Background
The estates had significant abandonment and reclamation obligations. Two creditors had filed builders' liens against Manitok property prior to the receivership and ensuing bankruptcy. The receiver negotiated the sale of Manitok's valuable assets and the net proceeds were held in trust under and pursuant to the provisions of the sale approval and vesting order.
The central issue was whether the estate must satisfy the abandonment and reclamation obligations prior to making any distribution to the holders of the builders' liens. The resolution turns on the interpretation of
The ABQB decision in Manitok held, on the facts as presented, that secured creditors were, in fact, entitled to receive sale proceeds from the sale of certain, discrete assets of the debtor notwithstanding that the estate was unable to fully satisfy abandonment and reclamation obligations associated with assets unrelated to those that were sold. The ABQB distinguished the facts of Manitok from
The ABCA overturned the ABQB decision and held that end-of-life obligations associated with the abandonment and reclamation of the unsold oil and gas properties must be satisfied in preference to satisfying otherwise prior-ranking secured creditors; even in those circumstances where the end-of-life obligations are in respect of assets that are unrelated to the sale.
The key holdings include:
- The concept of "unrelated" assets is inconsistent with
Redwater as "disclaimed and orphaned assets cannot, by definition, be sold because of their abandonment and reclamation obligations [and] unless the sale proceeds of the valuable assets are available to satisfy those obligations, they can never be satisfied." The bankrupt estate's assets are a single "package" or "pool." - Abandonment and reclamation obligations exist independently of the issuance of abandonment or reclamation orders.
- The fact that the sale proceeds were held in trust in accordance with the provisions of a sale approval and vesting order (and, interestingly, in the case of Manitok, the court approval pre-dated the
Supreme Court of Canada's decision inRedwater ) does not singularly reorder the priorities in an insolvency.
Takeaways
With Manitok, the ABCA provides increased clarity for those administering insolvent debtor estates. The decision closes the narrow window occasioned by the ratio of the ABQB decision through which secured creditors could recover in circumstances where there is unsatisfied abandonment and reclamation obligations in the estate.
The reach of
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