answer what it means to have a provable claim in bankruptcy and when environmental regulatory orders are considered compromised claims under the CCAA.

1. Abitibi Test

In Abitibi, the central issue was whether certain regulatory orders issued by the province of Newfoundland and Labrador were “claims” for the purpose of the CCAA.³³ For over a century, AbitibiBowater Inc. and its subsidiaries (Abitibi) were involved with industrial activity in Newfoundland and Labrador.³⁴ Abitibi announced the closure of their last asset in the province in 2008.³⁵ Within two weeks of the announcement, Newfoundland and Labrador passed the “Abitibi-Consolidated Rights and Assets Act”, which was an Act that transferred most of Abitibi’s property to the province and “denied Abitibi any legal remedy for this appropriation.”³⁶ In April 2009, Abitibi sought a stay of proceedings under the CCAA.³⁷ In November 2009, Newfoundland and Labrador’s Minister of Environment and Conservation issued five orders under section 99 of the EPA.³⁸ The same day the EPA orders were issued, the Province brought a motion to declare that the claims procedure issued under the CCAA reorganization did not bar the Province from enforcing the orders, which were valued at “mid-to-high eight figures”.³⁹ Newfoundland and Labrador claimed that the EPA orders were non-monetary statutory obligations and were not “claims” under the CCAA.⁴⁰ If the EPA orders were not considered to be claims, then they would not be stayed or subject to a claims procedure.⁴¹ Abitibi argued that the EPA orders were monetary in nature and therefore should be subject to the claims procedure order.⁴²

What is a provable claim?

A “claim” is defined in the CCAA as “any indebtedness, liability or obligation of any kind that would be a claim provable within the meaning of section 2 of the Bankruptcy and Insolvency Act”.⁴³ The BIA defines a “claim provable in bankruptcy, provable claim, or claim provable” as “any claim or liability provable in proceedings under this Act by a creditor”.⁴⁴ Section 121 of the BIA elaborates on the definition of a provable claim, stating:

121 (1) All debts and liabilities, present or future, to which the bankrupt is subject on the day on which the bankrupt becomes bankrupt or to which the bankrupt may become subject before the bankrupt’s discharge by reason of any obligation incurred before the day on which the bankrupt becomes bankrupt shall be deemed to be claims provable in proceedings under this Act.
(2) The determination whether a contingent or unliquidated claim is a provable claim and the valuation of such a claim shall be made in accordance with section 135.⁴⁵

Section 135(1.1) of the BIA provides more guidance on the determination of provable claims:

(1.1) The trustee shall determine whether any contingent claim or unliquidated claim is a provable claim, and, if a provable claim, the trustee shall value it, and the claim is thereafter, subject to this section, deemed a proved claim to the amount of its valuation.⁴⁶

Based on these provisions, the SCC articulated a three-part test to determine whether to characterize environmental obligations as provable claims or not: “First, there must be a debt, a liability or an obligation to a creditor. Second, the debt, liability or obligation must be incurred before the debtor becomes bankrupt. Third, it must be possible to attach a monetary value to the debt, liability or obligation.”⁴⁷ If the three components of the test are met, the claim is considered a regulatory order that should be stayed and treated the same as other unsecured debts.

(1) The regulatory body must be acting as a creditor

The first step requires that the identification of a creditor. Environmental statutes generally create regulatory bodies that are empowered to enforce obligations imposed by the statutes.⁴⁸ Because of this, “Most environmental regulatory bodies can be creditors in respect of monetary or non-monetary obligations imposed by the regulatory statutes”.⁴⁹ At this stage, the “only determination that has to be made at this point is whether the regulatory body has exercised its enforcement power against a debtor.”⁵⁰ If the regulatory body has exercised its enforcement power against a debtor, it identifies itself as a creditor, therefore meeting the first step of the test.⁵¹

