Court Of Appeal Of Alberta Dismisses Application For Leave In Bellatrix CCAA Proceedings

• Published date: 16 March 2021
• Subject Matter: Litigation, Mediation & Arbitration, Energy and Natural Resources, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Oil, Gas & Electricity, Trials & Appeals & Compensation
• Law Firm: Borden Ladner Gervais LLP
• Author: Ms Jessica Cameron, Tiffany Bennett, Josef G.A. Krüger and Jack Maslen

The Court of Appeal of Alberta issued the latest decision in the Companies' Creditors Arrangement Act (CCAA) proceedings of Bellatrix Exploration Ltd. (Bellatrix).¹

In the decision rendered by the Honourable Mr. Justice Watson, the Court dismissed an application by a contractual counterparty for leave to appeal a decision concerning a debtor's failure to perform an eligible financial contract (EFC). In so doing, the Court confirmed the four-factor test for leave to appeal under section 13 of the CCAA², and highlighted the restraint that appellate courts should apply when considering appeals of a supervising insolvency judge's decision.

As a result, the decision appealed from, Re Bellatrix Exploration, 2020 ABQB 809, remains good law respecting the treatment of claims against a debtor company arising from an EFC in CCAA proceedings. Namely, a party will only have an unsecured claim pursuant to an EFC, absent a security interest to the contrary. Keep reading to learn more about how parties to EFC agreements may protect their interests in insolvency proceedings.

Background

The proposed appeal arose out of a decision rendered by Madam Justice Romaine in respect of the obligation of the debtor, Bellatrix, to continue to perform an EFC during the course of its CCAA proceedings.³

In that decision, Justice Romaine found that subsection 34(7) of the CCAA, which excludes EFCs from the debtor's powers of disclaimer, does not however create an obligation for the debtor to continue to perform the EFC throughout the proceedings. Justice Romaine also found that the contractual counterparty to the EFC, BP Canada Energy Group ULC (BP), only had an unsecured claim for breach of contract against Bellatrix and that BP's set-off rights were not engaged, as BP had never terminated the agreement.

BP sought leave to appeal Justice Romaine's decision, alleging four manifest errors of law in the insolvency judge's decision. The decision focused on the lower court's interpretation of the effect of disclaimers on EFCs and the related characterization of BP's claims for damages and set-off.

The court's decision

The Court of Appeal's decision sets out a principled framework for considering leave applications in the context of the CCAA. Underlying the Court's analysis is the purpose of the CCAA and the role of the supervising insolvency judge. The CCAA has an overall remedial objective to address and mitigate the potential catastrophic effects of insolvency. The supervising insolvency...