Yukon Court Of Appeal Clarifies Environmental Security And Third-Party Property Rights In Receivership Proceedings

• Published date: 22 March 2021
• Subject Matter: Environment, Real Estate and Construction, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, Environmental Law, Landlord & Tenant - Leases
• Law Firm: Cassels
• Author: Mr Lance Williams, Monique Sassi and Forrest Finn

INTRODUCTION

On March 5, 2021, the Court of Appeal of Yukon (the YKCA) released its unanimous decision in Yukon (Government of) v Yukon Zinc Corporation (YZC).¹ The decision dispensed with four related appeals from orders of the Supreme Court of Yukon (the YKSC) released on May 26, 2020.

The YKCA proceeding clarified a number of important issues, including the nature of regulatory secured claims for unpaid environmental remediation, the extent to which regulatory 'super-priority' environmental claims attach to mineral interests, the ability of a receiver to use and obtain a priority charge over the assets of third-parties, and the ability of receivers to disclaim an agreement and unilaterally impose go-forward terms on a secured party.

While the YKCA expressed sympathy with the difficult position receivers often find themselves in when dealing with environmental remediation, it emphasized the importance of third-party rights and stated that a receivership 'is not a license to ignore rules, and insolvency professionals are bound by and must comply with valid provincial laws' during receivership.

BACKGROUND

In September of 2019, on application by the Government of Yukon, the YKSC appointed PricewaterhouseCoopers Inc. as receiver (the Receiver) of all assets and undertakings of YZC pursuant to the Bankruptcy and Insolvency Act² (the BIA) and the Yukon Judicature Act.³ A companion proposal proceeding under the BIA was unsuccessful and, accordingly, YZC was also bankrupt.

Prior to the receivership, YZC operated the Wolverine Mine in Yukon. Since 2014, YZC struggled financially due to, among other things, the high start-up costs associated with the mine and the global downturn in metals prices. YZC put the mine into care and maintenance in 2015 and completed a restructuring under the Companies' Creditors Arrangement Act.⁴ In 2017, the mine suffered a devasting flood. As a result, the Government of Yukon increased the reclamation security required under YZC's mining license from approximately $10 million to over $35 million. This increase was intended to address the increased environmental risks and the anticipated future costs of environmental remediation. YZC failed to post the increased remediation security.

Welichem Research General Partnership (Welichem), the senior secured creditor of YZC had advanced multiple loans to the company. These loans were secured against all of YZC's assets, including its mineral claims. YZC used a significant portion of the funds...