Top Court Rules Bankrupt Corporations Can't Evade Environmental Obligations

In a landmark decision released on January 31, 2019, the Supreme Court of Canada (SCC) ruled in Orphan Well Association v Grant Thornton Ltd. that the environmental remediation obligations of a bankrupt oil and gas company must be fulfilled in priority over all other claims, including secured claims. In addition to immediate effects to creditors of Alberta oil and gas interests, creditors of all sectors will want to analyze the implications of this case.

Background

Under Alberta's regulatory regime, the licensing of active wells is directly related to the management of liabilities for closure and reclamation of inactive wells. Grant Thornton Limited (GTL), serving as bankruptcy trustee for Redwater Energy Corporation (Redwater), intended to take possession of Redwater's active wells for the purpose of selling such assets to pay secured creditors while disclaiming all inactive wells under section 14.06 of the Bankruptcy and Insolvency Act (BIA). It was GTL's