End Of The Bellatrix GasEDI Saga Marks Beginning Of Market Fallout

• Published date: 30 June 2021
• Subject Matter: Corporate/Commercial Law, Energy and Natural Resources, Insolvency/Bankruptcy/Re-structuring, Corporate and Company Law, Insolvency/Bankruptcy, Contracts and Commercial Law, Energy Law, Oil, Gas & Electricity
• Law Firm: McMillan LLP
• Author: Mr Owen Gaffney and Shahen A. Mirakian

The Alberta Court of Appeal recently released a decision in Bellatrix Exploration Ltd.'s ("Bellatrix") proceedings under the Companies' Creditors Arrangement Act ("CCAA"), in which the Court dismissed Bellatrix's appeal of the lower court's decision that certain agreements (the "Contract") between Bellatrix and BP Canada Energy Group ULC ("BP") constituted an eligible financial contract ("EFC"). The Court dismissed the appeal on the grounds that it was moot, as Bellatrix's assets had been sold to a third party and the priority to the funds held back from that transaction had already been decided by another judge in the CCAA proceedings, leaving no funds for any potential distribution to BP.¹

EFCs are a class of financial agreements that represent one of the most substantial carve-outs from the relief available to debtors under the CCAA and the Bankruptcy and Insolvency Act. For example, the solvent counterparty to an EFC is not stayed from terminating the agreement in order to net or set off the obligations between the parties. Debtors are also unable to disclaim agreements that constitute EFCs. These protections were implemented in response to the equivalent safe harbour provisions under the U.S. Bankruptcy Code for financial agreements such as derivatives, brokerage agreements, securities loans and repurchase agreements and are intended to provide the necessary certainty for Canada's capital markets as well as maintain Canada's financial and risk management industries' competitiveness.² Although the definition of what constitutes an EFC is set out in the regulations under the CCAA, the Courts have been clear that there is no "bright-line" definition and that certain agreements may require deeper analysis given the complexity of the derivatives market and its participants.³

The lower court's decision in Bellatrix was the first since recent amendments to the EFC provisions. For further analysis of the EFC regime under the CCAA and BIA please click here.

In Bellatrix, the Contract was comprised of a (i) GasEDI Base Contract for Short-Term Sale and Purchase of Natural Gas and Special Provisions for GasEDI Base Contract (collectively, the "GasEDI Agreement"), and (ii) several Transaction Confirmations for Immediate Delivery (the "Transaction Confirmations"). Pursuant to the GasEDI Agreement, Bellatrix was obliged to deliver natural gas to an agreed delivery point in Alberta, which BP would purchase. Pursuant to the Transaction Confirmations, BP would pay for...