(2) The environmental obligation occur before or after the proceedings commenced

The second step of the test requires that the debt, liability or obligation is “incurred before the day on which the bankrupt becomes bankrupt.”⁵² Section 121(1) of the BIA imposes the time limit on claims, on which the test is based.⁵³ However, because the specific date that environmental harm occurs is difficult to pinpoint, the CCAA provides some flexibility. “A claim against a debtor company for costs of remedying any environmental condition or environmental damage affecting real property of the company shall be a claim under this Act, whether the condition arose or the damage occurred before or after the date on which proceedings under this Act were commenced.”⁵⁴ A parallel provision regarding a claim for clean-up costs is also articulated in the BIA.⁵⁵ A creditor’s claim can be exempt from the proceeding if the debtor company’s obligation occurred outside of the inclusion period of the insolvency process.⁵⁶ An example of this is if the debtor continues to pollute after the reorganization.⁵⁷

(3) It must be “sufficiently certain” that the environmental regulator will perform remediation

The third step requires that the potential claim have an attached monetary value. An example of this is when a regulatory order is framed in monetary terms, with an amount owed at a certain date.⁵⁸ In that case, it is clear that an indebtedness is being claimed, which falling within the meaning of “claim” as defined in section 12(1) of the CCAA.⁵⁹ When environmental or regulatory orders are not framed in monetary terms, additional analysis is required.⁶⁰ Environmental orders may come in many different forms, ranging from stop, control, preventative and cleanup orders.⁶¹ When an order is not obviously framed in monetary terms, “courts must look at its substance and apply the rules for the assessment of claims.”⁶²

When regulatory bodies are required to perform environmental remediation, the claim is subject to the insolvency process, but the claim is secured by a charge on the contaminated real property and other related property.⁶³ Unfortunately, when the costs of remediation are higher than the value of the real property, the remainder of the remediation costs are ranked as unsecured. Deschamps J rationalized this by stating: “If Parliament had intended that the debtor always satisfy all remediation costs, it would have granted the Crown a priority with respect to the totality of the debtor’s assets.”⁶⁴

The BIA and CCAA also include contingent and future claims, under the definition of “claim”, which would be unenforceable at common law or civil law.⁶⁵ In an insolvency context, courts will not include a contingent claim if the event that has not yet occurred, is “too remote or speculative”.⁶⁶ For environmental orders, “this means that there must be sufficient indications that the regulatory body that triggered the enforcement mechanism will ultimately perform remediation work and assert a monetary claim to have its costs reimbursed.”⁶⁷ If there are sufficient indications that a regulatory body will perform remediation work, then the claim can be included in the insolvency process.

In Abitibi, the first two parts of the test were satisfied; the Province was considered a creditor and environmental damage had occurred before the time of the CCAA proceedings.⁶⁸ The central issue was whether the third part of the test was met. “The question is whether it was sufficiently certain that the orders would eventually result in a monetary claim.”⁶⁹ The majority of the SCC agreed with the CCAA judge in ruling that it was sufficiently certain that the orders would result in a monetary claim.⁷⁰ The environmental order was ruled to be monetary in nature and met all three parts of the test, thereby meeting the definition of a provable claim.⁷¹ The motion requesting that the remediation orders be exempt from the claims procedure was dismissed.⁷² However, if the activities that were causing the environmental damage McLaughlin CJ dissented, claiming that the regulatory order was not a provable claim and that the third part of the test was not met; it was not sufficiently certain that the Minister would perform the cleanup work.⁷³

2. Subsequent Application of Abitibi

Nortel

Prior to Redwater, the most recent word from the Ontario Court of Appeal (ONCA) for applying the test articulated in Abitibi for environmental claims in the context of insolvency was Nortel.⁷⁴ In Nortel, the Ministry of the Environment (MOE) issued remediation orders for properties that Nortel had owned after Nortel had filed for CCAA protection.⁷⁵ Nortel brought a motion seeking an order declaring that the MOE orders were financial and monetary in nature and therefore should be subject to the CCAA stay.⁷⁶ The CCAA judge determined that because the company could only comply with the MOE order by expending funds, the liabilities were considered as claims in the CCAA process.⁷⁷ The CCAA judge did not have the benefit of the SCC decision of Abitibi, therefore the ONCA gave the parties leave to “file “fresh” factums and fresh evidence.”⁷⁸

