Key Developments In Canadian Insolvency Case Law

• Published date: 11 May 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Corporate and Company Law, Insolvency/Bankruptcy, Contracts and Commercial Law, Trials & Appeals & Compensation
• Law Firm: Blake, Cassels & Graydon LLP
• Author: Ms Pamela Huff, Linc Rogers, Caitlin McIntyre and Cristina Cataldo

In 2021, several significant judicial decisions were rendered across Canada relevant to commercial lenders, businesses and restructuring professionals. This comprehensive report summarizes the key facts and core issues of importance in each case and provides status updates on the cases reported on in our February 2021 bulletin, Key Developments in Canadian Insolvency Case Law in 2020.

The following cases and topics are covered in this bulletin:

Case Name	Topic	Court
Yukon (Government of) v. Yukon Zinc, 2021 YKCA 2	Claims in bankruptcy and environmental remediation costs	Court of Appeal of Yukon
Laurentian University v. Sudbury University, 2021 ONSC 3392 & Laurentian University of Sudbury, 2021 ONSC 3272	Companion decisions on disclaimers and good faith	Ontario Superior Court of Justice
John Trevor Eyton (Re), 2021 ONSC 3646	Statute barred claims in an insolvency context	Ontario Superior Court of Justice
DGDP-BC Holdings Ltd v Third Eye Capital Corporation 2021 ABCA 226	Priority of charges	Court of Appeal of Alberta
CannTrust Holdings Inc., et al. (Re), 2021 ONSC 4408	Bar orders in insolvency	Ontario Superior Court of Justice
JMX Contracting Inc. (Re), 2021 ONSC 5142	Litigation funding agreements	Ontario Superior Court of Justice
Restructuration de Fortress Global Enterprises Inc., 2021 QCCS 4613	Litigation funding agreements	Superior Court of Quebec
Arrangement relatif à Bloom Lake, 2021 QCCS 3402	Jurisdiction of the CCAA Court	Superior Court of Quebec
In the matter of a plan of compromise or arrangement of Abbey Resources Corp.	Bad faith in CCAA proceedings	Court of Queen's Bench for Saskatchewan
Re 12463873 Canada Inc. 2021 ONSC 5895	RVO and tax refund entitlement	Ontario Superior Court of Justice
Port Capital Development (EV) Inc. v 1296371 BC Ltd., 2021 BCCA 382	Competing options in CCAA proceedings	Court of Appeal for British Columbia
In the matter of the plan of compromise or arrangement of Bloom Lake et al.	Pre-post set-off	Superior Court of Quebec
Montréal (City) v Deloitte Restructuring Inc., 2021 SCC 53	Pre-post set-off	Supreme Court of Canada
Bellatrix Exploration Ltd (Re), 2021 ABCA 85 and 2021 ABCA 148	Treatment and disclaimer of eligible financial contracts	Court of Appeal of Alberta
Yukon (Government of) v. Yukon Zinc, 2021 YKCA 2	Partial disclaimer of a contract	Court of Appeal of Yukon
Séquestre de Media5 Corporation, 2020 QCCA 943	Appointment of a receiver pursuant to section 243 of the BIA and interaction with the Civil Code of Quebec	Supreme Court of Canada
Re 7636156 Canada Inc, 2020 ONCA 681	Court confirms autonomy of letters of credit, rules landlord may draw for full claim amount	Supreme Court of Canada
Arrangement relatif à Nemaska Lithium inc., 2020 QCCA 1488	Reverse vesting orders	Supreme Court of Canada
Canada v Canada North Group Inc.	Priority of DIP charges	Supreme Court of Canada
Canada v. Toronto-Dominion Bank, 2020 FCA 80	Distributions to creditors of proceeds impressed with a deemed trust under the Excise Tax Act (Canada)	Supreme Court of Canada

CLAIMS IN BANKRUPTCY & ENVIRONMENTAL REMEDIATION COSTS

Yukon (Government of) v. Yukon Zinc, 2021 YKCA 2

Date of Decision: March 5, 2021

A number of important decisions have come out of the receivership proceeding of Yukon Zinc Corporation (Yukon Zinc) since it was commenced in September 2019, including the appeal of the lower court decision relating to environmental remediation costs. This appeal was one of four appeals heard collectively.

Yukon Zinc is a mining company whose principal asset is a mine located in Yukon Territory (the Mine). Yukon Zinc held certain licenses in connection with the operation of the Mine, including licenses under the Yukon's Mining Act.

Pursuant to the Mining Act' the Minister of the Department of Energy, Mines and Resources (Minister) may require a licensee to furnish security for adverse environmental effects from a licensee's activities. Yukon Zinc furnished such security (Reclamation Security) at the time its license was issued.

