Alberta Court Of Appeal Vindicates Trustee In The Latest Perpetual Energy Decision

• Published date: 11 February 2021
• Law Firm: Borden Ladner Gervais LLP
• Author: Mr Miles Pittman, Josef G.A. Krüger, Jessica Cameron, Jack Maslen and Sinem Ersoy

In the recent decision in PricewaterhouseCoopers Inc. v Perpetual Energy Inc., 2021 ABCA 16 (Perpetual Energy), the Alberta Court of Appeal has reversed the Honourable Justice D.B. Nixon's decision, striking out or summarily dismissing claims by PricewaterhouseCoopers Inc. in its capacity as trustee in bankruptcy (the Trustee) of Sequoia Resources Corp. (Perpetual/Sequoia). As a result, the Trustee's claim that Perpetual had undertaken pre-bankruptcy transactions at less than fair market value must proceed to trial. In doing so, the Court of Appeal commented upon the scope and nature of the Supreme Court of Canada's decision in Orphan Well Association v Grant Thornton Ltd, 2019 SCC 5 (Redwater) regarding abandonment and reclamation obligations (AROs) associated with energy projects. The Court of Appeal also reversed a punitive costs decision which Justice Nixon had issued against the Trustee personally.

Perpetual Energy is a pivotal decision for creditors, stakeholders and regulators involved in the Sequoia Resources Corp. bankruptcy. It is also significant for Alberta insolvency and corporate law generally as well as for the Alberta oil and gas sector with respect to AROs.

Background: the Perpetual/Sequoia litigation

The Perpetual group of companies (Perpetual Energy Inc., Perpetual Operating Trust, and Perpetual Energy Operating Corp.) owned various oil and gas interests in Alberta. In particular, the group was structured such that:

• The Operating Trust held beneficial title to assets and associated AROs;
• The Operating Corp. held legal title to the assets and related licenses, and
• Perpetual Energy Inc. was the ultimate parent of the group, such that the Operating Corp. was a wholly owned subsidiary.

In 2016, Perpetual undertook multi-step transactions (the Transactions) aimed at transferring Perpetual's uneconomic assets to a third party, while retaining economic assets. Specifically, the Transactions were undertaken such that:

• All beneficial interest and burden to the uneconomic assets was transferred from the Operating Trust to the Operating Corp. for nominal consideration and all valuable assets were transferred out of the Operating Corp. to a newly formed entity;
• Perpetual Energy Inc. sold its shares in the Operating Corp. to a third party for $1.00;
• Susan Riddell Rose, the sole director of the Operating Corp., resigned as director; and
• The Operating Corp. changed its name to Sequoia Resources Corp. (Perpetual/Sequoia).

Approximately 18 months...