Insolvency and environmental claims

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When the claims against an insolvent company include environmental remediation orders, a clear question of public priorities arises. Which comes first: the public-interest concern for environmental protection or the need of a well-regulated economy to protect the interests of lenders?

In two recent cases, lenders’ interests won out over remediation orders issued by provincial regulators, but with a caveat.


In AbitibiBowater, the Province of Newfoundland and Labrador argued that its remediation orders on five properties were non-monetary in nature and therefore could not be stayed by the court overseeing the insolvency or relegated to the status of unsecured debts, subject to compromise under the insolvency process. The Supreme Court of Canada disagreed. The court articulated a three-part test to determine whether regulatory orders constitute monetary claims subject to compromise:

  • 1) There must be an obligation owed to a creditor;
  • 2) The obligation must have arisen prior to the time limit for inclusion in the claims process; and
  • 3) It must be possible to attach a monetary value to the obligation.

The court found that all three requirements had been satisfied, since it was “sufficiently certain” that the regulator would remediate the properties and assert a monetary claim against AbitibiBowater. Accordingly, the remediation orders became unsecured debts, subject to compromise under the insolvency process.


In Redwater, the Alberta Energy Regulator (AER) sought to enforce reclamation orders on depleted wells abandoned by bankrupt Redwater Energy Corp., with supporting interventions by governments of British Columbia, Saskatchewan and Canada.

AER was disputing actions by the trustee in selling valuable oil and gas leases, while disclaiming depleted wells subject to reclamation orders. The Alberta Court of Appeal, citing Abitibi, held that the reclamation orders were essentially financial because they would require the trustee to expend funds. The court said that honouring the reclamation orders would give the AER a super-priority over secured lenders that would be inconsistent with federal insolvency law and the doctrine of federal paramountcy.

A caveat

It’s important to note that the federal Companies’ Creditors Arrangement Act expressly provides environmental regulators with a limited form of relief. These receive a super-priority for remediation costs ‒ secured by the value of the contaminated real estate and any contiguous property that was used in the activity that caused the contamination. This, presumably, increases the chances that the province will underwrite remediation costs in order to increase the value of their security.

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