The ONCA did not find that it was sufficiently certain that the MOE would perform the remediations ordered.⁷⁹ Three of the properties requiring remediation were no longer owned by Nortel therefore it is possible that the other current or formers owners would be liable to comply with the MOE orders.⁸⁰ The fourth property, located in London, Ontario, was still owned by Nortel. The portion of land retained by Nortel is worth less than the cost of remediating the land.⁸¹ Because the value of the land is worth less than the cost to remediate, the ONCA speculated that it was likely that the land owned by Nortel in London, Ontario would be abandoned.⁸² If the property becomes abandoned, no one would be available to carry out the MOE order for remediation. Therefore, other than the order for the London property, the MOE orders were not established to be provable claims and should not be included in the insolvency process.⁸³ The ONCA agreed with the CCAA judge that section 11.1(2) of the CCAA provides that when a regulator is solely acting in its regulatory capacity, “it can do so unimpeded by the Stay.”⁸⁴

Northstar

In Northstar, the MOE issued two remediation orders to the Northstar manufacturing facility in Cambridge, Ontario.⁸⁵ Northstar’s facilities and operations produced waste containing heavy metals that had been impacting the surrounding residential community.⁸⁶ The CCAA judge approved the sale of substantially all of Northstar’s assets except the contaminated site in Cambridge.⁸⁷ Northstar informed the MOE that it intended to abandon the contaminated site and terminate remediation work.⁸⁸ The CCAA judge concluded that the MOE orders were a claim because the orders would require Northstar to act a certain way and incur financial obligations to comply.⁸⁹ After the CCAA ruling, Northstar went bankrupt and the trustee abandoned the Cambridge property, so the MOE commenced remediation work.⁹⁰ The ONCA reviewed the CCAA judge’s decision and applied the Abitibi test, finding it “sufficiently certain” that the MOE would remediate the lands because the MOE had already begun remediation processes.⁹¹ The fact that the MOE commenced remediation work, established that the MOE orders were a claim provable in bankruptcy and should be subject to a stay.⁹²

Analysis

The first two parts of the Abitibi test are often met in the context of environmental remediation orders and insolvency. Therefore, the issue turns on the last criterion; is it possible to attach a monetary value to the debt, liability or obligation? The key question the court asks to determine this is whether it was “sufficiently certain” that the regulatory body asserting the obligation would perform the remediation work. If it was “sufficiently certain” that the regulatory body would perform the work themselves, the regulator was said to have been monetary in nature.

In Abitibi, it was sufficiently certain that the province intended to perform the remediation work itself and then assert a claim against the debtor company, therefore the province was acting as a creditor with a monetary claim. It is important to note, that the facts of Abitibi were unique, in that the provincial government expropriated the land owned by the debtor company and prohibited the company from commencing legal proceedings. The facts of the case suggested that the province had been attempting to seek monetary claims from the debtor company. The orders were deemed to be provable claims and therefore subject to insolvency proceedings. The third part of the test failed because based on the specific facts, the provincial government was acting as a creditor, trying to get monetary claims, instead of acting solely as a regulator.

Nortel and Northstar may seem difficult to reconcile with Abitibi, however, the general trend was to classify orders by environmental regulators as provable claims, effectively placing the bulk of remediation costs on the public.⁹³ In Nortel, the order pertaining to the London property was considered to be a provable claim because the land was still owned by Nortel and it was likely that the land would be abandoned. In Northstar, the facts were similar in that an insolvent company had abandoned contaminated land and a regulator attempted to enforce a remediation order that was considered to be a provable claim. In Northstar, the MOE had already begun remediation work after the property was abandoned, therefore was considered to be a provable claim. Nortel can be reconciled with Northstar because the orders for the remaining properties in Nortel were not considered to be provable claims; those properties were currently owned by other parties, unlike the London property. Because Nortel no longer owned the other properties, it was unclear whether the MOE or the current owners would remediate the property therefore the “sufficiently certain” threshold was not met. The result of the Abitibi test in Northstar seemed to punish the regulator for being responsible and promptly remediating contaminated land. Delaying remediation can often result in more costly remediation efforts with the added risk of the contaminant spreading.

