The Supreme Court of Canada has heard argument and reserved its decision in a case involving an insolvent company that has been ordered by the government to clean up historic contamination at certain former properties. The decision is expected to clarify whether companies that have sought protection under the federal Companies’ Creditors Arrangement Act (CCAA) can be required to comply with environmental orders issued by the government that require cleanup.
The case has implications for any organization that manages wastes or may have historic site contamination on a property.
Facts & Lower Court decision
In 2008, Abitibibowater Inc. announced it would close its operations in Newfoundland and Labrador. The province subsequently expropriated several parcels of land owned by Abitibibowater. Those parcels of land were contaminated with heavy metals and chemicals and required remediation.
In November of 2009, the province ordered Abitibibowater to clean up environmental contamination at the properties that had been expropriated by the province. However, in the interim, the company had become insolvent and had sought protection from its creditors under the CCAA. The provisions of the CCAA permit a company that is likely to become insolvent to avoid payments to its creditors while it restructures its operations.
The court that initially considered the matter characterized the remediation orders from the province as “unsecured liabilities” which meant the province would rank with all other unsecured creditors once the company emerged from creditor protection. This meant the province would only be entitled to a fraction (and likely a small fraction) of the amount required to satisfy cleanup obligations. The province took the position that the remedial orders were not monetary claims, but statutory non-monetary legal obligations and, therefore, Abitibibowater could not shield behind the CCAA in respect of the remedial orders.
What is unusual, in this case, is that the province now owns the lands in respect of which the cleanup orders have been issued. This means that the decision by the Supreme Court will directly impact the extent to which the province will benefit from the expropriation or the losses it will suffer. Normally, under the CCAA, the government has a lien on any real property that’s subject to an environmental order, and that lien ranks above any other claim. However, in this case, the government already has title to the lands in question.
Issues for the Supreme Court
The Supreme Court of Canada has set out three issues for determination. Section 2 of the CCAA includes the definition of “claim” and the Supreme Court will decide whether that definition includes statutory obligations of the debtor, such as the remedial orders under Newfoundland’s and Labrador’s Environmental Protection Act. If the court decides that it does, then a company will be able to avoid compliance with remedial orders issued by governments by filing for CCAA protection.
Section 11 of the CCAA provides a court deciding insolvency matters with broad discretion to make any order that it considers appropriate. The Supreme Court will be considering whether that discretion should include barring statutory obligations of a debtor.
The last issue to be considered by the Supreme Court is whether environmental orders can survive CCAA proceedings and become enforceable against a newly restructured company. In this case, Abitibibowater has emerged from creditor protection under the CCAA and is now operating as Resolute Forest Products. Abitibibowater’s counsel argued that only orders relating to ongoing operations can survive a CCAA proceeding and that, to rule otherwise, would permit the government to simply await the outcome of CCAA proceedings and then issue remedial orders to the new entity.
Position of the interveners
Environmental groups have a keen interest in the outcome of the case because they argue that the CCAA provisions conflict with the concept of “polluter pays” that has been generally accepted and endorsed by the courts in environmental law. They take the position that if the Supreme Court rules cleanup orders are to be treated as unsecured claims, then the government’s only options are to either take title to the land by lien or comply with the remedial order itself. Both of these options would result in the public assuming the cost of remediating contamination caused by insolvent companies that seek creditor protection.
One of the arguments advanced by Friends of the Earth (an intervener) before the Supreme Court, was as follows: While other unsecured creditors of the debtor have made a conscious decision to enter into a business relationship with the insolvent company and therefore voluntarily assumed the risk, the public has not. It is, therefore, unfair to burden the public with this cost.
The decision of the Supreme Court will ultimately provide a ruling on this important issue; this case has, therefore, attracted the attention of governments, environmental NGOs and companies that face exposure to environmental liability.
Rosalind Cooper, LL.B., is a partner with Fasken Martineau DuMoulin LLP in Toronto, Ontario. Contact Rosalind at firstname.lastname@example.org