The Supreme Court of Canada has released its ruling in Newfoundland and Labrador v. AbitibiBowater Inc.
AbitibiBowater Inc. (“Abitibi”) operated in the Province of Newfoundland and Labrador (the “Province”) for nearly a century. In a period of financial distress, Abitibi closed its last paper mill in the Province and filed for insolvency protection, obtaining a stay of proceedings under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA”) in 2008. While Abitibi was no longer present in the Province, the environmental contamination at its former sites remained.
The Province issued five clean up orders against Abitibi, arguing that these environmental protection orders were not “provable claims” that were compromisable under the CCAA regime. The Court considered s. 11.8(9) of the CCAA which states:
“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 in which proceedings under this Act were commenced.”
Writing for the majority, Justice Deschamps (now retired) found that in this case the Province’s environmental orders were of a monetary nature. Deschamps J. outlines three requirements the courts must consider to determine whether a claim is a “provable claim”:
- There must be a debt, a liability or an obligation to a creditor;
- The debt, liability or obligation must be incurred as of a specific time; and
- A monetary value must be attachable to the debt, liability or obligation.
The Court also recognizes that environmental orders may not always be considered a “provable claim” for the purposes of the CCAA:
In the context of an environmental order…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. If there is sufficient certainty in this regard, the court will conclude that the order can be subjected to the insolvency process.
In this case, Abitibi was a debtor of the Province because it owed money for the clean-up of the property. These debts were incurred before Abitibi’s CCAA proceeding began, and the cost to comply with the orders had a quantifiable monetary value. It was “sufficiently certain” that the Province would perform the remediation work and assert a monetary claim against Abitbi for the cost.
Abitibi’s environmental clean-up obligations were not extinguished by entering CCAA protection, but including the Province’s claims in the CCAA process simply “ensures that the creditor’s claim will be paid in accordance with insolvency legislation.” Further, Deschamps J. reasoned that if Parliament wanted to give a Province automatic priority over an insolvent company’s assets to satisfy remediation costs, the legislation would have provided it. Without such legislation, orders of a monetary nature should be subject to the same claims process as other unsecured creditors.
In this decision the majority and dissent both agree that not all environmental orders will fit into the definition of a “claim” under the CCAA regime. Going forward, professionals (insolvency or otherwise) will find guidance in these reasons for determining whether or not regulatory orders will be subject to a stay of proceedings under the CCAA process.