By Doug Nishimura, Catriona Otto-Johnston and Andrew Wilkinson
Today the Supreme Court of Canada released their decision in Re: Redwater [2019 SCC 5]. The decision, which overturns decisions of the Alberta Court of Queens Bench and Court of Appeal, has far reaching effect on the treatment of oil companies in insolvency proceedings (bankruptcy, receivership or court-supervised restructuring). Essentially, bankruptcy trustees, receivers or insolvent companies trying to restructure will not be able to sell valuable oil and gas assets for the benefit of creditors without providing for the properties which have little or no value due to liabilities associated with the abandonment and cleanup of wells. While at first glance this seems beneficial, the long term effect may be a chilling of the market for distressed assets, since purchasers will either lower their price for the “good assets” or decide not to buy at all, leaving the “good” properties unexploited and the “bad” properties still to be cleaned up at taxpayer expense. An even bigger potential effect will be an increased reluctance of lenders to advance against oil and gas properties absent very solid engineering reports.
Field Law will have an in depth analysis of the decision together with our thoughts on how to deal with the outcomes of it shortly.