Alberta Energy Regulator’s interpretation of Redwater decision rejected
The long-running conflict between insolvency professionals and the Alberta Energy Regulator (AER) that was clarified by the Court of Queen’s Bench of Alberta decision in Redwater Energy Corp. was previously analyzed in a blog post here. The decision in Redwater confirmed that a receiver is entitled to disclaim a 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, and to thereafter vend the assets that the receiver remained in possession and control of. In a subsequent decision that is discussed here, a majority of the Court of Appeal upheld the lower court ruling in Redwater.
Subsequent to the decision in Redwater, the Court of Queen’s Bench of Alberta issued receivership orders in Northpoint Resources Ltd. and LGX Oil + Gas Inc. that altered paragraph 3(a) of the template receivership order on account of the Redwater decision. Paragraph 3(a) of the template receivership order provides that the receiver is authorized and empowered, but not obligated, to take possession and control of a debtor’s property. In both Northpoint and LGX the phrase “…and the Receiver shall be entitled to disclaim, abandon or renounce the Debtor’s interest in any of the Property” was added to paragraph 3(a). The submission of the AER that section 195 of the Bankruptcy and Insolvency Act (Canada) (BIA) stayed the operation of Redwater pending the resolution of the appeal was rejected in Northpoint because it constituted a separate and unrelated proceeding.
In the more recent decision of Nordegg Resources Ltd., the AER once again opposed a secured creditor’s application to include language in a receivership order confirming a receiver can abandon AER licensed assets but by way of a different approach. In Nordegg, the AER argued that 14.06(4) of the BIA outlined the specific circumstances and process that must be followed by a receiver seeking to abandon or renounce assets. The AER’s interpretation of Redwater was that it permitted the receiver to disclaim only in response to abandonment orders that had been issued by the AER. The amendments to the template receivership order which had previously been granted in Northpoint and LGX were overly broad and in conflict with both the terms of the template receivership order and the provisions of section 14.06(4) of the BIA.
The position taken by the AER in Nordegg, while different from the objection advanced in Northpoint pursuant to section 195 of the BIA, once again appears to be inconsistent with the plain language set forth in section 14.06(4) of the BIA. Section 14.06(4)(c) of the BIA contemplates a circumstance in which a receiver has abandoned, renounced or been divested of property before an order in respect of an environmental condition is made. In Redwater, the receiver had advised the AER that it was taking possession and control of approximately 20 (out of a total of 127) AER licensed properties and it was held that this action constituted renouncement of the licensed property.
In Nordegg the Court once again altered the template receivership order on account of Redwater. The amendment to the receivership order that was granted over the objection of the AER expressly confirmed the ability of the receiver to abandon, renounce, or divest the debtor’s interest in any real property or immovable, including a license or other authorization issued by the AER. Consistent with the language in section 14.06(4)(c) of the BIA and the decision in Redwater, there is no requirement that an abandonment order be issued for the receiver to renounce an interest in the AER licensed property.