Because the Abitibi test is highly fact-specific, the courts had considerable discretion to determine whether or not a regulatory order was considered a provable claim. Prior to Redwater, companies could abandon contaminated property and have a reasonable chance that the environmental order for remediation would be stayed and subject to insolvency proceedings. It was common for environmental regulatory orders to be compromised claims under the CCAA.⁹⁴

3. Overview of Redwater

In 2019, the SCC revisited the issue of whether regulatory orders were provable claims once again in Redwater. Redwater Energy was a company that owned 127 oil and gas assets such as wells, pipelines, facilities and corresponding licences.⁹⁵ A few of the licenced wells were profitable however the majority of the wells were spent and burdened with abandonment and reclamation liabilities that exceeded their value. When Redwater encountered financial difficulties, Grant Thornton Limited (GTL) was appointed as receiver and eventually trustee once Redwater filed for bankruptcy. GTL attempted to abandon inactive wells without satisfying any of the regulatory requirements for doing so through invoking section 14.06(4) of the BIA. The Alberta Energy Regulator (AER) argued that the GTL could not shirk the responsibility of fulfilling regulatory requirements by abandoning inactive wells.

The Alberta Court of Queen’s Bench and Alberta Court of Appeal each held that AER’s order to enforce GTL’s compliance with abandonment and reclamation during bankruptcy conflicted with the BIA’s priority scheme.⁹⁶ Remediating the spent wells would cost money and effectively result in Redwater paying the regulator’s before paying Redwater’s secured creditors, upending the distribution scheme. Therefore, the lower courts opined that the doctrine of paramountcy rendered Alberta’s environmental legislation inoperative.

The SCC disagreed with the lower courts and ruled that there was no paramountcy issue as the orders issued by AER were not in conflict with the BIA’s priority scheme. Section 14.06(4) of the BIA is about “the personal liability of trustees, and does not empower a trustee to walk away from the environmental liabilities of the estate it is administering.”⁹⁷ Alberta’s environmental legislation requires that end of life obligations for wells or facilities must be abandoned properly and rendered safe, in order to protect the public or the environment.⁹⁸ The SCC ruled that the orders issued by the AER were not provable claims in bankruptcy because they were acting in the “public interest and for the public good” in issuing abandonment orders.⁹⁹ Public duties are not provable claims and a regulator, such as AER, is not a creditor unless it stands to benefit financially. Therefore, GTL was required to use Redwater’s estate assets to properly abandon and decommission the renounced assets.¹⁰⁰

Modified Abitibi Test

The SCC also took the opportunity, in Redwater, to clarify the application of the Abitibi test.¹⁰¹ When applying the Abitibi test, the orders issued by the AER did not meet the first and third steps of the test and was therefore not a provable claim; AER was not considered a creditor and it was not possible to attach a monetary value to the obligation. “As a matter of principle, bankruptcy does not amount to a licence to disregard rules. The Regulator says that it is not asserting any claims provable in the bankruptcy, so the Redwater estate must comply with its environmental obligations, to the extent that assets are available to do so.”¹⁰²

The SCC clarified that the first step of the Abitibi test is not satisfied whenever a regulator exercises its enforcement powers against a debtor.¹⁰³ “A regulator enforcing a public duty by way of non-monetary order is not a creditor.”¹⁰⁴ In determining whether a regulator is acting as a creditor or bona fide regulator, a court must distinguish between enforcing a debt and enforcing the law.¹⁰⁵ AER was acting as a regulator because neither AER nor the Government of Alberta, would benefit financially from the enforcement of the obligations.¹⁰⁶ Properly abandoning oil wells is a public duty that is owed to fellow citizens and therefore the AER orders were not considered provable claims.

Nortel and Northstar would not be provable claims under the modified Abitibi test

The clarification that the SCC provided in Redwater will help to determine when a regulator is acting as a bon fide regulatory capacity or as a creditor. When a regulator acts as Newfoundland and Labrador did in Abitibi, it will be found to be a creditor because the remediation order was a “colourable attempt” to recover a debt.¹⁰⁷ When a regulator acts as AER did in Redwater, it will be found to be acting as a regulator because the environmental work is for the public at large.¹⁰⁸

Based on the facts available in Nortel, the MOE would likely be considered a regulator. The London property was contaminated with trichloroethylene that impacted the soil and the groundwater.¹⁰⁹ Because trichloroethylene can contaminate drinking water and cause many concerns for public health, it would be likely that the court would determine that the remediation orders would be a public duty, as in Redwater. Based on the first criteria of the test not being met, all of the remediation orders in Nortel would be considered to be orders and not provable claims.

