Court Of Appeal Gives Guidance On Scope Of Crown's Super Priority For Environmental Remediation Under The Bankruptcy And Insolvency Act

• Published date: 20 March 2021
• Subject Matter: Environment, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Environmental Law
• Law Firm: Fasken
• Author: Mr Kibben Jackson, Mishaal Gill and Fergus McDonnell

Overview

This bulletin is the first of a Fasken series about the recent decision of the Court of Appeal of Yukon in the ongoing receivership proceedings of Yukon Zinc Corporation ('Yukon Zinc'), indexed as 2021 YKCA 2. The decision addresses several important issues, including: (i) the scope of Section 14.06(7) of the Bankruptcy and Insolvency Act ('BIA'), which creates the Crown's super priority charge for environmental remediation over the real property of a debtor; and (ii) Crown claims relating to unfurnished security or future costs.

In this initial bulletin we will provide some background on Yukon Zinc's receivership proceedings and review the Court of Appeal's findings relating to Section 14.06(7), which further delineates the scope of Crown environmental claims following on the Supreme Court of Canada's decisions in AbitibiBowater Inc., Re, 2012 SCC 67 ('Abitibi') and Orphan Well Association v Grant Thornton Ltd, 2019 SCC 5 ("Redwater").

The key finding by the Court of Appeal was that the Crown's super priority charge is limited to costs that have actually been incurred for environmental remediation, not for anticipated future costs or contingent costs. Further, the charge attaches only to the real property of the debtor, which does not include lesser estates or interests in land, such as mineral claims.

Background to the Proceedings

Yukon Zinc owned and operated the zinc-silver-lead Wolverine Mine located in Yukon Territory. As is typical for many mining companies, Yukon Zinc did not own the land on which its mineral claims and mine were located. Yukon Zinc encountered financial difficulties shortly after commencing mining operations, and in early 2015 placed the Wolverine Mine in a care and maintenance program. The company subsequently restructured its debt obligations under the Companies' Creditors Arrangement Act ('CCAA'), emerging from protection in October 2015, after which it continued care and maintenance operations at the Wolverine Mine without recommencing mining operations.

Under the Yukon Quartz Mining Act ('QMA'), the Yukon government can require a mining licence holder to furnish security where there is risk of adverse environmental effects from the licensee's activities ('Reclamation Security'). The Yukon government has recourse to the Reclamation Security if it performs environmental remediation at the licensee's mine. At the conclusion of the CCAA proceedings, Yukon Zinc furnished the full amount of the Reclamation Security, which...