In 2017, the Mine flooded and contaminated water was diverted to a storage facility. No water treatment was available and the situation created a risk of untreated water being released into the environment. As a result, the Yukon government revised the Mine's reclamation and closure plan and recalculated the Reclamation Security required. Yukon Zinc was not able to pay the increased recalculated Reclamation Security.

As a result of deteriorating environmental conditions at the Mine, the Yukon government began using the Reclamation Security to deal with the influx of contaminated water. The Reclamation Security was not anticipated to be sufficient to carry out the remaining remediation work, as Yukon Zinc had never paid the increased, recalculated Reclamation Security.

In July 2019, the Yukon government commenced a proceeding for appointment of a receiver. On July 31, 2019, Yukon Zinc filed a notice of intention to make a proposal under the Bankruptcy and Insolvency Act (BIA). On August 7, 2019, the Supreme Court of Yukon lifted the stay of proceedings resulting from the notice of intention and allowed the receivership application to proceed. On September 19, 2019, a receiver was appointed over all the assets and undertakings of Yukon Zinc. On October 11, 2019, Yukon Zinc was deemed to have made an assignment into bankruptcy as a result of a failure to file a proposal in the time required under the BIA.

The Yukon government then sought declarations that it had a provable claim in bankruptcy for the anticipated future costs of remediating the Mine. It asserted that such claim constituted a first-ranking secured claim against Yukon Zinc's mineral claims on the basis of subsection 14.06(7) of the BIA, which provides the federal or provincial government with a secured priority claim in respect of environmental remediation costs over the real or immovable property of the debtor affected by the environmental damage.

The lower court concluded that subsection 14.06(7) of the BIA applies once the Yukon government has incurred costs in remediating land, not before. On appeal, the Yukon government argued that the "sufficiently certain" test, developed by the Supreme Court of Canada (SCC) in Newfoundland and Labrador v AbitibiBowater Inc., should apply to subsection 14.06(7) of the BIA. The sufficiently certain test provides that claims for environmental liabilities are claims provable in bankruptcy when it is sufficiently certain that a cost will be incurred.

The Court of Appeal of Yukon (YKCA) affirmed the lower court decision and found that the priority claim under subsection 14.06(7) is only created after costs have actually been incurred and does not secure costs that may be incurred in the future. The "sufficiently certain" test has no bearing on whether a super priority claim exists under subsection 14.06(7) of the BIA.

In respect of the mineral claims, which provide a right to develop and extract minerals on a particular section of land, the YKCA found that mineral claims are not real property belonging to Yukon Zinc, but rather an interest in real property. The wording of subsection 14.06(7) limits the attachment of the secured claim only to the real property of the debtor, and accordingly, other interests in real property, such as mineral claims, cannot be the subject of subsection 14.06(7) security.

Status:

Leave to appeal to the SCC was dismissed on November 4, 2021. Care and maintenance of the Mine has now been transferred to the Yukon government following a sale of a small portion of Yukon Zinc's assets to Almaden Minerals Ltd. in the receivership proceeding.

Takeaway:

This decision clarifies the priority claim set out in subsection 14.06(7) of the BIA which may compete with the priorities afforded to secured creditors and other claimants in proceedings under the BIA. The claim is limited to environmental remediation costs actually incurred and does not cover prospective remediation costs. Furthermore, the secured claim attaches only to the ownership interests of the debtor in real property, and not to other interests in real property, such as mineral claims. This is an important distinction. In the mining sector, it is typically the mineral rights that constitute the valuable asset of the debtor, not the real property itself.

COMPANION DECISIONS ON DISCLAIMERS AND GOOD FAITH

Laurentian University v. Sudbury University, 2021 ONSC 3392 & Laurentian University of Sudbury, 2021 ONSC 3272

Date of decisions: May 7, 2021

Laurentian University (Laurentian) obtained protection under the Companies' Creditors Arrangement Act (CCAA) in February 2021 before the Ontario Superior Court of Justice (ONSC). At the time of the CCAA filing, Laurentian operated within a structure whereby it had agreements with three universities: the University of Sudbury (USudbury), Thornloe University (Thornloe) and Huntington University (Huntington, collectively the Federated Universities). The Federated Universities agreed to suspend their degree-granting authority (other than Theology in the case of Thornloe and Huntington). Students enrolled in a program at Laurentian could take courses at any of the Federated Universities for credit at Laurentian. Funding from the provincial government was provided to the Federated Universities through Laurentian.

In April 2021, Laurentian sought to disclaim its agreements with the Federated Universities which resulted in lost tuition revenue to Laurentian for elective courses it could provide directly to its students. Huntington accepted its disclaimer; however, Thornloe and USudbury each filed motions opposing the disclaimers. Chief Justice Morawetz heard Thornloe's motion in English, while Justice Gilmore heard USudbury's in French. Both Chief Justice Morawetz and Justice Gilmore dismissed the respective...