Gowling WLG helps secure win for Receiver and Trustee in Redwater proceedings

20 May 2016

In a pivotal decision released May 19, an Alberta court ruled in favour of Grant Thornton Limited, the Receiver and Trustee in the Redwater Energy Corporation (Redwater) receivership and bankruptcy proceedings, upholding its right to disclaim Redwater's non-producing oil wells and sell its producing ones. Gowling WLG served as co-counsel to Grant Thornton throughout the proceedings.

The decision, rendered by the Honourable Neil C. Wittmann, Chief Justice of the Court of Queen's Bench of Alberta, dismissed the application of the Alberta Energy Regulator (AER) and Orphan Well Association, which argued that Grant Thornton should have to carry out the abandonment, reclamation and remediation obligations of Redwater's non-producing wells, or perform abandonment orders as issued by the AER, which included paying a security deposit.

Specifically, Chief Justice Wittmann found, based on the constitutional doctrine of federal paramountcy, that:

  • There is an operational conflict between section 14.06(4) of the Bankruptcy and Insolvency Act (BIA) and the provincial Oil and Gas Conservation Act (OGCA) and the Pipeline Act (PA) in that under section 14.06(4), the Receiver and Trustee are permitted to disclaim the non-producing wells of Redwater, and under the provincial OGCA and PA, they are not. These provisions also frustrate the purposes of section 14.06(4) because they prevent the Receiver and Trustee from disclaiming the non-producing wells, which provide no economic benefit to the creditors and could put the Receiver and Trustee at personal financial risk.
  • The AER's requirement that the Receiver and Trustee either carry out the abandonment, reclamation and remediation obligations of Redwater in respect of the non-producing wells, or perform abandonment orders issued by the AER, frustrates the purpose of section 14.06 as it creates a priority in favour of the AER over any other claim against Redwater, including the Receiver's fees and disbursements, the Receiver's borrowings under receiver's certificates, the Trustee's fees and disbursements, and the claims of the secured creditors (the Creditor Claims).
  • The AER's requirement that either a security deposit is paid or the abandonment obligations are performed as a condition precedent to the AER agreeing to approve an application to transfer the licenses issued by the AER to Redwater frustrates the legislative purposes of section 14.06(5), (6), (7) and (8) of the BIA by requiring that those claims be paid before any Creditor Claims, and by requiring that these payments be made or obligations be performed as administrative costs of the estate.
  • The provisions of the OGCA and PA deeming the Receiver and Trustee to be licensees of disclaimed wells were declared inoperative to the extent they conflicted with federal legislation, as were the abandonment orders to the extent that they required the Trustee to comply with them or provide security deposits.
  • The provisions of the OGCA, PA and directives thereunder, requiring the performance of abandonment obligations or payment of security deposits in respect of disclaimed wells, as a condition precedent to obtaining the AER's approval of applications to transfer well licenses, were also inoperative on the basis that they frustrated section 14.06.
  • The sales process was approved, pursuant to which the Receiver is to market and sell the producing wells of Redwater together with other assets. It is the intention of the Receiver to commence the sales process without further delay.

A copy of the reasons for judgment will be posted on the Gowling WLG website as soon it is publicly available.

Arguing the applications on behalf of Grant Thornton were Tom Cumming of Gowling WLG (Canada) LLP and Jeffrey Oliver of Cassels Brock LLP. Other members of the litigation team included Geoffrey Macleod, John R. Cusano, Peter D. Morrison, Katherine L. Ratcliffe and James H. Smellie of Gowling WLG, and Danielle Maréchal of Cassels Brock.