The Supreme Court of Canada issued its ruling in Newfoundland and Labrador v. AbitibiBowater Inc., 2012 SCC 67, and in so doing, closed an important chapter in the successful cross-border restructuring of AbitibiBowater Inc. – now Resolute Forest Products – under the Companies' Creditors Arrangement Act (CCAA) and Chapter 11 of the U.S. Bankruptcy Code.
Abitibi, one of North America's largest integrated players in the forest products industry, operated sites in the Province of Newfoundland and Labrador, where Abitibi and its predecessors had carried on industrial activities since 1905.
In late 2008, after Abitibi announced that it would close its last timber mill in Newfoundland, the province adopted a law which had the effect of confiscating substantially all of Abitibi's assets, property and undertakings in the province.
In April 2009, in the midst of staggering financial difficulties, Abitibi filed for CCAA protection in Quebec Superior Court.
As is customary in CCAA proceedings, a claims process for the orderly disposition of all claims against Abitibi was implemented. As part of this process, any person holding a “Claim” (defined in a broad sense) had to deliver a proof of claim to the court-appointed monitor prior to the claims bar date, failing which such claim would be extinguished.
The province subsequently issued five injunctive orders against Abitibi under its environmental legislation. These orders required Abitibi to complete remediation actions in respect of several sites, none of which were under Abitibi's control and most of which had been expropriated by the province. The province also brought a motion for a declaration from the Court that the claims process did not affect the orders, arguing that the orders were simply regulatory orders and not “claims” under the CCAA and therefore could not be stayed or subject to compromise in the restructuring process.
Abitibi contested the province's position and argued that the orders were in essence financial or monetary in nature, and that the CCAA court had jurisdiction both to examine the true nature of the orders and to subject orders that were in essence “claims” to the claims bar process.
In a 7-2 ruling, Madam Justice Marie Deschamps for the majority of the Supreme Court dismissed the province's appeal and upheld Justice Clément Gascon's first instance judgment which had found that the environmental orders were “claims” that could be affected under a CCAA plan of arrangement.
The Court held that non-monetary orders issued by a regulatory body against an insolvent debtor would be considered “provable claims” in insolvency proceedings and thus be affected under a CCAA plan of arrangement, if three requirements were met:
(i) There must be a debt, a liability or an obligation owed to a creditor;
(ii) The debt, liability or obligation must be incurred as of a specific time;
(iii) It must be possible to attach a monetary value to the debt, liability or obligation.
With respect to the third requirement, the Supreme Court affirmed the principle that contingent claims may properly be affected in insolvency proceedings if they are not too remote or speculative.
In the context of environmental orders, this means that there must be “sufficient indications” that the issuing body would ultimately perform remediation work and assert a monetary claim.
The Court also recognized that environmental claims are already given specific, and limited, priority under the CCAA, and that exempting environmental orders from CCAA claims processes would be inconsistent with the insolvency legislation.
Newfoundland and Labrador was represented by David Wingfield and Paul Guy of WeirFoulds LLP and Philip Osborne of the Department of Justice (NL).
Abitibi (now Resolute Forest Products) was represented in the course of its restructuring under the CCAA by Stikeman Elliott LLP. The team involved in this appeal included former partner Sean Dunphy, Marc Barbeau, Nicholas McHaffie, Patrick Girard, Guy Martel, Joseph Reynaud and Lesley Mercer from Stikeman Elliott; Jacques Vachon, and Alice Minville from Resolute Forest Products; and Colm Seviour, Maureen Ryan and Chris Lewis of Stewart McKelvey.
The Ad Hoc Committee of Bondholders was represented by Fred Myers of Goodmans LLP.
The Ad Hoc Committee of Senior Secured Noteholders and U.S. Bank National Association (Indenture Trustee for the Senior Secured Noteholders) was represented by Michael McNaughton and Marc Duchesne of Borden Ladner Gervais LLP.
The Attorney General of Canada was represented by Christopher Rupar and Marianne Zoric of the Department of Justice.
The Attorney General of Ontario was represented by Josh Hunter, Robin Basu, Leonard Marsello and Mario Faieta of the Ministry of the Attorney General of Ontario.
The Attorney General of British Columbia was represented by Richard Butler of the British Columbia Ministry of Justice.
The Attorney General of Alberta was represented by Roderick Wiltshire of the Alberta Ministry of Justice and Solicitor General.
The Province of British Columbia was represented by Nancy Brown, Elizabeth Rowbotham and David Hatter of the British Columbia Ministry of Justice.
Ernst & Young Inc., as Monitor, was represented by Robert Thornton, John Porter and Rachelle Moncur of Thornton Grout Finnigan LLP.
Friends of the Earth Canada was represented by Graham Phoenix of Fasken Martineau DuMoulin LLP, and by William Amos, Hugh Wilkins and Anastasia Lintner of Ecojustice Canada.