January 31, 2019
The cleanup of old oil and gas wells must take priority over paying off creditors, the Supreme Court of Canada ruled today.
The 5-2 decision sets a precedent across Canada – and is especially needed in Alberta – empowering provincial governments to stop defunct companies from off-loading their messes onto other companies or the public.
“Bankruptcy is not a licence to ignore rules,” wrote Chief Justice Richard Wagner in the court’s decision.
According to the Toronto Star, the case revolved around the failure of Redwater Energy, a small oil and gas company that went bankrupt in 2015 amid the global oil price collapse. The dispute is between the Alberta Energy Regulator (AER) and accounting firm Grant Thornton, which is Redwater’s receiver — a bankruptcy trustee appointed to liquidate a failing business.
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When Redwater became insolvent, it owed $5 million to provincially owned ATB Financial. Very few of the company’s wells were producing and profitable, while the rest were in need of expensive, legally required cleanup processes.
The receiver wanted to sell Redwater’s profitable wells to pay off the company’s debts and leave the non-producing ones to Alberta’s industry-funded Orphan Well Association, which handles the cleanup of sites whose owners have gone bankrupt. (The association is already struggling to work through its current inventory, as years of low oil prices have put more companies out of business.)
Under Alberta law, the move wouldn’t be allowed — money from the sale of Redwater’s assets should be used to return the company’s well sites to a natural state, the AER argued. However, that provincial law conflicts with a federal bankruptcy law, which gives priority in such cases to lenders.