Similarly, if the Redwater analysis had been applied to Northstar, the MOE would likely have been considered to be acting as a bona fide regulator and not a creditor. Similarly, to Nortel, the manufacturing and processing facility produced waste that contained trichloroethylene and heavy metals.¹¹⁰ The location of the plant was in a residential area. Once Northstar was unable to continue with remediation activities after declaring bankruptcy, the MOE continued the remediation. If the MOE did not remediate the property, the contaminants would cause adverse health impacts on the surrounding residential community. In this case, it is clear that the MOE was not performing the remediation for financial benefit, but rather as a public duty as the health of residents was at risk.

4. Potential Impacts and Future Considerations

The SCC’s decision in Redwater rippled throughout the legal community, prompting many to write commentary and analyses.¹¹¹ The “untidy intersection” between environmental obligations and insolvency proceedings has historically been complex to navigate. Nortel and Northstar were beneficial to creditors, but environmentalists were less than thrilled to see courts diverging from the polluter pays principle. If remediation or clean-up had to occur and the regulator’s orders were considered to be provable claims, the regulator would have to bear the cost, rather than the insolvent company’s estate. Previously, there was concern that companies would not act to remediate contaminated land because if they undertook bankruptcy or insolvency proceedings, the orders would be ranked as unsecured provable claims. Now the SCC is providing clear messaging that bankruptcy is not an excuse for a company to avoid cleanup liability. Some commentators worry that Redwater will cause lenders to be less likely to grant money to natural resource projects, which could have costly remediation orders and complained that this reflected a “creditor pays” regime.¹¹² It is possible that financing may be more difficult, however lenders calculate risks with any transaction and this would be no different.¹¹³ This could be framed as an overall positive step forward for Canada and its 2030 greenhouse gas emissions targets. This decision could potentially discourage companies from entering into the natural resource sector of extracting fossil fuels and could act as a signal to the industry to turn towards more sustainable methods.

The SCC is considering the impact that potential environmental harms will have on the public and are holding polluting companies responsible instead of the regulators. The clarification on the application of the Abitibi test is a welcome addition. By asking in the first step of the test, whether the regulator is acting as a bona fide regulator or a creditor, the SCC is placing an emphasis on whether the regulatory order is for the public. Although it is uncertain who “the public” constitutes, it might be possible to characterize environmental liabilities as intergenerational obligations owed to future generations or even to non-human actors.¹¹⁴

Environmental Remediation Receivers

The implications flowing from Redwater will encourage companies facing insolvencies to come up with creative solutions. One solution is to appoint an environmental receiver to address ongoing or historical contamination when it can be established that it is just or convenient to do so.¹¹⁵ Prior to the CCAA proceeding in Outboard Marine, an environmental remediation receiver was appointed along with a disbursement receiver to successfully mitigate additional damages arising from adverse environmental conditions.¹¹⁶ The environmental remediation receiver was a useful order to ensure that Outboard Marine complied with a Ministry order to remediate and prevent neighbouring properties from contamination.¹¹⁷ Although the facts in Outboard Marine were unique, an environmental receiver could be a just solution to address situations involving irreparable harm and compliance with environmental laws.

IV. Conclusion

In conclusion, Redwater was a refreshing departure from the articulation of the test for provable claims in Abitibi. Abitibi served as a warning to regulators, that if regulators use an order that could be colourable to seek monetary funds, it would be subject to the stay of proceedings. In Redwater, the majority of the SCC made its position clear that bankruptcy was not an excuse to disregard the law. In the context of insolvency restructuring, depending on the environmental order, it is possible that the order will not be subject to the stay and exist outside insolvency proceedings. This may impact the availability of financing from creditors in the natural resource sector. However, depending on the facts, courts may appoint an environment remediation receiver to navigate the complexity of managing environmental orders during insolvency proceedings.

Companies have a public duty to remediate or clean up contaminated property. The SCC is holding companies accountable to comply with environmental orders even in bankruptcy or insolvency proceedings. Indeed, the polluter must pay.

Endnotes