In a recent Alberta court case involving Taber Water Disposal Inc. and Enerstar Petroleum Corp., the court provided significant guidance on the statutory duty of good faith under the Bankruptcy and Insolvency Act (BIA) and clarified the treatment of disputed ownership claims in insolvency proceedings.
The case arose from the BIA proposal proceedings of Taber Water Disposal Inc. and Enerstar Petroleum Corp. (the Debtors), who, through a court-approved sales process, sold a 45 percent working interest in an oilfield to 2635672 Alberta Ltd. (the purchaser). The transaction was approved by an Approval and Vesting Order (AVO), with notice provided to all relevant stakeholders, including the alleged third-party owner, Arrow Point Oil & Gas Ltd.
After the transaction closed, the operator of the oilfield refused to recognize the purchaser’s interest, asserting that Arrow Point Oil & Gas Ltd. owned the 45 percent working interest. The purchaser sought a court declaration confirming its ownership. Justice Feasby concluded that the purchaser was the rightful owner, emphasizing that the AVO vested the interest “free and clear” of all claims, and that Arrow Point, having been served with all materials, failed to advance its claim in a timely manner. The court held that this inaction constituted a breach of the statutory duty of good faith under Section 4.2 of the BIA, which requires parties with notice of insolvency proceedings to assert their claims promptly. As a remedy, the court drew an adverse inference against Arrow Point, confirming the purchaser’s ownership and finding no legitimate third-party claim.
The decision is notable for distinguishing between third-party ownership claims and creditor claims derived from a debtor’s title, and for affirming that vesting orders can extinguish ownership claims if parties do not act in good faith. The court also reiterated the importance of vesting orders in maximizing creditor returns and the need for certainty in insolvency transactions.
Borden Ladner Gervais LLP partner Jack Maslen acted as legal counsel for the purchaser.